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





                      2015 TAX FILING SEASON AND
                   GENERAL OPERATIONS AT THE INTERNAL
                            REVENUE SERVICE

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 22, 2015

                               __________

                          SERIAL NO. 114-OS03

                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                     PAUL RYAN, Wisconsin, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan,
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
DEVIN NUNES, California              JIM MCDERMOTT, Washington
PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington        RICHARD E. NEAL, Massachusetts
CHARLES W. BOUSTANY, JR., Louisiana  XAVIER BECERRA, California
PETER J. ROSKAM, Illinois            LLOYD DOGGETT, Texas
TOM PRICE, Georgia                   MIKE THOMPSON, California
VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
LYNN JENKINS, Kansas                 RON KIND, Wisconsin
ERIK PAULSEN, Minnesota              BILL PASCRELL, JR., New Jersey
KENNY MARCHANT, Texas                JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee               DANNY DAVIS, Illinois
TOM REED, New York                   LINDA SANCHEZ, California
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri

                       Joyce Myer, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                  PETER J. ROSKAM, Illinois, Chairman

KENNY MARCHANT, Texas                JOHN LEWIS, Georgia,
MIKE KELLY, Pennsylvania             JOSEPH CROWLEY, New York
PAT MEEHAN, Pennsylvania             CHARLES B. RANGEL, New York
GEORGE HOLDING, North Carolina       LLOYD DOGGETT, Texas
JASON SMITH, Missouri
KRISTI NOEM, South Dakota
























                            C O N T E N T S

                               __________

                                                                   Page

Advisory of April 22, 2015 announcing the hearing................     2

                                WITNESS

The Honorable John Koskinen, Commissioner, Internal Revenue 
  Service........................................................     6

                       SUBMISSIONS FOR THE RECORD

Elizabeth Dreicer, CEO of Posiba, comments.......................   119
Foundation Center, comments......................................   121
Professional Managers Association, letter........................   125
 
                   2015 TAX FILING SEASON AND GENERAL
                       OPERATIONS AT THE INTERNAL
                            REVENUE SERVICE

                              ----------                              


                       WEDNESDAY, APRIL 22, 2015

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

    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 1100, Longworth House Office Building, the Honorable Peter 
Roskam [Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]
    
    
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    Chairman ROSKAM. The committee will come to order.
    Welcome to the updated Ways and Means hearing room, and I 
am told that this is the first committee activity here.
    So, Commissioner, you are here on a great day, and we very 
much appreciate you coming.
    What we will do today is we will go through two rounds of 
questions. As Members come in and so forth, they will have the 
opportunity to ask questions. We will move this as 
expeditiously as possible.
    This is the third hearing of the 114th Congress of the 
Oversight Subcommittee, and today we will review the 2015 tax 
return filing season and general operations at the Internal 
Revenue Service.
    Obviously, the American people have the right to expect 
excellence from their government, including the Internal 
Revenue Service. This is a standard that is familiar to 
ordinary Americans every day in their jobs and their family 
lives and it is a standard that is especially important in 
light of the tremendous power that they have delegated to their 
government to perform key functions and administer them fairly 
and effectively.
    Last week, the House of Representatives passed a Taxpayer 
Bill of Rights to make those rights of individuals the law when 
they deal with the IRS, and one of those rights is the right to 
quality service. And, unfortunately, many taxpayers didn't 
receive quality service this filing season, and many didn't 
receive any assistance at all. And today one of the things that 
we will discuss is why.
    For the filing season 2015, the IRS reported that only 54 
percent of taxpayers who called the agency were able to talk to 
a live assister. And, by April, the IRS estimated that the 
telephone level of service was less than 40 percent. Keep in 
mind, that the IRS' goal for customer service is 80 percent. 
Those who could get through at all had to wait an average of 34 
minutes, over 15 minutes longer than last year. The number of 
abandoned calls increased by 1.3 million. The IRS also reported 
that, as of April 8, the number of courtesy disconnects, which 
is a nice way of saying that the system automatically hangs up 
because the wait time would have been too long, it actually 
reached 5 million.
    The IRS has blamed the decline in customer service on 
budget cuts, and that is a premise that we are here to discuss. 
I think that is the focal point of our discussion today, and 
that is a premise that I personally challenge. I am of the view 
that it was the IRS who cut customer service, but we will have 
an opportunity to discuss that in further detail.
    The amount of money that Congress appropriated to the IRS 
for taxpayer assistance was the same as last year, but the 
service was decreased drastically. In fact, the Commissioner 
said the taxpayer assistance this year was abysmal.
    So what happened? The IRS made the decision to move money 
away from taxpayer assistance. The IRS has access to its user 
fee account, which includes fees collected for various IRS 
services. Last year, the IRS spent $183 million of its user fee 
or 44 percent of the total user fee account on taxpayer 
services, but that didn't happen this year.
    This year, the IRS only plans to spend $49 million in user 
fees on taxpayer service. That is $134 million less than last 
year. That is a 73-percent cut. So if the IRS had used that 
$134 million to answer calls for assistance, it could have 
helped 16 million people.
    At the same time the IRS was diverting user fees from 
taxpayer assistance, it also was failing to allocate the 
resources it already had available in a wise manner. For 2014, 
the IRS spent $60 million on performance bonuses for employees, 
and in recent years, bonuses have also been paid to more than a 
thousand IRS employees who are delinquent on their own taxes. 
Fiscal year 2014 bonus money could have been used to answer 7.2 
million additional taxpayer phone calls. The IRS also spent 
$23.5 million and over 491 hours on union time in 2014. That 
could have been used to answer nearly 2.5 million calls.
    The IRS recently hired an expensive law firm to conduct 
litigation activities with some lawyers on the account billing 
the U.S. Government at over $1,000 an hour. This makes no sense 
to me since taxpayer money already goes to pay the salaries of 
IRS and DOJ attorneys who would be able to perform these 
duties. The IRS gave the law firm a $2.1 million contract, and 
that money could have instead helped 252,000 people resolve 
their tax filing questions.
    The IRS has also complained specifically about the impact 
of budget cuts on its enforcement resources, characterizing 
them as a tax cut for tax cheaters. But the IRS could increase 
its enforcement budget by over $100 million every year through 
third-party debt collectors using the authority it has under 
current law, which is widely used in other aspects of the 
Federal Government.
    Sequestration has forced everyone to do more with less and 
make tough choices, but I am concerned that the IRS by its own 
admission is saying, Let's do less with less. And the IRS' 
choices--and I would argue that they are choices--on how to 
allocate resources have been deeply disappointing. They don't 
meet the reasonable expectations of the American people, and I 
am of the view that the IRS needs to do better.
    Finally, there is another issue that continues to be a 
matter of serious public concern and, that is, is the IRS 
auditing someone because they don't like someone? Through this 
committee's investigation of IRS targeting, we found that 
senior IRS employees defied internal safeguards to decide who 
should be audited. In part of this fact finding, I asked the 
IRS to tell us how many audits are started because someone 
inside or outside the IRS complains about a given taxpayer, and 
the answer was jarring. More than one of four audits are 
started on the basis of internal or external complaints, that 
is, on the basis of the IRS' own discretion.
    I think what we need to learn is whether there are any 
meaningful safeguards in place to prevent the IRS from auditing 
people or groups that it simply doesn't like or if taxpayers 
are simply at the mercy of the IRS under this tremendous amount 
of discretion. So the question that we need to explore and 
discuss today is, could Lois Lerner 2.0 happen? We need more 
than a simple assurance that just ``Lois doesn't work here 
anymore.''
    The American people deserve excellence from their 
government, and they have the fundamental right to always 
receive fair service at the IRS regardless of their personal 
political views.
    It is my hope that this hearing and, Commissioner, your 
presence today and willing to interact and engage with us will 
bring light and clarity to these issues as we both work to try 
and make the IRS the agency that it needs to be.
    With that, I am pleased to yield to my friend, the Ranking 
Member, for his opening statement.
    Mr. LEWIS. Good morning. Thank you, Mr. Chairman, for 
holding this important hearing today. It is good to be back in 
our room. Good to be at home again.
    Mr. Commissioner, thank you for being here today and 
congratulations to you and your staff on a successful filing 
season. Last week we passed seven bipartisan bills on the House 
floor, all focused on improving our IRS operation. Now is the 
time for Congress to ensure that the agency has the resources 
it needs to properly serve American taxpayers and, just like 
last week, I hope that it will be a bipartisan effort.
    Taxpayers are struggling, through no fault of their own. 
This committee and this Congress must do more to increase and 
expand taxpayer services. Unfortunately, during this filing 
season, taxpayers finally felt the pain of the Republican $1.2 
billion cut to the agency budget. The IRS budget is now less 
than it was 6 years ago.
    Taxpayer service this filing season was not good. It was 
terrible. This was not the fault of hard-working IRS employees. 
National Public Radio recently ran a story called ``IRS Budget 
Cuts Make for Nightmarish Filing Season.'' Taxpayers seeking 
assistance from the IRS waited in line for hours. One of 4 in 
10 taxpayers who called the agency were able to talk to a 
customer service representative.
    The NBC-WIA local television station in Atlanta reported 
that thousands of people waited for hours to get answers to 
their questions at the IRS Atlanta regional office. In Georgia, 
the National Treasury Employee Union said the wait time was the 
result of Federal budget cuts. The union said that Georgia had 
lost nearly 1,900 IRS employees since 2011. Sadly, taxpayers 
are facing this same challenge across the country.
    According to press reports in New York, one IRS office even 
ran out of paper to print extra tax form after taxpayers waited 
in long lines for hours. The union said that New York has lost 
nearly 1,200 IRS employees since 2011. This is not right, this 
is not fair, and this is not just.
    Taxpayers should not suffer to further the Republican 
agenda. The majority of the budget cuts are the result of the 
IRS investigation into the process of tax-exempt application. 
This investigation started nearly 2 years ago in May 2013. The 
agency has spent more than $20 million to produce more than 
1,300,000 pages of documents, including 78,000 emails from Ms. 
Lois Lerner. To this day, there has been--not been one shred of 
evidence produced to support the Republican claim that the 
processing or application was politically motivated and 
intended to target the President's political enemies.
    The inspector general even stated that no one outside of 
the agency was involved in setting the standard for processing 
tax-exempt applications. It is time to put political agendas 
aside and work together to provide this agency with the 
resources it needs to improve taxpayer service and collect 
revenue. I ask all of my colleagues on the other side to join 
us in this effort.
    Thank you, Mr. Chairman. And I yield back.
    Chairman ROSKAM. Thank you, Mr. Lewis.
    Commissioner Koskinen, welcome. You are recognized for 5 
minutes.
    And we have your written testimony for the record.
    Welcome.

    STATEMENT OF THE HONORABLE JOHN KOSKINEN, COMMISSIONER, 
           INTERNAL REVENUE SERVICE, WASHINGTON, D.C.

    Mr. KOSKINEN. Thank you, Mr. Chairman, Ranking Member 
Lewis, Members of the Subcommittee.
    I appreciate the opportunity to update you on the 2015 tax 
filing season. And, as the chairman noted, it is a pleasure to 
be here in your redesigned room after we had a hearing in the 
basement. So it is a nice atmosphere.
    In describing the filing season, as I said, it is the start 
of Dickens novel: It is the best of times; it is the worst of 
times.
    Let's begin with the best of times. I am pleased to report 
that the 2015 filing season has gone smoothly in terms of tax 
return processing and the operation of our IT systems. Thus 
far, the IRS has received more than 132 million individual tax 
returns on the way to an expected total of 150 million. We have 
issued more than 91 million refunds for more than $248 billion. 
To further illustrate how well things worked, our system 
accepted a record 5.2 million individual returns electronically 
on April 15, the final day of the filing season.
    At times that day, our systems were acknowledging receipts 
of electronically filed returns at a rate of more than 200 
returns per second. Return processing this filing season has 
gone even better than anticipated, given the challenges we 
faced beforehand.
    Along with our normal preparations, we also had to prepare 
for tax-related provisions under the Affordable Care Act as 
well as the Foreign Account Tax Compliance Act. There was also 
late extender legislation passed in December. Integrating all 
of these changes into our antiquated IT systems and still 
opening filing season on time on January 20 was a great 
accomplishment by our experienced and dedicated employees.
    Now a word about the worst of times. Return processing went 
smoothly if you were simply filling out your return without 
questions or a need to contact us. But for taxpayers who did 
need to contact us, it has been a very different and much less 
positive story as reflected in the chairman's opening comments. 
Customer service, both on the phone and in person, has been far 
worse than anyone would want. It is simply a matter of not 
having enough people to answer the phones and provide service 
at our walk-in sites as a result of cuts to our budget. We are 
dismayed by the reports of taxpayers who lined up outside our 
taxpayer assistance center hours before they opened in order to 
get service. Taxpayers who called us have had long wait times 
on the phones. On bad days, fewer than 40 percent of the calls 
were able to reach a live assister and that was often after a 
30-minute wait or longer. This has been frustrating, not just 
for taxpayers, but also for the IRS customer services 
representatives who want to have the resources to be able to 
provide much better customer service, the customer service that 
our employees feel taxpayers deserve.
    Another less visible area of concern for us in regard to 
customer service involves taxpayer correspondence. Our goal is 
to answer taxpayers within 45 days after we receive a letter. 
But this year we have been taking much longer to respond as a 
result of personnel shortages, and our correspondence inventory 
is growing because budget cuts forced us to shorten the period 
of employment for seasonal employees who help with these 
letters. It is now taking us an average of about 70 days to 
answer taxpayer correspondence, and that could reach 90 days by 
the end of the fiscal year. We estimate that the inventory of 
unanswered correspondence could grow almost 50 percent above 
our year-end goal of 1 million pieces of correspondence.
    In requesting adequate resources to allow us to improve 
taxpayer service, it is important to point out that our goal is 
not simply to obtain funding to go backwards in time and 
perform the way we used to. We intend to build toward a new 
approach that centers on improving online help to taxpayers who 
increasingly expect and desire that type of service. While 
taxpayers can now go online to get tax information from us and 
download IRS forms, they should have a more complete online 
filing experience.
    If we had sufficient funding, our goal would be for 
taxpayers to have a secure, online IRS account and use that as 
the basis for their interactions with us. Taxpayers would be 
able to fulfill their tax obligations virtually with little or 
no need to call, send us a letter, or visit an IRS office.
    Looking ahead to next year, we are concerned that the 2016 
filing season will be another challenging one. Complicating 
matters is the work ahead for us to continue implementing the 
tax-related provisions of the Affordable Care Act for the next 
filing season, along with the expanded requirements of the 
Foreign Account Tax Compliance Act. And we expect another round 
of tax extender legislation later in the year, which we hope 
will be passed well in advance of December.
    Another page here. Someplace.
    So it is possible that when I testify next year on the 2016 
filing season, the report on the return processing front may 
not be as good as it was this year. The employees of the IRS 
will continue to do everything they can to effectively and 
efficiently deliver next year's filing season, but we need 
help. We need the Congress to pass any tax legislation as early 
as possible this year and to provide the additional resources 
necessary as requested in our 2016 budget. With that help on 
both fronts, I am much more confident about the chances of 
delivering another smooth filing season for the Nation's 
taxpayers next year.
    This concludes my statement and I would be happy to takes 
your questions.
    Chairman ROSKAM. Thank you, Commissioner.
    Of the two things that you asked for help on, you will find 
no argument from any Member of this committee on passing 
extenders on a timely basis. We wholeheartedly agree with you 
that that is something procedurally that the Congress can 
greatly improve on.
    The appropriations question is one where I think one of the 
themes that you will hear from the majority side today is that 
we think that there are areas that the IRS can go to in the 
current operation with the authority that you have now that can 
improve that customer service number. So, as a prelude to that, 
I think that that will probably be a part of the focus of our 
discussion today. And, with that, I would like to recognize Mr. 
Marchant.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    Commissioner, good to see you. This year, the IRS has had 
to make some choices and has had to cut taxpayer services. Is 
that agreed?
    Mr. KOSKINEN. We had to make choices across the board. We 
have cut enforcement services. We have cut taxpayer services. 
And we have cut support for information technology. We have 
tried to balance that across all three areas, which are the 
discretionaries we have. We have no choice about implementing 
statutory mandates. We have no choice about trying to make sure 
the filing season runs smoothly. So the only areas where we 
have discretion are in those three areas. And over 70 percent 
of our budget is personnel. So when we are cut, as we were last 
year by $350 million, we have no choice but to cut personnel, 
and we try to do that in a balanced way.
    Mr. MARCHANT. So do you make across-the-board cuts or are 
your cuts made selectively based on----
    Mr. KOSKINEN. We sat down with all the senior executives 
and looked for areas where we could find efficiencies. We are 
saving over $200 million a year over time in the efficiencies 
we have already found. I take the chairman's point, we need to 
be as efficient as we can. We need to be careful and careful 
stewards of the money the taxpayers give us to spend. So I 
think it is always fair comment for us to work with GAO, the 
IG, with the oversight committees to say, Where can we be more 
efficient?
    But when we made the cuts, we did not make them across the 
board, expect for the fact we had no choice but to say we would 
not replace anyone departed, that, in other words, we would 
have no hiring when people left. We have 1,000 people right now 
requesting to retire. We won't replace those people. So part of 
our attrition is by wherever people are going to retire 
because, again, we have to cut personnel.
    Mr. MARCHANT. So if you have a retiree that retires in a 
part of the service that has nothing to do with customer 
service, do you retain that position in that department and not 
fill it there, or do you shift resources over to the service 
department?
    Mr. KOSKINEN. Because of the constraints, as people are 
leaving, we aren't replacing them anywhere except for 
emergencies. In other words, if we lose someone in IT who is 
cybersecurity, we will replace them. There is an application 
process. Anybody across the board, if they want to replace a 
position, they have to let us know.
    The biggest area where we have discretion is that, during 
filing season, we hire up to 10,000 seasonal employees, and we 
usually hire them for 4 to 8 or 12 months. This year, because 
of the constraints on the budget, we hired those people but, in 
fact, had to cut back the length of time they were available to 
provide service. So, again, our constraints are over 70 percent 
of our budget is personnel. So when we take a significant hit, 
it is going to show up with fewer people someplace, and we have 
tried again to analyze where those cuts are going. But, again, 
as a general matter this year because we didn't get the budget 
cuts until December, our position has been wherever people 
left, we didn't replace them.
    Mr. MARCHANT. So when our taxpayer advocate in her 2014 
report basically says that she does not believe that you are 
spending your money in a smart way, you would disagree with 
that?
    Mr. KOSKINEN. I would disagree. I work very closely with 
the taxpayer advocate. Every year, we sit down with her and 
look at her recommendations and figure out where we can make 
improvements.
    I have told her last year and this year, ``Give me all your 
recommendations that don't cost money because we don't have any 
money.'' And we have actually adopted those. The Taxpayer Bill 
of Rights was one that we worked on jointly.
    I do think that we disagree. Her view, for instance, is 
that last year we quit preparing tax returns for people in our 
taxpayer assistance centers, and she objected to that and said 
that was an important service. It is an important service. We 
are only preparing 68,000. We shifted those to our 12,000 VITA 
sites which this year prepared 3.4 million returns for 
taxpayers.
    Mr. MARCHANT. She is an advocate for additional funding.
    Mr. KOSKINEN. She is an advocate for funding. I----
    Mr. MARCHANT. But she says that the IRS does not have a 
clear rationale for how it allocates its budget, and I think 
what I read into that is that, while she is in favor of giving 
additional funds, she is not yet convinced that, when those 
funds are given, that they are applied properly and they are 
applied in the right place because----
    Mr. KOSKINEN. Right.
    Mr. MARCHANT [continuing]. She doesn't think you have a 
clearcut vision for that.
    Mr. KOSKINEN. Since she made those comments, we have 
demonstrated to her and showed her the information of where we 
do customer service surveys, where we analyze the flow of work, 
where we make decisions as to where, if we are going to lower 
service in an enforcement center or lower service in a walk-in 
center, we actually analyze that. But it is an important point 
that we need to be analyzing effectively and efficiently where 
we are going.
    GAO has raised the same issue, and we agree that, wherever 
we can, we need to be as efficient as we can. But overall GAO, 
the inspector general, the taxpayer advocate and the oversight 
board have all, independently of the IRS, said we are 
substantially underfunded. No matter how efficient we get, 
there are not enough resources to provide the service, the 
enforcement, and the information technology services that are 
necessary.
    Chairman ROSKAM. Mr. Lewis is recognized.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Thank you, Mr. Commissioner, for being here today. I 
understand that the IRS budget today is less than it was in 
2009. Could you tell Members of the Committee how the budget 
cuts have impacted the agency's ability to deliver service to 
their taxpayers?
    Mr. KOSKINEN. Right. If you look at it from the budget, 
from 2010 on when the cuts started, our budget is down a 
billion two hundred thousand, which means we are down 13,000 
employees. We will lose another 3,000 this year, of which 1,800 
will be on the enforcement side. So we will be down 17,000 
employees as a result of that $1.2 billion cut, and it is at a 
time when we have had additional responsibilities given to us. 
The Affordable Care Act responsibilities are a statutory 
mandate. The Foreign Account Tax Compliance Act is a statutory 
mandate. Any tax law changes are mandates that we are obligated 
to fulfill where we can. We have 7 million more taxpayers than 
we had 5 years ago. So, again, I would stress we take very 
seriously the obligation to be efficient with our funding, to 
spend the money wisely, but when you cut $1.2 billion out of 
the system, when you take 17,000 employees out of it, you are 
not going to do anything as well as you used to do it.
    Mr. LEWIS. You heard me state in my open statement that, in 
the regional office in Atlanta, according to local news report, 
there was an unbelievable amount of wait time. Do you agree 
with what the union said this is due to a lack of resources?
    Mr. KOSKINEN. Yes, it is basically--we have 3,000 fewer 
people answering the phones this year, and we have 3,000 fewer 
people not because we think that is a good idea. It is 3,000 
fewer because we can't afford to have any more.
    And, clearly, if you talk to our employees, as I said, the 
people who care most about this are the people in our taxpayer 
service centers who derive great satisfaction by being able to 
help taxpayers, give them answers to their questions. As I have 
traveled around the country, I have met with over 13,000 IRS 
employees, and one of the common themes of those dealing with 
taxpayers is they simply don't have enough people to provide 
the resources and the service that our employees think 
taxpayers deserve.
    Mr. LEWIS. It is not just a problem in places like Atlanta 
or New York or other places.
    Mr. KOSKINEN. It is a problem across the country. We 
actually had a list that actually was put out about where the 
cuts have come across the United States. We have over 500 
offices across the United States. There is not--there are not 
enough people anywhere in the IRS. There are not enough people 
in appeals, in counsel. There are not enough people in taxpayer 
service. There are clearly not enough people in enforcement. We 
don't have enough people in IT. There have been--as a result, 
when you take 17,000 people out of the system, you are going to 
take them out across the board.
    Mr. LEWIS. Well, you would come before, not necessarily 
before us, but before another committee and be requesting more 
resources to make up anything----
    Mr. KOSKINEN. Yes.
    Mr. LEWIS [continuing]. That you can describe as making up, 
fixing up, repairing?
    Mr. KOSKINEN. Yes. And, again, what I have tried to get 
people to understand is, if we got more resources, it is not to 
go back in time to the way we always did the business, not to 
hire 13,000 people and put them all on the phones. One of our 
goals is to move more people onto the Web, onto digital 
services they expect. This year over 200 million hits were made 
on ``where is my refund'' app. We have provided almost 20 
million copies of prior tax returns. In the old days, those 
were all calls that came to our call centers. Moving those onto 
the Web has helped us significantly provide better taxpayer 
service. We need to do more of that.
    So I want people comfortable that we are not saying just 
give us the money, and we will go back to business as usual. 
Our goal is to provide better service, but a big part of that 
service improvement will be if we can spend the money in 
information technology to continue to expand our services 
online so that more taxpayers can get efficient answers quickly 
online.
    Also, I would note, it costs us 22 cents to answer your 
inquiry online. It costs us $43 to answer your inquiry on the 
phone. It costs us $55 to have you come to visit our taxpayer 
assistance center. So, clearly, for efficiency and to save 
funding, we need to actually build our capacity for taxpayer 
service online and that is what taxpayers most of them expect. 
We always have to deal with taxpayers who don't have access to 
online services, and we need to have a phone service for people 
who need to get through. But a lot of people calling could get 
the information off our Web site if it was more efficient.
    Mr. LEWIS. Thank you very much, Mr. Commissioner.
    Thank you, Mr. Chairman. I yield back.
    Chairman ROSKAM. Mr. Kelly.
    Mr. KELLY. Thank you, Mr. Chairman. Thanks for having the 
hearing.
    Mr. Commissioner, good to see you.
    I know you have a reputation as a turnaround guy and being 
able to take things that aren't going so well and make them 
better. But I have also always believed that the speed of the 
chief is the speed of the crew. So I think sometimes just in 
messaging, we can polarize situations, and I just want to 
really be clear about this. This is not Congress versus the IRS 
or the IRS versus the people. This is about the two of us 
working together to get better results for taxpayers.
    I know in my own business, and whenever we started to lose, 
we lost 40 percent of our business. So what we had to do was 
come together as an organization and ask, how are we going to 
do more with less? What are we going to do to meet the 
challenge of a market that shrank rather quickly and how do we 
get there and still keep the doors open? The reason I ask that 
is because you put a communication out to the agency, and it 
says you told all the IRS employees that this year you were 
going to have to do less with less. I don't think that if you 
were in the private sector, you would ever go before a company 
that was in bad shape or failing and say, ``Hey, here is the 
problem. Things are looking pretty bad for us. We don't have 
quite the resources that we would had liked to have, not that 
we need to have, but that we would had liked to have, and so 
what we are going to do is we are going to do less with less.''
    And my big question is, why would we cut customer service 
and redeploy those dollars elsewhere? You are the head of the 
agency. What was it in your game plan, what was it your 
thinking that said, ``You know what, I think what we will do is 
cut customer service and that way we will have a better 
relationship with the taxpaying public if we make them wait 
longer on the phone, if we make them wait longer for mail, if 
we can close down different offices and not be able to do the 
advocacy that we like to do. I think that is really going to 
help our position''? I really do question that.
    What were you thinking about when you sent out that memo 
and what were you driving to get to? You can't run around town 
telling everybody that you are out of money and that is the 
reason you can't do your job and saying it is those doggone 
people up in Congress, if they would just give us more money, 
we would do a better job. We have been telling the American 
taxpayers for a long time; if you just give us more money, we 
could do a better job as a government. So, I mean, seriously, 
when you had that meeting, and you put out that directive, what 
was it that you were trying to achieve? Was it better morale?
    Mr. KOSKINEN. I will tell you what I am trying to achieve. 
First of all, we value customer service. But when you cut the 
budget $1.2 billion----
    Mr. KELLY. No, no, no.
    Mr. KOSKINEN [continuing]. And we lose 17,000 people, we 
don't have enough people anyway. So we have cut enforcement. In 
other words, we don't have a situation where we will just do 
one thing or another. The discretionary areas we have is we 
have to enforce the Tax Code; we have to provide taxpayer 
service; and we have to protect taxpayer data and run an 
antiquated IT system we are trying to upgrade. So if we put 
more money into customer service, it comes--and more people, it 
comes from somewhere.
    Even less enforcement. We have 5,000 fewer revenue agents, 
revenue officers, and criminal investigators. Does it come from 
IT? Everyone, including us, are concerned about cybersecurity. 
We are concerned about refund theft and identity theft and 
refund fraud. Are we supposed to spend even less money on that? 
We are spending less money on all of those areas, not because 
we think that is a good strategy, but that is the only choice 
we have.
    Now, you are right.
    Mr. KELLY. Yeah.
    Mr. KOSKINEN. What does it mean when I say we are going to 
do less with less? It means that over 5 years of budget cuts--
and I am hoping that we don't have this same dialogue about 
2016--the mantra from the funders has been, ``You should be 
able to do more with less.'' And we have done more with less. 
We are dealing with 7 million more taxpayers than we used to. 
We are implementing the statutory mandates you have passed. But 
there is a point for morale, when employees sitting there doing 
enforcement cases are answering the phone and the person next 
to them leaves and they know they are not going to be replaced. 
At some point, the employees have to know we don't expect----
    Mr. KELLY. And I understand that.
    Mr. KOSKINEN [continuing]. We don't expect you--can I just 
finish?
    Mr. KELLY. But, you know, there is very little time.
    Mr. KOSKINEN. We don't--okay. But we don't expect you to do 
more work than you are already doing----
    Mr. KELLY. Excuse me.
    Mr. KOSKINEN [continuing]. Since you are already 
overworked.
    Mr. KELLY. Excuse me. You can't do that, though, as the 
head of the agency, if it is about improving morale, you can't 
tell people how bad it is and how much worse it is going to get 
and expect better results. And what I have seen happen is the 
divisiveness that has now taken place because when you to the 
IRS agents, they feel that they are under the gun because 
Congress is out to get them. When you go home and talk to the 
American taxpayers, they feel that both the IRS and the 
government is out to get them. And then we come out with a 
thing that says we are going to do less with less, and we are 
going to have less customer service. That just doesn't make 
sense in the real world.
    Maybe it makes sense here and being on the talk circuit and 
talking to people about how it is to work with less. I would 
just suggest to you that there is hardly a person in America 
today that isn't doing more with less, that hasn't tightened 
their belt and learned how to work with less.
    Now, the technology end of it has been a huge help for us, 
but also a 78,000-page code is probably the biggest problem you 
have. And the reason you have to have customer service is there 
are very few people out there--taxpayers--who are saying, ``You 
know what, I think I can do this myself; it is so easy.'' That 
is why they go to all these different people, and that is why 
they go to the IRS and, please, help me get through this very 
difficult web of Tax Code that I have to understand because the 
one thing I don't want to be is on the bad side of the IRS.
    But my point to you--and I would just suggest this because 
you have done this in your private life. You cannot go to the 
troops and tell the troops that things have never been darker, 
days have never been longer, winters have never been colder, 
but you know what, we have a solution to that, we will just do 
less with less. I think that is a disservice. I also think that 
it is further divisiveness, and it adds to the lack of 
confidence and the faith that the American people have in our 
ability to work together because it is not working with each 
side of the aisle. It is working with all the agencies that 
provide service.
    So I just ask you, I would encourage you to be, a little 
more upbeat, it is spring! Let's talk about the good side of 
it, let's talk about where technology has taken us and how much 
easier it has been. Let's make sure that we are concentrating 
on customer service.
    Thank you.
    Chairman ROSKAM. Time has expired.
    [The prepared statement of Mr. Koskinen follows:]
    
    
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    Chairman ROSKAM. I sense you will be able to respond and 
weave your response in, maybe even based on an inquiry from Mr. 
Rangel, who is now recognized.
    Mr. RANGEL. Well, I want to thank you for calling this 
hearing, but you don't expect me to respond to my dear friend, 
Mr. Kelly.
    Chairman ROSKAM. No. I would suggest you keep your head 
down and avoid eye contact when it comes to Mr. Kelly. So--but 
you can do whatever you want.
    Mr. RANGEL. No.
    Chairman ROSKAM. But you got good counsel from me.
    Mr. RANGEL. Let me make it abundantly clear, I always learn 
from Congressman Kelly on the floor as well as here. And it 
makes it easy for me to go back home and tell the wealthy 
people that they could do more with less and that I will have 
to tell this to my teachers and the sick people who are on 
health care that the American dream, as he says as a 
businessman, is to do more and to get less benefits from it.
    I don't understand all of this, but clearly, it seems as 
though--I don't know why anybody would want to be the tax 
collector for our country or a county or anything. Obviously, 
there is something in the commissioner's background that causes 
him to want to be beaten up like this, but someone has to do 
it.
    Let me ask you this: When you find a way for government 
employers, employees to do more work with less resources, check 
with me, we are going to write a book and we are going to 
reduce the deficit and everything is going to be well. It just 
seems to me, with the pain and anguish that my taxpayers 
suffered in this last election standing out in the rain, 
standing out there for hours trying to get just a little help 
so they could pay their taxes, that how in the heck your 
employees can do more with less when they don't even have paper 
to give them assistance, they all don't have computers, they 
all can't go online--and I tell you what can happen. If you 
don't have enough money to enforce the audits and the laws, as 
in some countries, people are going to say ``to hell with the 
laws,'' that the big shots aren't paying taxes anyway. And if 
you are going to give people a hard time that are trying to pay 
their taxes, this so-called voluntary system is not going to 
work.
    Now, there is some talk out there that the more money we 
invest in your system and your program, that you can tell us 
that we can get a better return on that investment. If that is 
true, would you share with this committee the accuracy and what 
is that--what do you base that on?
    Mr. KOSKINEN. Yes. No one has disputed that we are the only 
major government agency, if you give us money, we give you more 
money back. So, particularly on the enforcement side, when we 
have 5,000 fewer revenue agents and officers and criminal 
investigators, that cut costs the government billions of 
dollars. Our estimate is that the government is now losing $7 
billion to $8 billion a year as a result of the decline in our 
enforcement efforts and our enforcement agencies.
    So our estimate for the budget cut in December was that the 
cut of $350 million cost the government over $2 billion. So if 
you are interested in deficit reduction, cutting the IRS budget 
is not the way to go. Cutting the IRS budget increases the 
deficit.
    I would go to--Mr. Kelly, I agree we continue to need to 
work together. Actually, the Congressman and I have had a 
number of good conversations back and forth because we both 
share a business background, as he notes.
    My point has been--and with the employees is after 5 years 
of every year the budget is being cut and the Congress saying 
``you can do more with less''--and we have an obligation to do 
as much as we can and more with less whenever we can--after you 
get $1.2 billion in cuts and you lose 13,000 people, for 
employee morale, it is important for the employees to 
understand that we do not, at least those of us running the 
place, expect that we are just going to pick up for those 
13,000 people and everybody else will pitch in and will do that 
work.
    Part of the concern for employees is, do we understand what 
the implications are when there simply are 3,000 fewer people 
answering the phones, 5,000 fewer people enforcing the code? Do 
we expect the remaining employees to pick up for the 5,000 
revenue agents? My position to them is, at some point, the 
answer is no. At some point, we have to recognize the 
responsibility and the accountability for continued cuts in the 
agency.
    We need to be efficient. We need to take everybody's ideas 
for where we could save money, and we will continue to do that. 
We saved $200 million a year already. Wherever anybody has got 
a good idea, I am in favor of it. We are not defensive about 
that. We will work on it.
    But at some point--and this discussion is a continuation of 
5 years of these discussions. At some point, when you continue 
to cut the budget of the organization and continue to give it 
more responsibilities, you have to acknowledge and recognize 
the impact of that is going to be a decline in service, a 
decline in enforcement, and greater risk in the IT area for 
cybersecurity and refund fraud and identity theft.
    Chairman ROSKAM. Mr. Meehan.
    Mr. MEEHAN. Thank you, Mr. Chairman.
    Mr. KOSKINEN. I was going to say I think we need better 
microphones.
    Mr. MEEHAN. It is on. Thank you, Mr. Koskinen, for being 
here once again. And I appreciate your testimony and the 
challenge that you face leading the administration that you do. 
Tough task.
    But let me ask a question: If you want us to plus up your 
budget, where would you find the money? What should we be 
cutting in government?
    Mr. KOSKINEN. There has been a proposal--and it is done in 
the past--called the program integrity cap, where the budget 
over time and people have recognizes, if you give us more 
money, particularly for enforcement, it is not a charge against 
anybody else. It increases the revenues of the government.
    This year, there is a request that if you gave us $600 
million for enforcement, over time, the government--over the 10 
years everybody measures----
    Mr. MEEHAN. So it has got to be----
    Mr. KOSKINEN [continuing]. The government would get $40 
billion more.
    Mr. MEEHAN. That wasn't my question. I know where you said 
we can plus up, and I appreciate that. We are looking at that. 
As a former prosecutor, I appreciate that.
    But I am asking you, where would you like us to cut?
    Mr. KOSKINEN. Budgets are an interesting discussion. Last 
year, the only major agency cut was the IRS, so nobody else 
took any significant cut. The IRS--going to Congressman Kelly's 
point about whether this is a battle or not, the IRS was 
singled out and the appropriators went out of their way to talk 
about how pleased they were to be able to continue to cut the 
IRS budget.
    So, I guess, what I am saying is we have been double 
sequestered. We didn't go back to the presequester level the 
way everybody else did. Nobody else took the cut we did last 
year. So we are already two sequesters ahead of everybody else. 
If we had just been treated the same as everybody else, we 
would be in a much better shape. We would have $900 million 
more, and we would not be having this discussion. So I guess my 
point of where I would cut is basically I would restore the IRS 
to parity with everybody else, and then we would be in 
reasonably good shape.
    Mr. MEEHAN. Let me ask about technology and where we are 
working with that. I see that more than--about 60 percent of 
the returns come in from paid returners using the resources of 
others who presumably are experts in this.
    Mr. KOSKINEN. Right.
    Mr. MEEHAN. So we are really dealing with about 40 percent, 
then, are coming in in some capacity in which somebody hasn't 
assisted. Doesn't that cut down on some of the demands and 
needs of the institution?
    Mr. KOSKINEN. Yes. In fact, the fact that we get this year 
over 85 percent of people filing electronically makes us much 
more efficient.
    Mr. MEEHAN. So we are seeing huge new opportunities in 
efficiency created by IT and other kinds of things----
    Mr. KOSKINEN. Yes.
    Mr. MEEHAN [continuing]. Which, by its very nature, means 
it should reduce, as long as personnel are appropriately 
directed, it should reduce some of the demands on personnel, 
should it not?
    Mr. KOSKINEN. Exactly. If we were taking paper returns--in 
the old days, we at one point had 130,000 employees, so we are 
already 43,000 employees lower than where we were in the old 
days. That is an efficiency that has been built into the IT, 
and I agree with you.
    One of my proposals--the reason I said is we are not 
talking about going backwards. We are talking, just as you say, 
if we had the funding to make greater investments in IT, we 
would be more efficient. If those people, the 200 million hits 
on ``Where's My Refund'' or the 20 million people who got 
copies of their transcripts had to deal with us personally, you 
know, we would be out of business.
    Mr. MEEHAN. Well, let me ask a question about that, the 
funding on IT. Because once you make an investment in IT, it 
should be something that pays for itself moving forward 
consistently. Correct? I mean, it is sort of a one-time 
investment in an upgrade that should then pay off dividends 
down the road?
    Mr. KOSKINEN. Exactly.
    Mr. MEEHAN. Well, let me ask a question, because I am 
looking at this. This is from 2009. I am just looking at 
business system modernization, $230 million invested in 2009. 
2010, $264 million more invested in business system 
modernization. 2011, $263 million more invested in 
modernization. 2012, $330 million more invested in 
modernization. 2013, $313 million more invested in 
modernization. It is a lot of money invested, and each time, we 
are modernizing. And part of your testimony was an antiquated 
system. I don't get it. Why are we investing, then, 5 years of 
increases in modernization and you are sitting here today 
telling me that we are dealing with antiquated systems that 
don't work?
    Mr. KOSKINEN. We are. We have retired as a result of 
expenditures 365 old applications. We still run 580 we need to 
retire. We have made significant progress. Five years ago, 
there was no way we could have a ``Where is My Refund'' app. 
There was no way you could do an online installment agreement.
    In fact, 5 years ago, we had trouble dealing with online 
filings. Five years ago, we couldn't deal with identity theft 
the way we do now. We have put significant amount of that money 
into it.
    We file a quarterly report. It is up on a government Web 
site, detailing exactly where the funding is going, what the 
projects are, what the results are, what the improvements are 
that we have made. GAO and any number of people overlook it. We 
have made great progress compared to 20 years ago where we 
really struggled.
    But you are exactly right. The more we could put into 
information technology, the better off we will be. My position, 
as I say, isn't we need to go back to having 100,000 employees. 
My position is what we need to do is, in the interim, make sure 
we provide taxpayers the services we can and enforce the code, 
but we need to keep doing exactly what you are pointing to: 
business system modernization. And it can't be just abstract.
    We are preparing a white paper for the Congress that shows 
the building blocks going forward of how we get rid of the 
remaining antiquated systems; 50 of them are still out there 
that we were running 60 years ago. We need to get rid of those, 
but you can't do it for free. You have to actually continue to 
make that investment.
    And we are willing and it is appropriate for us to be held 
accountable on your question: What are you getting for the 
money you spend? I think that is an important question. As I 
say, every quarter, we provide a thick report to the Congress 
and GAO saying, ``Here is what you have gotten for this 
expenditure.''
    I want to make it even more user-friendly. I want you to be 
able to understand what the application is online that you got 
for the money, the ability for taxpayers to have their own 
account online. We should be able to demonstrate to you how 
much does it cost, and we should be held accountable when we 
get there.
    And if--you are right, if we can get there, we could 
probably run the place with even fewer employees, but we can't 
do it now.
    Chairman ROSKAM. Mr. Crowley.
    Mr. CROWLEY. Thank you, Mr. Chairman--Chairman Roskam and 
Ranking Member Lewis, for holding this hearing today on the IRS 
and its operations.
    I welcome you, Commissioner, as well. Good to see you 
again.
    Mr. KOSKINEN. Thank you.
    Mr. CROWLEY. I think it is important to make sure our 
Federal agencies are operating in a way that helps our 
constituents. Just remember, all of our efforts here are to 
help our constituents. But I worry there are some who don't 
share the same productive goal.
    At some point, the IRS just became the preferred scapegoat 
of all problems in our country. Let's be clear, the job of the 
IRS is to collect taxes and audit those suspected of not paying 
their legal obligation. That is the job, that is the role of 
the IRS.
    Our constituents may not like interacting with them, and I 
understand that. But we all will, at some point in our lives, 
interact in one way or another with the IRS whether we like it 
or not. Yes, we have seen some actions by the IRS over the past 
decade that could have best be described as incompetent, but 
let's not lose sight of the fact that the IRS does have a job 
to do. And I feel better about the steps that you have taken, 
Commissioner, to address these problems. I feel better--I don't 
feel good yet, but I feel better knowing you are at the helm, 
known as a workhorse and without political blinders, and I 
appreciate that.
    So, while virtually every Republican in Congress has all--
they have all promised at one time or another to eliminate the 
IRS--we have heard it from just about every Member of the 
Republican side of the aisle that--once elected, they have all 
backed down from that pledge.
    Honestly, does anyone think if a Republican wins the White 
House in 2016 and they keep control of the Congress that the 
Republicans will rewrite the Tax Code and actually eliminate 
the IRS? We all know the answer is no. That is because 
governing is always harder than grandstanding.
    We have seen this with the health care law as well. While 
my colleagues on the other side of the aisle have voted to 
repeal the health care law dozens of times, a law that has 
expanded insurance coverage to over 16 million Americans and 
ended the ability of insurers to deny coverage to people with 
preexisting conditions like asthma, not once have ever provided 
any type of replacement in lieu of the ACA. The only thing they 
have ever offered is a plan to replace the traditional Medicare 
system used by millions of seniors with one based on vouchers 
and tax credits, forcing seniors to shop for health insurance 
in the private market. They must have forgotten that the reason 
Medicare was created in the first place was to ensure that 
seniors had access to affordable health care instead of having 
to fend for themselves in the unpredictable private markets.
    But, time and again, we see more focus on sound bites than 
substance. So, while it is easy to bash the IRS, shouldn't we 
be here trying to help our constituents, who we all acknowledge 
will interact with the IRS at some point? That means providing 
the agency the resources it needs to function and function 
effectively but with tight congressional oversight.
    Starving the agency of funds may feel good, but it doesn't 
actually do any good for our constituents. Unless you have 
plans to fundamentally revamp the tax system in the U.S. and 
eliminate the IRS, which to date no one here has suggested any 
serious legislative proposal, then we need to figure out how to 
address the current issues at the IRS. So let's put aside the 
huffing and puffing.
    Let's recognize that press releases and shouts don't ease 
the burden of our seniors looking for tax help on the phone. 
They don't help our small-business people trying to figure out 
how to meet their tax obligations. And, yes, they don't make it 
easier for the local nonprofit groups in each of our districts 
to navigate the system and serve our local communities.
    Let's figure out a way to help the IRS do the job we tasked 
them to do in a way that is the least onerous for our 
constituents with sufficient oversight to help protect all of 
our constituency. Sure, that isn't as easy as a press release, 
but, again, governing is harder than grandstanding.
    And, with that, Mr. Chairman, Mr. Commissioner, thank you 
for your service, not to the IRS but to the American people. 
Thank you.
    Chairman ROSKAM. Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman.
    Just as a brief followup to Mr. Meehan's line of 
questioning, as he was rattling off the numbers of how much is 
being spent to modernize the information technology of the IRS, 
I am sure we got up over a billion dollars. And considering 
some of the great information technology companies of the world 
started in a garage, I can only imagine what they could have 
accomplished if they had a million dollars of venture capital 
to innovate with and come up with solutions.
    But at any rate, I appreciate your time, Commissioner. And 
I appreciate your comments in your opening remark where you 
say, you know, you are about being as efficient as one can and 
being good stewards of the taxpayers' money. Those are good 
mottos for anyone in government to live by.
    So, of course, it concerns me that IRS employees spend 
hundreds of thousands of hours conducting union-related 
activity on official time. In fact, in 2014, IRS employees 
engaged in almost 500,000 hours of union activity on the 
taxpayers' dime. Just so we are clear, none of those hours, 
those 500,000 hours, would have been used to serve taxpayers. 
Correct?
    Mr. KOSKINEN. They are representing employees, and to the 
extent we have an effective workforce, it helps taxpayers, but 
it is not a direct taxpayer service, you are right.
    Mr. HOLDING. And none of those hours would have been used 
to catch tax cheats or fraudsters, would they?
    Mr. KOSKINEN. No. Again, to the extent it makes the 
workforce more efficient, it helps. But it is not a direct 
enforcement activity or a direct taxpayer service activity.
    Mr. HOLDING. So you think 500,000 hours of union activity 
on official time is an efficient use of time and represents 
good stewardship of taxpayers' funds?
    Mr. KOSKINEN. I do. Congress years ago passed a statute 
that Federal employees have a right to a union. Congress passed 
another statute saying that the employees of the union 
representatives have a right to work with the employees on 
official time. Our latest contract with the union has got a 
joint commitment to control that. It is already down by over 
100,000 hours. The union has agreed we are going to try to work 
with virtual meetings so they don't travel so that we can 
control that as much as we can. But it ultimately is an 
important part of the workplace for employees to feel, if they 
have a problem and they don't feel comfortable raising it 
directly, they have a place they can go to raise concerns 
either about their personal situation or about situations in 
the organization.
    So I think we are efficiently doing what, again, is 
authorized. We don't have control over whether that time is 
spent or not as a concept, that Congress has approved that. 
What we do have control over is to work with the union to try 
to make it as efficient as possible.
    Mr. HOLDING. Let's get a little bit more specific about 
that. As you note, the time spent has been reduced, and the 
time is actually not dictated by statute. It is dictated by the 
contract that you negotiate with the union. And there is some 
time that union members will use that is dictated. If you are 
engaged in collective bargaining, you have to give them 
official time to do that.
    But, outside of that, you control that with the contract 
that you have with the union. And it is my understanding that 
you are negotiating a new contract now with your unions. You 
are currently operating over a contract that expired in 2012.
    And so during this negotiation with your unions--I mean, 
the whole theme of this hearing is how you can do more with 
less. So, considering that it is 500,000 hours of official time 
used in the past year, what are you doing to negotiate with the 
unions to reduce that amount of time and get it down to the 
bare minimum of what is required under the statute rather 
than----
    Mr. KOSKINEN. That is a good point.
    Mr. HOLDING [continuing]. Hundreds of thousands of hours.
    Mr. KOSKINEN. As noted, it has come down. We have worked 
with the union. It has come down significantly over the last 5 
years. In the contract, which goes into effect in the fall, 
there has been an agreement to reduce it again by a defined 
amount and a relatively modest amount, but there is a broader 
agreement with the union that----
    Mr. HOLDING. Well, considering the times that we are in 
and, you know, as you have noted, you know, the declining 
budget of the IRS, perhaps it is time to take more aggressive 
measures to reduce the allowable time under the union contracts 
that they can use the taxpayers' dime to conduct union 
activity. The time is worth $20 million, and that could have 
theoretically been used to answer 2 million calls.
    These are difficult times that we live in. Doing more with 
less is the mantra, not less with less.
    Mr. Chairman, I yield back.
    Mr. KOSKINEN. Perhaps we ought to have the mantra being 
doing as much as you can with less, whether it is more with 
less or less and less. As much as you can with less is what we 
probably ought to be focusing on.
    Chairman ROSKAM. Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman.
    Mr. Chairman, this article on IRS return fraud called 
``Fraudulent Filing of Tax Returns Hits High Locally'' ran this 
last Sunday in a local paper in my district. It highlights the 
problems faced by folks who have had their personal info stolen 
and used for fraudulent returns, which is higher than ever in 
our region. I just wanted to bring this to the committee's 
attention and enter it into the record.
    Chairman ROSKAM. Without objection.
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    Mr. SMITH. Thank you.
    Commissioner, you have said the IRS has to do less with 
less. Could the IRS do more if it had an extra 100 million this 
year?
    Mr. KOSKINEN. If we had an extra 100 million, we would do 
more. We would be efficient with it, and we would do more.
    Mr. SMITH. I would think so. Well, it seems like the IRS 
hasn't really been digging through the couch cushions, in my 
opinion, to find extra funds. I know where you can get that 
kind of funding--that kind of money, in fact. Did you know that 
Congress has given the IRS authority to use third-party debt 
collectors to collect unpaid taxes?
    Mr. KOSKINEN. Well, they haven't given us--that issue was 
raised and was not provided last year. But we have tried that 
twice, and it turned out we didn't make any money at it.
    And the GAO reviewed that. We sent a detailed report to the 
Senate when they were considering it last year. It turns out, 
by the time you get done--recognizing private debt collectors 
cannot lien or levy so all they can do is call people to try to 
get them to pay, we have to develop a system to monitor them to 
make sure they are not abusing taxpayers because we are 
responsible for that.
    In the 1990s and 10 years ago when that was tried, it 
turned out to not be a productive enterprise.
    Mr. SMITH. So we have used third-party debt collectors in 
the past and did not make any money?
    Mr. KOSKINEN. Ultimately, by the time you added the cost 
with the revenues, it turned out to be basically--in one case, 
we lost a little money.
    Mr. SMITH. Okay. So my understanding was that we used these 
third-party debt collectors and the only payment that they 
received is if they brought in due tax returns that we were no 
longer going after. Is that correct?
    Mr. KOSKINEN. They got paid out of the revenues they 
received, which was either an incentive or a bounty, depending 
on how you wanted to deal with it. But it didn't cost us; that 
was not the cost. The cost was, in effect, setting up the 
appropriate systems to monitor and be able to, in fact, 
organize that. We ended up having, because of concerns by the 
public and the Congress, we ended up having to have IRS 
employees in offices to make sure on the phone that they were 
not using abusive tactics to harass taxpayers to get them to 
pay.
    Mr. SMITH. So what was the cost to do that monitoring?
    Mr. KOSKINEN. By the time we got done with it, the cost 
equalled basically the revenues in. And I would be happy to 
provide you the report we provided. My commitment in my 
confirmation hearing was that we would go back and do a fresh 
review of all of this. And we provided that report to the 
Senate. And I will be happy to provide it to you.
    Mr. SMITH. I would like to see that. I just find it 
interesting that GAO and the Treasury inspector general for tax 
administration and the Joint Committee on Taxation estimates 
that using these third-party debt collectors would raise 
roughly $4.4 billion over the next 10 years. How do you feel 
about that?
    Mr. KOSKINEN. I am not sure where the Joint Committee, 
which does great work, came up with those numbers. But, as I 
say, we will share with you the third-party review and the 
information and the experience we had the two different times 
the IRS tried it.
    Mr. SMITH. I think we need to look into seeing why all 
these different committees are suggesting that IRS could get an 
extra $1.1 billion under using these third-party debt 
collectors, especially since you could definitely use more 
money from what you have testified today.
    Mr. KOSKINEN. As I say, we looked--I looked--I told it was 
my commitment we would do a fresh look at the issue and see if 
there was a way to deal with that. And we did that and provided 
the report to this Congress. It had--GAO had looked at that in 
the past as well. And, as I say, we will be happy to give you 
that report.
    Mr. SMITH. So this report just says that we shouldn't use 
third-party debt collectors?
    Mr. KOSKINEN. The report goes into great detail. The third-
party reviews that were done, it is a fairly thick report, it 
will give you the background information as to how that 
conclusion was reached.
    Mr. SMITH. Okay. Mr. Holding was just discussing the unions 
with you. Have the same unions that have spent these hundreds 
of thousands of taxpayer-funded hours on their activities 
opposed using this authority?
    Mr. KOSKINEN. They have historically been opposed to that, 
yes.
    Mr. SMITH. So they have opposed using third-party debt 
collectors?
    Mr. KOSKINEN. That is my understanding, yes.
    Mr. SMITH. Thank you, Mr. Chairman.
    Chairman ROSKAM. Ms. Noem.
    Mrs. NOEM. Thank you, Mr. Chairman.
    Commissioner, you have complained today and previously 
several times that Congress has not given you enough money to 
do due diligence on customer service. And some, I believe, 
would be very surprised to know that you have the same amount 
of dollars in the 2014 budget in the 2015 budget that is 
dedicated specifically and has been appropriated to customer 
service.
    And that is not coming through in a lot of your testimony 
that you delivered before us and the other places around town 
when you speak. The problem that I have today is that the IRS 
gets to choose where it spends some of its dollars. And it 
looks to me like you are purposely diverting money away from 
customer service to harm taxpayers. We are going to put a slide 
up today that reflects some of the user fee account dollars and 
where they have gone in the past and where they are going in 
the future and where they are happening to go today. Last year, 
the IRS spent $183 million out of this user fee account for 
customer service, which is about, I think, 44 percent of that 
account was used to help make sure that taxpayers have the 
assistance that they needed to adequately pay their taxes.
    This year, it looks like you only chose to spend $49 
million of these user fee dollars on taxpayer services. I 
believe that is down to almost 10 percent of the account. And 
it was directly chosen by you to do that at a time when you 
come before our committee and you come before many other places 
around town talking about the fact you don't have enough 
dollars for customer service. Instead, you moved money that you 
had the opportunity to away from customer service and put it 
into operations. So, from where I am sitting, it looks like to 
me that you are purposely harming taxpayers.
    Mr. KOSKINEN. Can I answer that assertion?
    Mrs. NOEM. Well, I would like--the question that I would 
like you to answer is, do you agree that you have cut the use 
of taxpayer fees or user fees to pay for customer assistance? 
Is that correct?
    Mr. KOSKINEN. That money was moved to, in fact, fund the IT 
necessary for implementing the statutory mandate that Congress 
passed. In 2014, we asked for $300 million for IT to support 
FATCA and the Affordable Care Act. In 2015, we asked for $300 
million to support implementation of the statutory mandate. In 
both years, the Congress gave us zero dollars. So we had no 
choice but to go elsewhere to find the resources to implement 
the mandate that we had no choice about implementing. So we did 
take--and I made that clear before, and the chairman was very 
accurate in noting that we have never been fully funded for 
customer service. We have always used our user fees in the last 
several years. And you are right. The numbers are exactly 
right; we spent $190 million of that in 2014. But, again, as we 
got zero funding for the Affordable Care Act implementation, we 
had no choice. We could not afford to have the filing season 
collapse because we couldn't implement that. So we took $100 
million of user fees out of customer service and put it into 
the IT--to, in fact, operations--to develop the IT necessary to 
support the filing season.
    Mrs. NOEM. How much money annually do you collect in user 
fees?
    Mr. KOSKINEN. Our user fee account is--it varies, but it is 
in the range of $200 million to $250 million. It goes up and 
down.
    Mrs. NOEM. So, out of that amount, you chose to reduce the 
dollars that were purposely dedicated to customer service and 
use those to fund IT?
    Mr. KOSKINEN. We didn't fund just IT. We funded the statute 
that we are required to implement. At the same time, we took 
money out of enforcement. As I say, we are going to have 5,000 
fewer people in enforcement. So this is not a question of we 
put the money in places we didn't need it. We have actually 
taken money from everywhere. And part of the reason we have 
done that is because of the refusal of the Congress in 2014 to 
give us the $300 million necessary to implement the act, the 
refusal of Congress to give us $300 million for IT in 2015 to 
implement the act. We have shared that information with the 
appropriators.
    Mrs. NOEM. Mr. Commissioner, if you would look at the slide 
that we have up today. I would like you to glance at that. 
Because what this shows, based on GAO data, is that there is 
direct correlation between wait time that taxpayers have to 
wait for assistance from the IRS that correlates with the 
amount of user fees that are dedicated to taxpayer services. 
And that is what concerns me today is that knowing this is the 
projection we are going to see in the future, that the decision 
was made by leadership within the IRS, which I believe lays 
directly at your feet, that you have chosen to help IT, to help 
other areas of your budget to the detriment of taxpayers and 
that they are truly the ones who are going to suffer in the 
future because they won't have the assistance to make sure that 
they pay their taxes on time.
    I believe it is a loss of priorities. I don't believe that 
workers who work for the IRS are bad. I think many of them work 
very, very hard every day. I do think this is directly 
relational to leadership and the lack of priorities identified 
correctly to where they need to be. We have to remember each 
and every day that the dollars that you deal with are the 
taxpayer dollars and that the refunds are due them and due them 
in a responsible amount of time. So that is the concern that I 
have is that when I look at your budget and where you have 
chosen to prioritize funding, it has not been in taxpayer 
services and in assistance and taking care of them. It has, 
instead, been on other areas, such as IT improvements, which we 
can see you certainly have had millions of dollars you could 
work with over previous years.
    Mr. KOSKINEN. If you would be able to point out to me where 
we would find elsewhere the $300 million in 2014 and the $300 
million in 2015 for the implementation of the statutory mandate 
that Congress passed, where else we could find the money, I 
would be happy to know that. We sat down, as Congressman Kelly 
said, with the entire leadership team looking for how were we 
going to fund the requirements that we have of implementing 
statutes and running the filing season.
    We did not take money just from customer service. We took 
money from across the board. As I say, we have 5,000 fewer 
people in enforcement. We have fewer lawyers. We have fewer 
appellate people. There has been an across-the-board attempt to 
balance out the needs. If you can find a better way for us to 
have spent that money, I would be happy to talk with you about 
it.
    Mrs. NOEM. We will do that. Thank you.
    Chairman ROSKAM. Ms. Black.
    Mrs. BLACK. Thank you, Mr. Chairman. And thank you, Mr. 
Chairman, for allowing me to be here on this panel today. This 
is a very important conversation that we are having here. And I 
think that all the colleagues in front of me have covered much 
of the issues that I had in my mind. But I want to go back to 
and follow up on the conversation that Representative Noem has 
talked about where there has been this diverting of this money. 
The IRS, in fact, has spent $1.2 billion dollars on 
implementing the President's health care law, is that true?
    Mr. KOSKINEN. Over the last 4 years, we have spent $1.2 
billion. That is a statutory mandate. We have no choice.
    Mrs. BLACK. $1.2 billion. And, in addition to that, you 
expect to spend another $533 million in fiscal year 2015, is 
that correct?
    Mr. KOSKINEN. That is correct.
    Mrs. BLACK. Okay. So that is almost 5 percent of the IRS' 
total budget. Is that correct?
    Mr. KOSKINEN. Correct.
    Mrs. BLACK. So what we see here--and I understand that you 
are saying it is a mandate on your agency that you must follow 
the law. But I think it is important for the American people to 
see what this is costing the American people, that $1.2 billion 
has been spent up to this point in time in implementing this 
law. And so when we talk about the cost to the American people 
on implementing this law, this is one that I think gets many 
times lost in that of conversation. The American people don't 
realize that this is how much money is being spent just on this 
side of implementing this law.
    Now, I want to go on and connect this to something last 
week in one of my Health subcommittees as we had people who are 
in the real working world, employers who are having to abide by 
the law on the employer mandate. And one of their complaints is 
that, first of all, they did not receive the guidance on just 
how to report on the employer mandate, which they are going to 
be required to do in fiscal year 2015: to report the employees 
that they have, the amount of insurance that they have for 
them, their families, Social Security numbers, a lot of 
information that is coming to you. They did not get guidance on 
that until February. And, yet, they have to go back to January 
and do that reporting mechanism.
    But here is the thing they tell us: This is a lot of work, 
costing them a lot of money. Can you tell me if the agency is 
ready to crossmatch what they are sending in with what is seen 
on the exchanges and whether these employees that they have 
possibly have somebody in their family that has applied for the 
exchanges and the subsidies, can you crossmatch this 
information? Do you have the system set up to do that?
    Mr. KOSKINEN. We don't yet. That is what we are building 
this year. That is part of the challenge for preparing for the 
next filing season. But we are prepared. I have been meeting 
every 2 weeks for the last 15 months with the IT people, the 
program people, and our operations people, reviewing the 
deadlines and the time frames. As I say, we managed to get 
through this filing system with all the ACA implementation 
going smoothly. We expect to get through the next filing season 
going smoothly. But, again, it is a challenge. And to the 
extent the funding continues to be cut, it is going to be a 
significant challenge.
    Mrs. BLACK. So what we can say to the taxpayer is, by the 
way, you couldn't get into the IRS to ask your questions 
because money was taken out of customer service and put over 
here to the implementation.
    Mr. KOSKINEN. Well, another way to put it would be we 
couldn't get into the IRS because, in fact, our budget was cut 
on top of all that.
    Mrs. BLACK. In addition to that, we are asking employers to 
spend a lot of time putting all this information into the 
system where, admittedly, the system is not even ready to use 
that information to do what the system says that they are 
requiring them to send this information in for.
    Mr. KOSKINEN. We will be ready by the filing season 2016. 
Last year, I said we would be ready for filing 2015, and we 
were. And I am confident--because it is a great workforce 
working very hard--that we will be ready to use that data when 
it comes in appropriately in the next filing season.
    Mrs. BLACK. Well, I certainly hope, as we look next year 
this time and we are talking about this, that that is true. You 
have certainly said it here for the record. But it is a lot of 
information that is causing employers a lot of time and money 
to put in. And if this information is not being able to be 
used--and, again, we are taking this from customer service, 
moving it over to the implementation of a program that, again, 
the American public I don't think realizes how much this is 
really costing. Thank you.
    I yield back the balance of my time.
    Mr. KOSKINEN. Thank you. My only other observation is if 
the budget continues to be constrained or cut, then we are 
going to have a similar dialogue next year. And my concern is, 
will the filing season go as well as we go?
    Chairman ROSKAM. Commissioner, I just wanted to focus in 
and take the admonition of Representative Rangel and that is 
that we need to defend a voluntary system. And you know and I 
know and every Member on this committee knows--and Mr. Rangel 
made a great point, and that is if it is undermined in any way, 
then it begins to collapse in on itself. And one of the great 
strengths of the United States is our system is voluntarily. 
And to the extent that I am involved in how Representative 
Crowley feels, I think we can make him feel better. He said he 
felt better but not great. And so part of the challenge is, 
where are these resources? Because there is nobody on this 
panel on either side of the aisle that is going to say morale 
and so forth is an easy thing to manage as a workload 
increases.
    So what you have done is you have challenged us to say: 
Look, where is the money? Where are the resources? And give me 
resources.
    And that is a fair argument to a point. And here is where 
you and I separate, I think, in terms of how we approach that. 
There have been a number of examples today on where resources 
can come from. I have got a thing up on the screen. You can't 
see these. Is our new technology so inelegant that you can't 
see this? That is not helpful. So let me read these through.
    Mr. KOSKINEN. Somebody gave me a copy of the last one. If 
there were a copy of this one, it would be great.
    Chairman ROSKAM. All right. We will get that to you. Let me 
just go through them.
    There is nothing surprising here. And it is all essentially 
a discussion point. But, for example, we would argue that the 
bonus money that you made a decision to pay, $60 million in 
bonuses, you decided to move forward with that. One of your 
predecessors, Commissioner Werfel, said he wasn't going to pay 
those bonuses. And you made a decision to pay those. We would 
argue that the $60 million could have handled 7.2 million in 
calls. Does that make Representative Crowley feel great? No. 
But I think it would make him feel better if those 7 million 
calls were met.
    The discussion that you had with Mr. Holding, for example, 
there is an opportunity--and we accept at face value, again, 
that some of the responsibility, as it relates to collective 
bargaining, is, in fact, a statutory mandate. But the 
overwhelming majority of it isn't. And, basically, knocking on 
the door of about 90 percent is not mandatory. It is 
discretionary on the part of the Service. And so toward that 
end, there is another $20 million that can be saved. That is 
2.4 million calls. There is a law firm that you have entered 
into a contract with that I want to just touch on and then come 
back to because I have got a 6103 question. But the outside 
firm, that is a couple million dollars. And we would argue, 
look, there are plenty of attorneys and so forth that can 
handle that. And the user fee cuts, there is also a $100 
million that Mr. Smith outlined and that is in the private debt 
collection, and other aspects of the Federal Government have 
come, Commissioner, to a very different conclusion than you 
have come about it or that the IRS has come. Maybe it was dealt 
with before you assumed the leadership as the Commissioner. But 
the GAO says that the IRS' study was not soundly designed to 
support a decision on whether to continue contracting out debt 
collection. In addition, the study was not originally intended 
or designed as primary support for the decision to cancel the 
program. IRS officials used it nevertheless for that purpose.
    TIGTA went on to criticize the private debt collection 
cancellation. And they said it is clear that the Federal 
Government benefited from private collection agencies working 
these lower priority cases. So to use the old contingent fee 
model, this is debt that is not being pursued. It is just on 
the shelf. And two reputable, sterling reputation 
organizations--that is TIGTA and GAO--have come to a different 
conclusion. And I know that is not money, Ms. Noem's point, 
that can be used for customer service. It can be used to take 
off some of the pressure on the enforcement side. So, in light 
of these things, how do you respond to our suggestion that we 
think 26 million phone calls could have been handled much, much 
better if these things had been adopted?
    Mr. KOSKINEN. All right. I appreciate that. Let's work 
backwards. As you note, whether we use debt collectors or not, 
the money doesn't come to the IRS. So that $100 million or $200 
million or $50 million, whatever it is, goes to the Treasury, 
not to the IRS.
    Chairman ROSKAM. But $100 million of it, according to the 
GAO, $100 million of it--so it is $4.5 billion over a 10-year 
cycle, $400 million a year, a quarter of which comes to the 
IRS. Now, of the $100 million that comes to the IRS, your 
argument is, look, it can't go into customer service. I agree 
with that. But you have basically been arguing all morning the 
fungibility of money. So what we are saying is, look, we have 
got a $100 million that is available fairly, fairly quickly. 
Two government agencies that everybody cites and has a lot of 
respect for say you can do it. Why not do it?
    Mr. KOSKINEN. Let me start by saying if you add it all up, 
it is less than the budget cut we took in December in the face 
of increasing responsibilities.
    Chairman ROSKAM. But that is arguing----
    Mr. KOSKINEN. You can't add it all up. The user fees, as I 
say, if somebody can tell me where we would have found the $134 
million we spent on IT with that money to implement the 
statutory requirements, if somebody can say where else we get 
that, I would be happy to know that. In other words----
    Chairman ROSKAM. No, but----
    Mr. KOSKINEN. If I can complete it, what you are saying is, 
because there is a lot of pressure on customer service, that, 
somehow, if we moved money and we let the IT system either fail 
or we didn't have the filing system work, that that would be 
okay because we would have put $134 million into customer 
service. We used to do that until the Congress refused to give 
us the money that was necessary to implement the Affordable 
Care Act and FATCA. With regard to the outside----
    Chairman ROSKAM. Commissioner, hold on, let's just, so we 
can get to it.
    Mr. KOSKINEN. Okay.
    Chairman ROSKAM. I think that is a straw man argument. So, 
in other words, you are saying, you gave us--you referred to 
Charles Dickens in your opening, best of times and worst of 
times. And, on the best of times things, it is very impressive, 
you know, the amount of time and so forth and the smoothness of 
the filing season; 200 returns per second, that is impressive.
    The worst of time, based on your presentation to us, was 
all customer service. And the subtext of every Member here on 
this side of the aisle has been, Let's talk about customer 
service. And you have been going around publicly making the 
customer service argument and putting it at our feet. And so 
what you are sensing from us is we think that is too simple. We 
think that you have created a straw man. And the straw man, it 
is sort of like the argument when you have been in a 
jurisdiction where a school board has not gotten a referendum 
passed. And the school board says: ``All right, here is what we 
are going to do. We are not going to challenge anybody in the 
administration. What we are going to do is cut the orchestra, 
and we are going to cut the football team. And we are not going 
to deal with the vice principal in charge of looking out the 
window. We are going to go after the things that make people 
hurt.''
    Now, I am not accusing you of bad faith. But what I am 
saying is you came in today saying that customer service was 
the problem in your opening statement. And we are saying we 
think you are over-characterizing that and that there is 
resources that we have enumerated and argued for and not the 
least of which is the fungibility argument, which is what you 
were making to me 90 seconds ago, the fungibility of these 
funds. If we can find $100 million in enforcement by taking 
Jason Smith's idea, why not take that? Particularly in light of 
the fact that two agencies--and I would ask unanimous consent 
to put these two reports in the record--the GAO and TIGTA, say 
the IRS is just wrong on this.
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    Chairman ROSKAM. And it is not even as if, Commissioner, 
this is blue-sky stuff. This is not some theoretical thing. 
This is well used in other areas of the Federal Government, and 
yet the IRS has said we are not going to do it at the same time 
saying we need more money.
    Mr. KOSKINEN. This is a hearing on the filing season. The 
filing season was a question of how efficient were we. And we 
were very efficient. And it is a great accomplishment by our 
workforce. And I keep saying that because it is a stunning 
achievement by a workforce under great pressure. The other 
reason that I stress customer service is because that is 
integral to the filing system. I am happy to have another 
hearing to talk about what is going wrong with enforcement if 
you would like; what the impact of the 5,000 fewer revenue 
agents, officers, and criminal investigators is; and, 
ultimately, what the threat is to the integrity of the filing 
season and, ultimately, the integrity of the ability of the 
government to collect its revenues. That is not the subject of 
this hearing. But I will guarantee you that there is a serious 
story there. There is a serious story in information technology 
about what the decline in funding has done to the agency and 
the risk we run.
    So to say I could take $134 million that we made a 
conscious judgment needed to be spent in IT and magically move 
it back to customer service as if that was easy and nothing 
else were to happen seems to me to be illusory. I am happy to 
have that discussion. But the point about it is the $134 
million and the 16 million calls don't exist as a reality, as a 
likelihood because, otherwise, what would have happened is we 
would not have been able to implement and run the filing season 
the way it ran. And I can guarantee you we would have a very 
difficult conversation here if the filing season had not run 
well. We would be asked, why did you put the money someplace 
else and not put it into the systems necessary to collect the 
$3.1 trillion?
    So it is, as you have noted, a question of where do we 
spend the money. We spend a lot of time trying to do the best 
we can to, in a balanced way, implement this. And you are 
exactly right: Our goal is not to make life difficult for 
taxpayers. It does not help us or the taxpayer. But our goal 
and responsibility is we have to run enforcement, we have to 
run the IT systems, we have to run customer service. And when 
you cut the budget by $1.2 billion over time, when you cut the 
budget by $350 million last December, that money has to come 
from somewhere. And if you look at only one spot, you will say, 
Well, gee, why don't you put more money there? More money is 
even less money in the other spots.
    And my concern is not looking backward; my concern is going 
forward. The reason I make a big point about this is because I 
think we are beginning to erode the ability of the agency to 
function. And if we do the same thing in the budget in 2016, we 
are going to have an even more serious discussion about the 
negative impacts on the ability of the IRS to deliver on its 
mission.
    Chairman ROSKAM. Okay. This past exchange, we have just 
talked past one another. Let me try, let's try and get you and 
I on the same wavelength. I understood what you said. What I 
would--what I would appreciate is if you could respond to this. 
Assume for the sake of argument that you had $100 million in 
enforcement money that came in that was yours to use. Would 
your ability to impact customer service be helped by having 
$100 million on the enforcement side that you didn't have to 
use user fees, for example, to supplement?
    Mr. KOSKINEN. It certainly would help.
    Chairman ROSKAM. Okay. We are of the opinion that $100 
million is available to the IRS. And let me explain how. The 
private collection process is demonstrably solid in other areas 
of the Federal Government. It is successful. Secondly, two 
agencies that have done the review, that is TIGTA and GAO, have 
said also that they think this is a good fit for the IRS. They 
are critics of the decision in the past of the IRS to move 
beyond this. And we are convinced that you have got the 
capacity within your own purview--I mean this is not where you 
need legislative authority; this is within your own purview--to 
pursue this money. Does that make sense?
    Mr. KOSKINEN. Not in the result of our experience. Our 
experience is that we did not, in fact, for the two times we 
actually ran it, make money, anything like $100 million. But I 
am happy to have that discussion. We looked at it already a 
year and a half ago. We shared that information with the Senate 
when they were considering it. And they ultimately decided not 
to go forward. But I am happy to have the discussion. It is an 
important one. As I said, anywhere we can find a way to be more 
efficient, we are happy to do that.
    I would note right now we have spent a year fighting the 
IRS scams of people calling people on the phone masquerading as 
IRS representatives. So, again, unleashing private debt 
collectors who are going to call on the phone isn't going to 
automatically make taxpayers feel better or even be very 
efficient.
    But I am happy to have that discussion because wherever we 
can get revenues, we can. But the $100 million isn't even going 
to make up last year's budget cut. And, as I say, my concern is 
the indications of where we are going.
    Chairman ROSKAM. I am not buying that. I don't buy that it 
has got to be all or nothing.
    Mr. KOSKINEN. I agree.
    Chairman ROSKAM. Even Joe Crowley, look, he is feeling 
better, not great. So let's get this feeling better. So let me 
move to another line of questions.
    You and I have stated our opinions clearly. And I would 
urge you to revisit the private debt collection question. Could 
you give us some insight into the decision by the service to 
hire the law firm of Quinn and Emanuel? So two questions: Why 
do you have to pay these guys $2 million? I guess three 
questions: Why do you have to pay them $2.1 million, first 
question? Second question is, why would any partner be able to 
bill at $1,000 dollars an hour? And then the third question is, 
how does Section 6103 and the confidentiality work here? 
Because you have cited a fairly narrow section, 6103(n), which 
gives some authority at the Treasury level to designate people, 
but it tends to be more of a processing, storage, and so forth. 
And it tends not to be that involved in taking witness 
statements and litigation. So could you let us know--just let 
me know what your thinking is on those three points?
    Mr. KOSKINEN. Well, let me say, as you know, with 6103, we 
are not at liberty to talk about individual cases and any 
individual taxpayer. But let me just respond generally without 
going into any specifics about a particular case.
    The IRS, historically, over time has had the authority to 
retain people to provide assistance in litigation which exposes 
those people to 6103 information by definition. Those have been 
economists. They have been consultants. And, on occasion and in 
some cases, they are lawyers. We only bring in outside 
consultants, only spend that money, especially it comes out of 
our budget, we only spend that money when it is important, 
related to the various cases. Some of our cases, speaking 
broadly, not about any particular case, some of our cases 
involve billions of dollars of disputed tax collection. And 
from the standpoint of the judgment made by the IRS Chief 
Counsel's Office is they look at litigation, what are the 
appropriate resources to bring to bear? There is a risk-reward. 
There is what is the benefit out of it. We do not willy-nilly 
in most tax court cases bring in outside experts. But whenever 
there are serious, significant cases against well-heeled 
clients who have access to unlimited amounts of legal and other 
consulting businesses, it is our obligation to represent the 
United States Government and the U.S. taxpayers as effectively 
and efficiently as we can. And, historically, that has been 
done. It has not been challenged before. We are very careful 
with that. It only goes on in cases that are very significant, 
very important to the government and, therefore, very important 
to the taxpayer.
    Chairman ROSKAM. So you have concluded in those cases that 
the Department of Justice doesn't have the capacity?
    Mr. KOSKINEN. For the kinds of cases we are dealing with, 
we have made that judgment that, in fact, outside assistance, 
as a general matter, whether it is economists--we have a lot of 
economists in the government--whether it is economic help, 
whether it is consulting help----
    Chairman ROSKAM. These are litigators. I mean, these are 
people, and the Department of Justice, it is an army of 
litigators basically.
    Mr. KOSKINEN. An army of litigators we use a lot. We have a 
wonderful working relationship with them.
    Chairman ROSKAM. They are not up to this task? I mean, is 
this one so unique?
    Mr. KOSKINEN. I am not going to talk about any particular 
one because I am not at liberty to do that. Let me just say, as 
a general matter, we are well aware of the capacity of other 
government lawyers. We rely on them significantly and 
substantially. And I am happy in private to have our chief 
counsel talk with you more about any particular case. But let 
me just say, as a general matter, our job is to, in fact, 
defend the interests of the government and the Tax Code. And we 
will deploy the resources necessary in our judgment to do that.
    Chairman ROSKAM. How is Section 6103 authority designated 
to this law firm? Because it is fairly limited. If you look at 
the statute, you are relying on section 6103(n), which says 
that the Secretary may issue regulations to allow the IRS to 
disclose return information for purposes such as the storage, 
transmission, and reproduction of returns, return information; 
programming maintenance, repair, testing, and procurement of 
equipment; and the providing of other services for purposes of 
tax information. You are talking something far beyond that. How 
is this possible?
    Mr. KOSKINEN. I would be happy to get you the legal 
authority for that. As I say, for years, we have provided and 
brought in economists. We have brought in all sorts of people 
into tax litigation. The litigation itself is a--the defendants 
are actually providing that information. But I would be happy 
to get you more details. But this is not a unique occurrence.
    Chairman ROSKAM. Can you just walk me through your decision 
to pay the bonuses? Your predecessor, Commissioner Werfel, said 
he wasn't going to do it.
    Mr. KOSKINEN. He said he wasn't going to do that in the 
middle of the sequester because it was only way to limit the 
number of days the agency was shut down. The agency was shut 
down for 3 days. It would have had to have been shut down for 
another 2 days if they had paid the performance awards. They 
are not bonuses; they are performance awards. Over 40, 45 
percent of the employees don't get them. You only get them if 
you perform. The average amount of those awards is about 
$1,100, $1,200. As I said, nobody goes to Bimini with the 
money.
    Back to Congressman Kelly's point about morale, those 
awards and that performance award system has been in place for 
a long time. It was a great hit to employee morale even though 
they understand the trade off was 2 more days not working if 
the awards were paid. My view is, going forward, if we can't 
reward employees and distinguish between those really going 
beyond the normal and doing great work, if we can't provide 
incentives for those employees, then it is going to cost us 
significantly. And I think it is an appropriate thing.
    In the private sector, I ran for 20 years bankrupt 
companies. And in the face of creditors and everyone else, we 
provided incentive awards for people who did well. We protected 
the rights of employees because without the employees, you 
don't have an operation. And my sense here is I understood why, 
if you had to shut the place down for 2 more days, you wouldn't 
pay the award in 2013. But going forward--we paid it last year. 
It is not a decision we made just this year. And I think it is 
important to reward employees who perform. This is a workforce 
under great stress. It is a workforce dedicated to the mission. 
It is a workforce that does great work. And we need to 
recognize that. And I would stress that they are performance 
awards. In any given year, 35 to 45 percent of the employees 
don't get an award at all.
    Chairman ROSKAM. So let me yield to Mr. Marchant, if he is 
here, in a moment. Just one final point on this, we are 
convinced--I mean, a majority in the committee is convinced--
that the decision to allocate resources is something that the 
IRS can improve on and that the notion that it is the 
responsibility of the Congress when there is these various 
significant amounts of money that are available I think is 
overstating and over-characterizing. So reasonable people can 
differ on how to approach these things. But I think that 
speaking on, just for myself, looking at the private debt 
collection, looking at the amount of union activity that is 
discretionary, looking at the decision to pay bonuses, looking 
at the hiring of the law firm, all are things that are 
significant that came at the expense of customer service.
    So, with that, I would like to----
    Mr. CROWLEY. Mr. Chairman, would you just yield for one or 
two clarifications?
    Chairman ROSKAM. Yes. I would be happy to.
    Mr. CROWLEY. I have been told that my name may have been 
brought up in the banter back and forth.
    Chairman ROSKAM. Several times.
    Mr. CROWLEY. And I just want to clarify for the record that 
I in no way, shape, or form support the privatization of any 
role of the IRS, be that through private debt collectors--and, 
more specifically, I think adding personal reward into this, if 
you want to talk predatory, that is predatory. And I would, I 
think keeping personal reward out of this and profit-making out 
of debt collecting as it pertains to the IRS is where I stand. 
I just want to make that point clarified.
    Chairman ROSKAM. Mr. Kelly.
    Mr. KELLY. Thank you, Chairman.
    I do want to get back--as you and I were talking a little 
about leadership position and morale because morale is one of 
those things that, if we don't have a high morale, then we lose 
the belief that we would have or the trust we would have, 
whether it is in a team or an organization or an agency.
    But I want to go back to this winter and this early spring. 
You have been pretty busy. And some of the things you have 
done, you have been out in public talking about some things 
that I think if you had the chance to take it back, you 
probably would take back some of those statements. And one of 
the ones I am going to bring up to you--and I just read about 
this--in a recent speech that you did at the Tax Policy Center 
in Washington, you likened the IRS budget cuts to tax cuts for 
tax cheats. And I think that by making that statement, I mean, 
certainly if the mayor of New York City would happen to say, 
You know what, there is not going to be any cops on the beat 
tomorrow; I don't have any faith in the system. Do you think 
that would possibly see a spike in crime? Would you think 
people who are out there saying, Hey, you know what, they are 
not going to be out checking; well, shoot, I guess I kind have 
a free range to get there.
    So when you make those kind of statements because words 
truly do matter--and we have listened today, and there are a 
lot of words going back and forth. And sometimes the rhetoric 
does go off the charts. But I keep going back to this, the 435 
of us that sit in the House and the 100 that sit in the Senate 
and the 83,000 that work at the IRS are all here for the same 
purpose: to serve the American people. So when you as the 
Commissioner go out and make public statements that these tax 
cuts are a great enabler for tax cheats, what in the world were 
you thinking of?
    Mr. KOSKINEN. First of all, that was a catchy phrase that 
has been raised several times in various parts of the press. 
What I am thinking of--and I have testified on this, and it 
goes back to the other subject. We are talking about filing 
season here. Enforcement is a significant issue. And my concern 
is that, in fact, as I said in one of those speeches, that my 
concern is as we begin to erode the ability of the IRS to 
effectively function, what I don't want to do is have somebody 
later on say, You never warned us. So as I said in that speech, 
This is your warning. Compliance is a coin that has two sides. 
One is enforcement. One is taxpayer service. So the amount of 
money we collect every year, which is significant, $50 billion 
to $60 billion with our activities, isn't important just for 
the money, it is a lot of money, it reinforces the $3.1 
trillion. If that compliance rate goes down 1 percent, it will 
cost the government $30 billion a year. And if we continue----
    Mr. KELLY. Commissioner, If I could, I understand where you 
are coming from. And you are very good at these panels of 
taking things and making it into something else. My question 
really comes down to, you are the guy. You are the face of the 
IRS. It is you. It is not the 83,000 of the people that work 
for the agency. It is you. So when those words come out of your 
mouth--and words certainly do matter--when those words come out 
of your mouth and when you start to say this is a tax break for 
tax cheats, my question was, do you think that encourages those 
people who are going to be noncompliant--because you and I in 
one of our first meetings, you said, basically, there are two 
types of people out there: There are those that want to pay 
their taxes, and there are those that don't want to pay their 
taxes. So I don't think that I would want to be a cheerleader, 
telling those people that don't want to pay their taxes, Hey, 
you know what, we are not going to be able to come after you 
because I don't have enough money to do it. So, I mean, maybe 
your point was to really blow up the idea that I don't have 
enough money to work. But I would just suggest that sometimes 
those comments are better kept internally. I think when you say 
them publicly and with the way the media is today and certainly 
with the social media, I think there is probably anybody out 
there that was wondering if they could get away with something, 
they would say, you know what, listen, the Commissioner himself 
said, We are so underfunded; we can't go after tax cheats.
    And there is an old saying: There are no secrets in my 
family; there are just a lot of things we don't talk about.
    I just think it would be better--and I am talking about the 
morale of the Agency right now. And I am serious about this. 
Those 83,000 men and women who get up every morning and come to 
work to collect the revenue that is needed to run the country 
are important people. But what I don't want to do is keep 
dividing those folks from the United States Congress. And I 
have got to tell you, sir, words matter. I think that you have 
got to be careful. And I would really, if you have the chance 
to do it, and you certainly do here publicly today, tell those 
folks, you know what, I shouldn't have said that. That is not 
what I meant.
    Mr. KOSKINEN. No, I will tell you what I said--I should 
have said. What I did say also--you didn't quote--is we still 
do 1.2 million audits a year. And the roulette wheel spins, and 
you don't want that white ball falling on your number because 
we are not very happy about it. So we are continuing to enforce 
the law.
    But the Congress has, in fact, cut our revenues to a point 
and resources to a point that we are not as effective as we 
ought to be. And I agree with you; we ought to be on the same 
level here. My concern is for 5 years the budget has been cut, 
notwithstanding these discussions. And my concern is if we head 
into 2016 and, even in the face of all this, continue to cut 
the budget, I don't want you saying later on, you know, you 
should have told us about this, that it is serious. It is 
serious.
    Mr. KELLY. I want to make sure you and I understand each 
other. My concern is you are the Commissioner of the IRS, for 
you to go out and start telling people that this is a tax break 
for tax cheats is a very dangerous phrase. My only question to 
you was if you could take those words back, would you take 
those back? Because I think that does great harm to exactly 
what you are talking about you are not able to do. Why would 
you want to increase the percentage of people who say, They 
can't do anything about it; I am going to go ahead and cheat. I 
just think that sometimes a little retrospect is in place.
    So I am glad you are here today. But I got to tell you, I 
just expect a lot more from you because I know your background. 
You are capable of doing that. And especially when it comes to 
messaging, there is nobody that does it better than you and to 
flip it from where we are going to what we need to do. Please, 
I am just saying, words matter. Let's make sure we are all 
talking the same way, we are on the same sheet of music. I 
thank you.
    Chairman ROSKAM. Mr. Lewis.
    Mr. LEWIS. Mr. Commissioner, again, I want to thank you for 
being here and thank you for your service.
    A few moments ago, one Member and later the chair said 
something about private debt collection. We have been down this 
road before. I have been here for a while. The Republicans 
continue to believe that hiring third-party debt collectors 
would help collect revenue. We fought this battle before. This 
is not a new idea. It is a bad idea. We need to drop the idea. 
We have tried it, this idea, twice over the last 18 years. Both 
times it has ended in failure. In 2006 and 2009, the program 
was started and then ended. The IRS concluded it lost money. In 
1996, the IRS awarded five contracts and then terminated the 
program. The IRS again lost money. An IRS employee in the ACS 
unit can collect $20 for every $1 in funding. This is more than 
the amount collected by a private debt collector. The matter is 
simple: Fund the IRS. That is what we need to do. And that is 
what we should be talking about.
    Again, Mr. Commissioner, I want to thank you for your 
service, for all of your great and good work. I know when you 
first became Commissioner, you got out. You traveled around the 
country. You came to Atlanta. You went to other places. You had 
townhall meetings with the employees. And I would like to know 
from you at this moment, what is the morale of the staff at 
headquarters and the centers around the country?
    Mr. KOSKINEN. Well, as Congressman Kelly and I, from our 
background, both share the same point, which is morale and 
support for the employees in your organization is critical 
because they do the work. Without them, it doesn't matter what 
your business is, it is going to go away.
    I just had a meeting with leadership in our wage and 
investment virtual meeting yesterday. I continue to be 
impressed by the caliber of the workforce and their dedication 
to the mission. As, Congressman Kelly, is important, they view 
themselves as on the side of the taxpayers. They view 
themselves as on the side of the government. They are proud to 
be part of the IRS. Even with all of the IRS bashing over the 
last couple years, with the constraints on funding, I continue 
to find employees who are focused primarily on what can we do 
to, in fact, be able to do the work better? They are 
professional. They are dedicated. Many of them have been--part 
of my concern is a lot of them have been here a long time so 
they are eligible to retire. Twenty-five percent of the 
workforce could retire tomorrow morning if they wanted to. And 
so they are--they show up every day. They work hard. I have had 
lunch, every place I have gone, 37 cities, I have had lunch 
with 15 to 20 employees. None of them lack energy. They are all 
enthusiastic about their work.
    If you went out and talked to the employees, you would find 
they are as concerned or more concerned about the level of 
taxpayer service than anyone else. They derive great 
satisfaction, as I said, by helping taxpayers. If you ask a 
question and they can answer it, they feel good about that. And 
they feel that is their mission. I have been in a lot of 
interesting circumstances. I have been 20 years in the private 
sector managing large failed enterprises of one kind or 
another. I have spent the last 15 or 20 years in various 
government roles. This is the best workforce I have been 
privileged to work with. It has great senior leadership. It has 
significant challenges. We haven't hired enough young people so 
we are aging the workforce out. We don't have enough people 
anywhere. We need to continue to provide training for them. We 
need to continue to provide support for them because they are 
critical.
    As I say, over 70 percent of the budget is personnel. So if 
the personnel aren't working effectively, everything else we 
are talking about, IT systems or anything else, is not going to 
matter. So I have been delighted, amazed to some extent. 
Certainly it is refreshing to talk to IRS employees and see how 
concerned they are and dedicated they are to getting the work 
done.
    Mr. LEWIS. I believe, Mr. Chairman, we are going to have an 
opportunity to come in a few days and visit. And when I am in 
Atlanta, I plan to get out and visit and see some of the IRS 
employees.
    But, you know, Mr. Commissioner, you cannot, old saying, 
you cannot get blood from a turnip. I grew up on a farm in 
rural Alabama. And if you expect to get something, get a crop 
in for the season, you have got to work that crop; you have got 
to fertilize it. So if you need revenue, if you need resources, 
you have to speak up, speak out, and demand that we do 
something.
    I yield back, Mr. Chairman.
    Mr. KOSKINEN. I don't think anyone would say I have been a 
shy, retiring violet about this problem.
    Chairman ROSKAM. Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman.
    Many families in my district rely on the earned income tax 
credit. But in its most recent financial statement, the 
Treasury Department reports that the earned income tax credit 
improper payment rate continues to grow. During our full 
committee hearing in February, Chairman Ryan asked Treasury 
Secretary Lew if he would work with Congress to clean up the 
management and structure of the earned income tax credit to 
reduce improper payments. Secretary Lew agreed that compliance 
needs to be improved but said that resource constraints limit 
those efforts. In 2010, however, when the IRS was at its 
funding peak, $12.1 billion, the earned income tax credit 
improper payment rate was at 26.3 percent. The improper payment 
rate sank in 2011 and in 2012 as the IRS' resources shrank. It 
does not appear that there is any correlation between 
increasing the IRS' resources and reduction of the improper 
payment rate. Given the resources available, how would you 
recommend revising the management and structure of the earned 
income tax credit program to reduce improper payments?
    Mr. KOSKINEN. It is a very important question. And of all 
these challenges we have, implementing statutory mandates, 
identity theft, refund fraud, as we go forward, the problem 
that I am most concerned about is, in fact, our inability to 
make a dent in the rate of improper payments or the amount of 
improper payments in the earned income tax credit. A year and a 
half ago when I started, I said I want to talk--everybody who 
knows anything the history of this, for 10 years, the IRS has 
tried a wide range of things to try to deal with this problem. 
The bottom line was that we had not pushed forward is we need 
help. I have testified before, we have asked Congress for 
authority. First, we need to get W-2s earlier. We don't get 
them until the end of March. So we are processing particularly 
earned income tax credit payments and returns without knowing 
whether, in fact, the income statements are accurate until 
afterwards, at which point we are in a pay-and-chase manner. We 
have asked for what is called correctable error authority. We 
can oftentimes on a return see that the number of children 
claimed is erroneous. But to make any correction like that, we 
have to actually start an audit and an exam process. We do over 
400,000 audits a year in the earned income tax credit area. But 
we have 25 million recipients. So we are never going to audit 
our way out of it.
    And I think you are right, more resources, we wouldn't, 
say, do twice as many audits, it is going to make a difference. 
If we could make the corrections on the return, the taxpayer 
would still have the right to come in and say, no, I really do 
have three children, not one, that would be helpful.
    Over 50 percent of the returns are prepared by preparers; 
400,000 of them have no credentials at all. They are not CPAs. 
They are not enrolled agents or tax attorneys. A big chunk of 
them do a very good job. They are knowledgeable. They do their 
best. Some of them mean to do well but have relatively little 
understanding about the complicated code, let alone the 
complications of the earned income tax credit. And then there 
are some of them, a small percentage, that are crooks and run 
advertisements: ``Come with us, we will get you a bigger 
refund. Just sign the return, you don't even have to see it, 
give me a blank return with your signature.''
    We need to provide and require minimum competency by tax 
preparers. We are talking about continuing education once a 
year, sometimes take 15 hours, 18 hours of updates on what the 
code is, learn how to fill out the earned income tax credit 
appropriately would be helpful.
    And, finally, if somebody wanted to simplify the program, 
that would be helpful too because it is very complicated. I 
have looked at it and tried to figure out how you figure out 
where the kids are and who has got them. But I think, again, if 
we could get W-2 authority to get it in January--New York State 
and several, three or four other States already get the W-2s in 
January--if we could make corrections on the returns when we 
know there is a problem without having to audit them, if we had 
minimum qualifications for tax preparers, it would allow us to 
begin to make a dent in that problem because you are exactly 
right; it is a problem that needs to be addressed.
    The program has great support across all political lines 
because it supports working people. Part of our challenge is 30 
percent of them turn over every year because they get a better 
job; they get income, exactly what we would like to have 
happen. Some of them lose their jobs, and then they are not 
eligible. So we have the duality of trying to make sure the 
eligible people participate and then try to make sure that we 
don't pay the wrong things to the wrong amount.
    Mr. SMITH. Okay. Before my time runs out, you hit a lot of 
points that I think are valid. But also a point that you didn't 
hit that I have concern with is the different methods of 
filing, whether it is online or whether it is paper filing. And 
I do know that it has been publicly noted throughout everything 
of all the increase in fraudulent returns being filed through 
online software. Why don't you begin to address the problem 
immediately, through just form changes you control, to bring 
the same scrutiny of eligibility to all filing methods so 
online filing isn't a larger percentage of fraudulent filings 
than just paper filings?
    Mr. KOSKINEN. Right. We are working with software providers 
across the board to try to figure out how to deal with identity 
theft and refund fraud. Part of it is in the IT, yet it is a 
broader issue than that. And you are exactly right, we had the 
first in history--I brought together the CEOs of the tax 
preparers, brought the representatives of State tax 
administrators, and the IRS that we chaired because we need to 
work across the board to see what can we jointly do in a true 
public-private partnership to address the risks of identity 
theft and refund fraud. We have made progress, but there is a 
lot more progress we could do.
    Mr. SMITH. Thank you, Mr. Chairman. I just would like to 
point that online filing and paper filing should have the same 
standards and the same scrutiny.
    Mr. KOSKINEN. I think that is right.
    Chairman ROSKAM. Mr. Rangel.
    Mr. RANGEL. Let me first thank the chairman because so many 
of the issues that we raised today, it appears as though we are 
being critical of the IRS. And all of us want to improve the 
IRS and certainly improve the morality--I mean, the feeling 
that they all are public servants like we are.
    I am glad that the earned income tax credit has come up 
because there are so many things that we give them. We are 
giving self-esteem. We are giving the ability not to go on 
welfare, and, as the Commissioner said, and people would 
actually stay in that work market and not know what it is like 
to be dependent.
    Of course, there are some issues too that we got these fast 
food places, they prepare the EITC or have people who do it for 
them to include as a part of their salary that keeps the 
salaries low. So there is a lot of work that hearings, I wish 
we could have a work group, which I volunteer to be on, with 
someone from your office to find out how we can work our way 
through a very complex but worthwhile situation. And I would be 
glad to volunteer and get some people from, how we can save 
something that is good.
    As far as having the IRS to transfer the authority to 
collect taxes, I want to talk with you. You know, I have had 
some serious illnesses. And I thought with the Affordable Care 
Act and my insurance company that, hey, it was expensive, but 
we paid for it. Now I have insurance companies telling me that 
I owe them money for services that they provided. And the 
hospital gave them my name. And so I told them who I was and 
that I was a very important American; and, ``What service was 
provided?''
    They said: ``We don't know.''
    I said: ``Well, why are you calling me?''
    They said: ``Because we got your business.''
    I said: ``But I don't remember getting the service.''
    ``I am sorry about that.''
    I said: ``Well, who can I discuss it with?''
    They said: ``You don't discuss it with anybody. We are here 
just to get the money.''
    And I said: ``You must be kidding me. Who can I talk with? 
Can I talk with the hospital?''
    They said: ``No, it has been turned over to us.''
    Now, you talk about morale; we cannot afford to do this. I 
don't know how much money it takes to set up this system. But I 
know one thing, if I am motivated by the amount of money that I 
collect in order to get my commission, we don't want to go 
there. It is bad enough being a tax collector. But when we have 
outsiders whose income is based on the amount of money they 
beat out of taxpayers who don't like the Internal Revenue 
anyway, please let's talk about before it we even think about 
it because the motivation has to be how much money can I 
collect in order for me to make certain my shareholders make 
money? And that is a good thing. They have to find out how many 
people can I not tee off to stay in the system and at least pay 
something so that it continues to be a voluntarily system.
    So I know that there are things the private sector can do 
better. But take my word for it, I come from a community that 
knows tax collectors. And they are the most mercenary, 
insensitive people in the world. And I understand their 
problem. Their problem is not compassion, not understanding, 
but to collect money. They got enough problems in trying to 
make morale higher with less resources than us taking it away 
from them where people have no responsibility at all for 
Americans and what we stand for.
    So you have the majority. But, please, before you push 
that, if you are pushing it, let's have a discussion.
    And I hope, Mr. Chairman, because you have been very kind 
in opening up a change opportunity, that we can have a private 
session with these people, that we can meet with them and try 
to tell them what is on our mind without letting the press know 
because I agree with you that if my daughter came up and said 
she was engaged to get married and I asked her who are you 
marrying and she said a tax collector, I don't know whether 
that would go over big. So we have got to do a whole lot to 
improve their reputation.
    But I hope with the tax system that we all depend on, 
whether we like the bills that we have or not, whether we 
should reform or not, that we can have some meetings, some 
luncheon meetings and work with them and not just walk into the 
offices but to find out what problems they got and how we can 
be helpful.
    And let me congratulate you for your openness in the 
subject matters. They are delicate and sensitive and 
nonpartisan. And we can say it in a different way, but we do 
want improvement.
    Chairman ROSKAM. Thank you. Are you yielding back?
    Mr. RANGEL. Yes.
    Chairman ROSKAM. All right. Let me just pick up on one 
quick theme. I will go to Ms. Noem in a second.
    But just to pick up, I think you are absolutely right in 
how we would approach something like this. There is a 
sensitivity to it. You don't want a bounty hunter feel. We have 
seen in Medicare what some of these RAC audits are like. And 
they are not helpful. And they create a lot of churn and a lot 
of difficulty.
    Let me also sort of highlight part of the discussion that 
you alluded to, but let me shine a spotlight on it. You said we 
have a voluntary system, and we do and we agree that that is 
the nature of it. But some of these folks are volunteering not 
to pay their taxes. So we are not talking about someone, let's 
say as a constituent of yours or mine or Mr. Lewis' or any of 
ours, who, you know, these are folks that are doing their best 
and coming to the IRS and saying, Look, this is something that 
I want to try and get right and work out a plan.
    What we are really talking about here is debt that the IRS 
has said we are not ever going to get this; this is on the 
shelf, and it is going away. So, to your point, we have got to 
discern and we have got to be wise and thoughtful about what 
the structure is and what you can do and what you can't do. And 
that situation that you described where you are in a catch-22 
situation, you are in a Franz Kafka novel where you don't know 
what is going on, like you have got too many things that are 
ringing right now and you don't know what is going on to your 
point, Mr. Rangel, that is fundamentally unfair. And we need to 
defend against that because that doesn't get us where we need 
to go. So I think that there is a lot of opportunity to us for 
us to revisit these things.
    So, with that, Ms. Noem.
    Mrs. NOEM. Commissioner, last year this committee was 
investigating whether or not the IRS was keeping taxpayer 
information confidential. And I think, throughout the course of 
that investigation, they came to you and asked the IRS for 
communications between employees of the IRS and the White 
House. And the answer that you gave back was that you didn't 
have the systems in place to allow a search of the employees' 
communications.
    So we asked the White House, and the White House told us to 
come back to you for that information. And so we have come back 
and asked for those documents, and you told us that it would be 
unmanageable to look for those emails between the IRS and the 
White House. You told us to give you a list of personnel 
involved that we would like to see the records from. And so now 
we have narrowed down that request to about 66 different 
employees. And you responded to us just yesterday that such a 
search would require a new database, an associated IT 
infrastructure. So what we are asking for you for is 66 
different email accounts for correspondence with email 
addresses ending in who.eop.gov and provide us with the 
responsive documents.
    And my question is, if you don't have systems in place that 
allow you to search the employees' emails, how do we do 
effective oversight of the IRS?
    Mr. KOSKINEN. Right. First, I would note that we have 
provided you--when the issue was whether 6103 information 
improperly went to the White House or not, we did provide you 
all of that information, which showed that there had been no 
improper distribution.
    We do share some information at their request when anyone 
is being considered for a Senate confirmation position and 
their tax returns have to be--those are by consent. So there 
was--we have explained that to you and your staff as well in 
terms of where to go.
    Our problem, which has been publically discussed certainly 
for the year and a half I have been here for 2 years is back to 
our system, that we have an old-fashioned records retention 
program, which is a paper retention program for official 
documents.
    Three years ago, there was a review made at the IRS about 
what would it take to get to be a more modern document 
retention program. It would be good for official records and 
terrific for being able to search. The estimate then was it 
would cost about $30 million. And, in 2012, the decision was 
made that, as the budgets were being cut, that they couldn't do 
that.
    We resurrected that because I do think it is important for 
us, for your point about oversight, that we ought to be able to 
easily search documents and be easily able to provide them. As 
it is now, we go through the paper records that have preserved 
and then we have to go through each employee's hard drive to 
see what is reserved on their hard drive. And it is an 
antiquated system. It takes us far too long and too much money.
    In corporations--Congressman Kelly knows--you can actually 
go, you have got them saved there. So we are looking for a way. 
We have--since this all came up and I got here, we have now 
taken the top, give or take a little, 280, 300 executives 
across the agency and are beginning a process where their 
emails automatically get archived in a way that you could 
search for those going forward.
    But we need a system where, for the 87,000, those documents 
would be preserved, their official records would be preserved. 
When somebody wants to know something, we could, in effect, 
almost push a button and get it to you without having to make a 
big deal about it.
    So we are--it is still a $30 million dollar item. I have 
actually asked--even with the resource constraints, we made a 
decision a few weeks ago that we need to actually spend what I 
call the seed money to design what that program would look like 
and what the procurement would look like so, if we ever do find 
the money, we could do it.
    But right now, as shown--we provided this committee, for 
instance, 1,300,000 pages of documents about the famous (c)(4) 
issue. It took us months to do, and we should have been able to 
be able to do that if we had a good system, you know, in a week 
or two.
    Mrs. NOEM. I think the concern here is that taxpayers, how 
do they feel reassured that when they make FOIA requests, that 
they get the information that they need? And if we ask you for 
66 employees and are pretty specific on which communications we 
would like to have, will we be getting that information?
    Mr. KOSKINEN. Right.
    Mrs. NOEM. And why is that impossible to provide?
    Mr. KOSKINEN. No. We actually--you know, the FOIA requests 
we are behind a little because we have been providing to all 
the six investigators documents they want. We provide--we have 
an obligation and we measure the delay in time to FOIAs. We 
have an obligation to comply to the statute and anyone who 
makes a FOIA, particularly the media, we try to do that. 
Obviously, they get redacted information because the FOIA 
statute has issues that you can't reveal to the public, and 
then there is 6103 information that doesn't apply here.
    Mrs. NOEM. What is the general----
    Mr. KOSKINEN. So we have said all of the--anything that is 
provided in response to a FOIA request, we are delighted to 
provide with you. And, in fact, in most cases, because most of 
it is about the issue of the determination process, you have 
already got everything they got in the FOIA results plus more 
because you have the unredacted amounts.
    Mrs. NOEM. So you are--you believe you are mandated to 
reply to these FOIA requests as well?
    Mr. KOSKINEN. Yes. I--I think we----
    Mrs. NOEM. And I do believe you are mandated to supply 
information to this committee as well.
    Mr. KOSKINEN. Yes. And, in fact, our--we have been having 
very good----
    Mrs. NOEM. So when you have made the technology upgrades 
and you spent millions of----
    Mr. KOSKINEN. No. We are going to do it.
    While we are over here--and it hasn't been upgraded--we 
have an obligation to work with you.
    Mrs. NOEM. What I am wondering is the money that you have 
received for IT and that you have diverted away from user fees 
to use for IT, where particularly did you invest those dollars 
in upgrading IT to do what services? Did you focus on the 
Affordable Care Act mandate? Did you focus on the mandate to 
provide FOIA requests? On providing background searches? On 
getting us information for the committee? You have IT dollars, 
and you had to choose where to spend them.
    Mr. KOSKINEN. Right.
    Mrs. NOEM. And you believe you are mandated in several 
different areas to provide information. So where did you focus 
those dollars that you believed were critically important to 
be----
    Mr. KOSKINEN. Yes.
    Mrs. NOEM [continuing]. Complying with----
    Mr. KOSKINEN. I do think--and I have told and made it clear 
in our discussions about the budget, even with the constraints, 
improving our system and ability to be able to provide 
information is a priority. And we have to figure out where we 
are going to find the money to do that, but it is one of the 
half a dozen senior priorities we have because we just can't 
keep running it the way we are doing it. It just takes too much 
of our time and effort, and it is unsatisfying to the 
committees. But we have had good discussions with the staff, 
and we continue to want to work with them to figure out how can 
we most efficiently get you what you need for the 
investigations and the oversight you want to do because it is 
an important function.
    Mrs. NOEM. Okay. Thank you.
    Chairman ROSKAM. Commissioner, thanks.
    I just have a couple of--one subject area that is new for 
us to discuss a little bit and then a little bit of cleanup. 
But you have been generous with your time today, and I really 
appreciate your taking the time to field all these questions.
    Mr. KOSKINEN. Well, I am delighted----
    Chairman ROSKAM. And you can dish it out as much as you can 
take it, so that is why----
    Mr. KOSKINEN. No, no. But--but I was going to say----
    Chairman ROSKAM [continuing]. These exchanges----
    Mr. KOSKINEN [continuing]. It has been a terrific hearing 
as far as I am concerned because these are important issues and 
I don't--I think it is an important part of oversight. I think 
all--we don't always come to the same conclusion on the facts, 
but I do think it is helpful and important for us to be able to 
have this discussion without it getting overly contentious or 
difficult. And I am delighted to have been here. I think it is 
an important use and good use of my time, and I appreciate the 
opportunity to have this interchange.
    Chairman ROSKAM. Thank you.
    Let me ask one question for the record, and then I want 
to--I want to talk specifically about audit selection so that 
is where I will go in a second.
    But this is this idea about rehiring people who were 
rejected and then brought back on.
    Mr. KOSKINEN. Yes.
    Chairman ROSKAM. And when you hear about these and you read 
a description of them, when the GAO characterizes them, let me 
just read a couple of paragraphs as a summary.
    Mr. KOSKINEN. I could--I agree with you totally and we have 
adjusted the process. I have told people that, within any 
constraints of the law, we are not going to hire--rehire 
anyone. Most of them are temporary or seasonals. We are going 
to go out of our way to make sure we don't hire anyone with a 
prior employment problem. If they were dismissed or any 
violations of the law, the statute, or performance, we ought 
not to be rehiring them. I agree with you totally.
    It is the same thing--it has been raised in the past that 
employees who had willfully not paid their taxes were eligible 
for awards, and we have changed that. You no longer are 
eligible for an award if you haven't complied with the Tax 
Code. Even though we have over 99 percent compliance, I thought 
it was an important point. I think this is an important point.
    Chairman ROSKAM. Fair enough.
    Mr. KOSKINEN. It makes no sense.
    Chairman ROSKAM. When I was practicing law and I had a 
motion before a judge, and the judge said, ``Motion granted,'' 
I always learned to stop talking. So thank you for that 
response.
    Let me shift gears quickly. I sent you a letter. You 
responded, and the question was--just to refresh your 
recollection----
    Mr. KOSKINEN. Exam.
    Chairman ROSKAM [continuing]. It had to do with audit 
selection. And you said--and I am bound--this is sort of the 
ratio. But you said about 25 percent of audit exams, audits to 
be determined were based on referrals in some way. And I 
thought that number was really high. I thought that the system 
was far more automated, that there were a lot more algorithms 
that went into it and there are algorithms, obviously, that 
determine 75 percent of these. But 25 percent of them come from 
referrals of some type, internal, external, press reports, 
congressional letters----
    Mr. KOSKINEN. Right.
    Chairman ROSKAM [continuing]. And so forth.
    So here is the question. And let me just parenthetically 
tell you about this interchange that I had, because I did a 
townhall meeting with the employees at the Cincinnati office on 
Monday, as you know.
    And when I went in and I spoke to them, the point I was 
making was that we were all in this together and that they 
worked for an institution that was unpopular, and I am a 
participant in an institution that is unpopular. And the 
unpopularity of Congress is based on a perceived 
ineffectiveness; that is the bottom-line criticism of Congress 
these days. But the unpopularity of the Internal Revenue 
Service, I would argue, is different. So people say, 
``Congress, you are not doing your job,'' but IRS is perceived 
as fearful. That is really the concern. So----
    Mr. KOSKINEN. Right.
    Chairman ROSKAM [continuing]. It is not as if this stuff 
just happened in a vacuum. So the ability of the Internal 
Revenue Service to be incredibly directive and to have a lot of 
discretion is--it is an incredibly powerful thing. And as you 
know and I know, any type of power that is abused is a disaster 
because it is corrosive and so forth.
    So what steps have been taken to assure the public that 
when they get an audit notice, it is on the level and it is not 
somebody that is saying ``I don't like your politics'' or ``I 
don't like this'' or ``I don't like that?''
    And let me just make one other point because it is 
important. Lois Lerner--there was a--there was a process that 
was in place--and you are familiar with the emails and so am I.
    Mr. KOSKINEN. Right.
    Chairman ROSKAM. There was a process that was in place 
that, on paper, was a good process. It said there is going to 
be a review. You know, there is going to be three people and so 
forth. Lois Lerner was able to run around that completely and 
say things like ``I can't believe you are not auditing these 
people'' and putting pressure and so forth. So I am going to 
assert something and tell me, if you think I am wrong, why I am 
wrong.
    I think Lois Lerner 2.0 is possible today. What do you 
think?
    Mr. KOSKINEN. Well, first of all, you raise a critical 
point. And that is--and I have said from the start, I said, the 
issues about the determination process that took place and were 
revealed 2 years ago revealed mistakes that should never have 
been made and they should never happen again. And we have made 
it clear--and I, a year ago, apologized on television saying 
anybody who was delayed--most of the people were delayed. They 
never got turned down. They just were delayed for, you know, 2 
years, which is, you know, outrageous. And I think that is 
wrong. I think that should never happen, and I think we should, 
in fact, do whatever we can going forward.
    Taxpayers need to be confident--as you say, it is critical 
that if they hear from us, it is because of something in their 
return. We don't care who they voted for. We don't care what 
party they belong to. We don't care what meeting they went to 3 
weeks ago. And if somebody else had the same issue on their 
return, they would hear from us as well. And we need to make 
sure that we do everything we can for taxpayers to feel 
comfortable with that as we go forward.
    So the inspector general, in the famous report in May of 
2013, had a set of recommendations as to how to put in place 
security steps to make sure it doesn't happen again. We 
implemented all of those. We have gone forward with those.
    Also, what we have done, as we did a review across our exam 
process totally: What are the criteria? Are there controls? Is 
there an issue? And we brought in an outsider that Danny Werfel 
before me hired, and he started when I did. And he did a full 
review of all of our audit exam procedures to see--and he is a 
trained auditor--to see if there were any issues.
    GAO is right now doing the same thing. And we found no 
issues in that review. We have shared that information with 
GAO. We expect them to give us any recommendation they have. 
But it is critical that we have systems in place that work. But 
your point is well-taken, no system self-executes.
    So I have spent a lot of time in my year and a half 
worrying about employee morale, but also culture is trying to 
get employees to understand in the meetings I have had with 
13,000 of them that we need every employee at the front lines 
and for the frontline managers through the system to view 
themselves as a risk manager. That if there is something going 
on that they don't think looks good, it is not going the way we 
expected, something new has happened they have to believe me 
when I say, Bad news is good news, that, in fact, the only 
problem we can't solve is the one we don't know about.
    And we need to have the entire agency comfortable that if 
we have a problem--I testified at my confirmation hearing, it 
would be nice to say we are never going to have a problem, that 
this system will be perfect. And the answer is 87,000 people 
and the complicated Tax Code and dealing with virtually every 
American, things aren't always going to be perfect.
    So the real challenge is to make sure, if there is a 
problem, we find it quickly, we fix it quickly, and we are 
transparent about it. And the only way that is going to work is 
if everybody is comfortable that is what we are trying to do. 
So I have already had people a couple of times walk into my 
office and say, I have bad news. And I was delighted because 
then we could address the issue.
    So part of what happens in large organizations--I always 
talk about the General Motors ignition switch issue. People in 
General Motors knew what the problem was. It just never got to 
the top. Because I know General Motors from my private sector 
experience, it is a command-and-control organization. Large 
organizations tend to be. You know, you have got a lot of 
people; you have got to tell them what to do. The art form is 
to make sure that the information flows from the bottom up as 
well as the top down.
    So we are committed to supporting every employee to saying, 
Whatever the issue is, whatever the problem is, if it doesn't 
look right, let us know. And everybody in the organization now 
knows how to get a hold of me personally. I have gotten, in my 
travels, over, I guess, 400 or 500 separate suggestions. I have 
gotten another 500 in emails to me. And I think it is 
important.
    Somebody asked me at a hearing last week who is the 
responsible and most knowledgeable person about Affordable Care 
and its issues, and I said, I am. If you run the organization, 
you need to know what is going on in it, you need to be 
accountable and responsible for how it works.
    And so, coming back to where we started, you raise a very 
important point, and that is that the American taxpayer needs 
to be comfortable that we are in tax administration; we are 
nonpartisan; we are nonpolitical. We simply are enforcing the 
Tax Code.
    Your point earlier, if you have problems with compliance, 
we are here to help you. You don't have to hire somebody off 
late-night TV to represent you with the IRS. I always say that 
you can call us, and then I shutter a little bit about how long 
it takes you to get through. But we really are trying to help 
people in that regard. But you are also right, the people 
trying to cheat need to understand that we will chase you to 
the end of the earth if necessary, and we are not going to be 
happy when we find you.
    But--so the balance for us, not only in terms of 
compliance, the voluntary compliance system and enforcement in 
taxpayer service, the balance for us for a normal taxpayer is 
for them not to fear us if they have a legitimate question or a 
legitimate concern or problem. You can do online installment 
agreements. We do offers in compromise. If you try to be 
compliant, as I said earlier, we are doing everything we can to 
keep you in the system to have you be comfortable and to work 
with you.
    But, ultimately, it goes back to trust. And people have to 
know that we mean this and that we have got an employee 
system--I have had no pushback from the employees. They are all 
delighted to know that if there is an issue, as I say, we don't 
shoot whistleblowers or people who bring the problems to them; 
we reward them and compliment them. And I think that is a 
message that we have to keep saying, but we have to mean it. We 
have to have systems in place, and we have to have oversight.
    I am delighted the GAO is taking another look at the stuff 
we have looked at because we need to make sure that in every 
one of these cases, if we are auditing you, it is because of 
some question in your tax return. If you got a good answer, we 
will be delighted.
    Chairman ROSKAM. Thank you. Let me just close by saying 
this. In fourth grade I had Miss Lillian Anderson, who was my 
teacher. And Lillian Anderson was a really good fourth grade 
teacher. And my memory of her was she was tough, but she was 
fair. And I think that there is an admonition there for what 
everybody expects from the Internal Revenue Service, to be 
tough--it is a tough business obviously--but to be fair.
    I am of the opinion that Lois Lerner 2.0 is still possible. 
I appreciate the spirit with which you are communicating to us 
today that you recognize the nature of that milieu and trying 
to mitigate those possibilities. I think that a 25 percent 
referral rate is high in a highly automated system, and so I 
would ask you to revisit that.
    We have posed a number of things that we think will improve 
the customer service aspect of things, some of which you have 
responded you are willing to take a look at, some of which you 
have said you disagree with us. But I will say we think that 
there is--there is ways to meet these needs of the taxpayers in 
an environment that makes the IRS a satisfying place to work 
but also protects and defends taxpayers.
    And, with that, I want to thank my colleagues for their 
time today and, Commissioner, for your time as well. And the 
committee is adjourned.
    Mr. KOSKINEN. Thank you, Mr. Chairman.
    [Whereupon, at 12:22 p.m., the subcommittee was adjourned.]
    [Public Submissions for the Record follows:]

               Elizabeth Dreicer, CEO of Posiba, comments


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                      Foundation Center, comments


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               Professional Managers Association, letter

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