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

                      FEDERAL WORKFORCE TAX ACCOUNTABILITY

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                             GOVERNMENT OPERATIONS

                                     OF THE

                             COMMITTEE ON OVERSIGHT
                             AND GOVERNMENT REFORM
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 18, 2015

                                   __________

                               Serial No. 114-15

                                   __________

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

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

             Available via the World Wide Web: http://www.fdsys.gov
                          http://www.house.gov/reform

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                       U.S. GOVERNMENT PUBLISHING OFFICE
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                  COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

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

                        Sean McLaughlin, Staff Director
                     David Rapallo, Minority Staff Director
     Jennifer Hemingway, Staff Director, Government Operations Subcommittee
                          Julie Dunne, Senior Counsel
                            Melissa Beaumont, Clerk
                     Subcommittee on Government Operations

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

                                  ----------
                                                                       Page
    Hearing held on March 18, 2015...................................     1

                                   WITNESSES

    Mr. Brad Huther, Chief Financial Officer, U.S. Department of
      Housing and Urban Development
        Oral Statement...............................................     4
        Written Statement............................................     6
    Mr. E.J. Holland, Jr., Assistant Secretary for Administration,
      U.S. Department of Health and Human Services
        Oral Statement...............................................     9
        Written Statement............................................    11
    Mr. Seto Bagdoyan, Director, Forensic Audits and Investigative
      Service, U.S. Government Accountability Office
        Oral Statement...............................................    15
        Written Statement............................................    17
    Mr. Alan Chvotkin, Executive Vice President and Counsel,
      Professional Services Council
        Oral Statement...............................................    28
        Written Statement............................................    30
    Ms. Maureen Gilman, Legislative and Political Director, National
      Treasury Employees Union
        Oral Statement...............................................    39
        Written Statement............................................    41

                      FEDERAL WORKFORCE TAX ACCOUNTABILITY

                                  ----------

                           Wednesday, March 18, 2015,

                      House of Representatives,
                 Subcommittee on Government Operations,
                  Committee on Oversight and Government Reform,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 1:04 p.m. in
    room 2247, Rayburn House Office Building, the Honorable Mark
    Meadows (chairman of the subcommittee), presiding.
        Present: Representatives Meadows, Massie, Mulvaney, Carter,
    Connolly, Maloney, and Lynch.
        Mr. Meadows. The Subcommittee on Government Operations will
    come to order.
        Without objection, the Chair is authorized to declare a
    recess at any time. We do have votes coming up pretty shortly,
    so we are going to try to fast track and at least get your
    opening Statements.
        Our Federal employees are held accountable by paying taxes,
    by the Code of Ethics for what they sign and acknowledge for
    the executive branch. The Code of Ethics dictates that Federal
    employees must ``satisfy in good faith their obligations as
    citizens, including all just financial obligations, especially
    those such as Federal, State and local taxes that are imposed
    by law.''
        Certainly the President's Fiscal Year 2016 budget asks that
    the taxpayer spend some $275 billion to fund the executive
    branch payroll. Federal salaries now average over $75,000 per
    person. Yet, according to the IRS, more than 100,000 Federal
    civilian employees owe more than $1 billion in unpaid Federal
    income tax for 2013.
        In prior work, the GAO has identified tens of thousands of
    Federal employees and contractors with access to classified
    information that were delinquent in their taxes, including many
    of them who had accrued tax debt following the adjudication of
    their security clearance.
        The GAO also found thousands of Federal contractors with
    substantial amounts of unpaid Federal taxes. For example, in
    the VA-HHS contract for healthcare-related services, a
    contractor was paid over $100,000 in Federal funds and the
    contractor had an unpaid tax debt of over $18 million.
        At the same time, owners were buying multimillion dollar
    properties and luxury vehicles but not paying their payroll
    taxes. Employees and contractors who do not play by the rules,
    who consciously ignore the channels and processes in place to
    fulfill their tax obligation, must be held accountable.
        This particular hearing is to address those particular
    issues. We look forward to hearing from our witnesses in terms
    of your potential ideas and solutions or ramifications. We
    welcome you here today and thank you so much.
        Mr. Meadows. Chairman Chaffetz will be soon introducing or
    reintroducing some legislative reform that is aimed at
    addressing the tax delinquent Federal employees and
    contractors, including those who have access to national
    security information.
        It is with that potential reintroduction of legislation
    that we hold this hearing. I am joined by my friend and
    colleague from the 11th congressional District, the Ranking
    Member of this subcommittee. I will now recognize him for his
    opening remarks, Mr. Connolly.
        Mr. Connolly. I thank my friend the Chairman.
        I welcome all of the witnesses at the table.
        From the outset, let us be clear. While members and
    stakeholders may debate the particulars of how we can best
    address serious and willful tax delinquency committed by
    Federal employees, contractors, grant recipients and for that
    matters, Members of Congress and their staffs, there is
    absolutely no disagreement among members here on this dais or
    of stakeholders in the crowd I am sure that all Americans
    should pay their fair taxes in full and on time.
        Any disagreement or debate that may arise this afternoon
    simply reflects legitimate differences over what would be the
    most effective approach and what set of tools would be optimal
    to deal with the challenge of serious tax delinquency while
    preserving sacred constitutional principles such as the right
    to due process of law, even the presumption of innocence.
        I have the privilege of representing the dedicated and far
    too under-appreciated Federal employees and contractors that
    protect our borders, administer Social Security and Medicare,
    and support our warfighters, among so many other critical
    missions.
        I have great empathy for my constituents who express
    justified resentment over Congress' repeatedly highlighting
    those few instances of outrageous, willful tax delinquency to
    unfairly tarnish the entire Federal work force and contracting
    communities.
        The reality is that Federal employees pay their taxes at a
    substantially higher rate than the general public. Indeed, 97
    percent of the Federal work force paid their taxes in full and
    on time in 2013, an impressive figure that significantly
    exceeded the general public's compliance rate of 91 percent.
        Furthermore, through levies and wage garnishments, the IRS
    already recovers almost all tax delinquent debts of Federal
    employees. The Majority's longstanding obsession with advancing
    legislation that mandates firing Federal workers who have
    fallen behind in their taxes seems to me a classic example of
    the solution in search of a problem.
        Consider the last Congress in the official cost estimate of
    the so-called Federal Employee Tax Accountability Act, the
    Joint Committee on Taxation of the Congress, bipartisan,
    reported that enacting the legislation would ``have a
    negligible effect on revenues.''
        In that same cost estimate, the Congressional Budget
    Office, a non-partisan office, scored the legislation and
    actually projected that enacting the bill would increase
    Federal spending by $1 million in the first year and about half
    a million dollars in every year thereafter.
        Make no mistake, the unfair effort by some to target all
    Federal employees as tax scoff offs has nothing to do with
    improving our Nation's tax compliance rate or lowering the
    deficit. Spending more than $1 million of taxpayer funds to
    implement a counter-productive bill that only targets our
    Nation's civil servants, while ignoring our Nation's
    multibillion tax gap is neither a prudent nor a wise policy
    response.
        Let us remember, this committee has highlighted in the past
    that every year the IRS cannot collect or does not collect
    about $350 billion a year, not from Federal employees but money
    owed the Federal Government that just is not collected because
    of lack of resources.
        No one disputes these tax debts must eventually be paid.
    However, while simply firing an employee may feel good, it will
    not properly address the problem. In fact, it would undermine
    the ability of the government to collect those unpaid taxes on
    behalf of the American people because that individual is now
    unemployed.
        The Internal Revenue Service Federal Employee Delinquency
    Initiative and its Federal Payment Levy Program have already
    proven effective in holding Federal workers accountable for
    paying their taxes and recouping back taxes.
        I would be interested in working with my colleagues to
    explore whether we can double down on those proven programs
    that, in fact, do work. The bottom line is we can improve upon
    the Federal work force that is an already impressive and
    admirable tax compliance rate of 97 percent by focusing on
    better execution of existing programs as opposed to creating
    new duplicative bureaucracies and a punitive work ethic. I do
    not think it is going to prove useful with our Federal workers.
        I certainly stand ready to hear the testimony today and
    hear the facts, but I must confess at the beginning, I wonder
    what the problem we are trying to solve is.
        With that, I yield back, Mr. Chairman.
        Mr. Meadows. I thank the Ranking Member for his opening
    Statement.
        I will hold the record open for five legislative days for
    any members who would like to submit written Statements.
        I would say the Ranking Member and I believe wholeheartedly
    that painting a broad brush with our Federal employees is not
    something we want to do. As we introduce the witnesses, I would
    ask let us look at how do we address this? How is your agency
    different from some of those performing better?
        If we do not have to pass legislation to make this happen,
    I think we are all in agreement that it is more about
    accountability than it is trying to paint a broad brush.
        Mr. Connolly. Mr. Chairman, I want to be very clear. In no
    way should my remarks be inferred as you having painted any
    such broad brush. I know you did not.
        Mr. Meadows. I thank you.
        We will recognize our panel of witnesses. I am pleased to
    welcome Mr. Brad Huther, Chief Financial Officer, U.S.
    Department of Housing and Urban Development; Mr. E.J. Holland,
    Jr., Assistant Secretary for Administration, U.S. Department of
    Health and Human Services; Mr. Seto Bagdoyan, Director, Audit
    Services, Forensic Audits and Investigative Service, U.S.
    Government Accountability Office; Mr. Alan Chvotkin, Executive
    Vice President and Counsel, Professional Services Council; and
    Ms. Maureen Gilman, Legislative and Political Director,
    National Treasury Employees Union. Welcome to all of you.
        Pursuant to committee rules, all witnesses will be sworn
    before they testify. Please rise and raise your right hand.
        Do you solemnly swear or affirm that the testimony you are
    about to give will be the truth, the whole truth, and nothing
    but the truth?
        [Witnesses respond in the affirmative.]
        Mr. Meadows. In order to allow time for discussion, please
    limit your oral testimony to 5 minutes. Your entire written
    Statement will be made a part of the record.
        We will recognize our first witness for 5 minutes.

                           WITNESS STATEMENTS

                        STATEMENT OF BRAD HUTHER

        Mr. Huther. Thank you, Chairman Meadows, Ranking Member
    Connolly, and other distinguished members of the subcommittee.
        My name is Brad Huther. I am the Chief Financial Officer at
    the Department of Housing and Urban Development. I am honored
    to be here today on behalf of the Department. It is my
    privilege to testify before this distinguished subcommittee.
        I have been with HUD for approximately 6 months having been
    confirmed by the Senate on September 17, 2014. I am
    additionally pleased to work alongside a strong team of
    colleagues in the Office of the Chief Financial Officer to
    achieve Secretary Castro's vision.
        Prior to joining HUD, I served over 30 years in senior
    leadership positions with the Federal Government at the U.S.
    Patent and Trademark Office, the United States Census Bureau
    and the Office of the Secretary of Commerce.
        My non-government professional experience includes serving
    as the President and Chief Executive Officer of the
    International Intellectual Property Institute as a
    distinguished adjunct professor in residence at American
    University.
        Over the past 25 years, the CFO Act of 1990 has played a
    central role in improving financial performance and
    importantly, accountability based largely on private sector
    models. At HUD, Secretary Castro is committed to strengthening
    our core financial operations so that all senior financial and
    program management officials can sharpen their focus on the
    strategically important issues of financial analysis,
    forecasting and the leveraged management of every dollar we
    spend.
        I appreciate the subcommittee's interest in examining the
    issue of the accountability of Federal employees and
    contractors. Building a stronger HUD is a key priority for
    Secretary Castro, Deputy Secretary Coloretti and the new
    leadership team at the department.
        We are working diligently to increase transparency and
    accountability, to eliminate inefficiency and I ensure that all
    employees meet high ethical standards. These efforts will help
    everyone at the department fulfill our critical mission of
    creating strong, sustainable, inclusive communities and
    quality, affordable homes for all.
        Like all Federal employees and all citizens, HUD employees
    have a responsibility to satisfy their tax obligations. The
    vast majority of HUD employees do meet their tax requirements.
    Of course the goal of the department is to have all employees
    comply with their tax obligations and we have taken steps to
    help employees meet those responsibilities.
        The earnings and leave Statements of all employees includes
    a reminder of the Federal tax filing deadline and a notice that
    employees are unable to pay the taxes owed, they should contact
    the Internal Revenue Service to discuss payment options.
        Further, HUD makes counseling available to any employees
    who need assistance managing their personal finances.
        Despite these efforts, there are some employees who do not
    meet their tax obligations. These employees, like all
    taxpayers, are subject to the enforcement and collection
    efforts of the IRS. They also receive the same due process
    protections as their fellow citizens.
        As the subcommittee examines this issue, it is important
    for both the subcommittee and the public to understand that
    Section 6103 of the Internal Revenue Code protects the
    confidentiality of tax information and prohibits its disclosure
    unless the statutory exception applies.
        Furthermore, the responsibility to take enforcement action
    to recover unpaid taxes rests appropriately with the IRS.
        Let me reassure the subcommittee that the department
    remains firmly committed to the goal of building an accountable
    work environment and a work force where each and every employee
    is meeting his or her ethical and legal obligations, including
    tax requirements.
        Again, I wish to thank the subcommittee for the opportunity
    to appear before you today.
        [Prepared Statement of Mr. Huther follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Meadows. Thank you so much.
        Mr. Holland, you are recognized for 5 minutes.

                     STATEMENT OF E.J. HOLLAND, JR.

        Mr. Holland. Thank you, Chairman Meadows, Ranking Member
    Connolly and distinguished members of the subcommittee.
        I am E.J. Holland, Jr., Assistant Secretary for
    Administration, U.S. Department of Health and Human Services. I
    am honored to be here on behalf of our department. It is my
    privilege to testify before this distinguished committee on a
    matter which we believe to be very important.
        While I am incredibly honored to serve this Administration,
    I frankly am relatively new to civil service. I came here 5
    years ago after a 41-year career in the private sector
    practicing law and serving in senior executive roles at three
    separate Fortune 500 companies.
        Now, as Assistant Secretary for Administration at the
    department, I serve in a role similar to a chief administrative
    officer in a private sector company. My division is responsible
    for supporting some 80,000-plus employees in matters of
    technology, real eState, human resources and security services.
        I came to serve in government with a commitment to help
    make government efficient and effective. Your invitation and my
    commitment to American taxpayers bring me here today.
        You have invited me to testify regarding the tax
    accountability of Federal employees. Let me begin by saying
    that at the Department of Health and Human Services, we expect
    our employees to be exemplary citizens.
        Our Code of Ethics requires that each of us satisfy in good
    faith our obligations as citizens, including all just financial
    obligations, especially those such as Federal, State and local
    taxes that are imposed by law.
        We believe that Federal employees hold the public trust and
    should be held to a high standard of conduct. We agree that
    Federal employees, like all employees, should pay Federal as
    well as State and local taxes.
        It also is of utmost importance that I communicate to you
    that HHS is not privy to information about tax delinquency of
    our individual employees. It is the Internal Revenue Service
    that collects tax delinquency information and only the IRS has
    the procedures in place to recover funds from HHS or other
    government employees who might be delinquent in paying their
    taxes.
        Our understanding is that IRS sends our payroll provider,
    in our case, Defense Finance and Accounting Services, one of
    the four authorized Federal payroll providers, the information
    needed to collect any tax levies. DFAS notifies and collects
    from the Federal employee without any intervention by the
    Department of Health and Human Services.
        Even if we were privy to tax delinquency matters of our
    employees, we would have to establish a nexus or a connection
    between an employee's position in the tax delinquency in order
    to take any administrative action against the employee under
    current law.
        Under OPM governmentwide regulations, unsuitability,
    evidence that a job applicant is dishonest in meeting financial
    obligations from Federal programs such as taxes, may result in
    a negative suitability determination. However, this does not
    automatically make the applicant ineligible for Federal
    employment but may be a consideration based on individual
    circumstances.
        While there is not current law strictly barring a person
    with seriously delinquent tax debts from Federal employment, we
    do have laws and regulations that we follow that significantly
    restrict the awarding of contracts to delinquent offerors.
        The Federal Acquisition Regulations, the so-called FAR,
    requires contractor offerors, in certain circumstances, certify
    whether they have been notified about delinquencies in Federal
    taxes and I understand the Federal Acquisition Regulatory
    Counsel is developing regulatory changes to the FAR to
    implement the new requirements in the Appropriations Act.
        In summary, we do not currently have any authority to
    enforce tax delinquency laws on the employees of Health and
    Human Services. We are not privy to information regarding
    specific employees who might be delinquent in paying their
    taxes.
        We, at HHS, do believe taxpayers, regardless of their
    income or their place of employment, should be held accountable
    for filing accurate tax returns and paying taxes they owe on
    time. We are fully supportive of enforcing those laws.
        [Prepared Statement of Mr. Holland follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

            Mr. Meadows. Thank you, Mr. Holland.
        Mr. Bagdoyan, you are recognized for 5 minutes.

                       STATEMENT OF SETO BAGDOYAN

        Mr. Bagdoyan. Good afternoon, Chairman Meadows, Ranking
    Member Connolly and members of the subcommittee.
        I am pleased to be here today to discuss the results of
    reports GAO issued in September 2013 and July 2014 on the
    Federal tax debt of Federal employees and contractors with
    security clearances.
        I would note that Federal law does not preclude individuals
    with tax debt from holding such clearances. However, tax debt
    may be an indicator of potential current or future financial
    pressure and vulnerability to compromise.
        According to ODNI, several million Federal employees and
    contractors were eligible for or held clearances as of October
    2013, more than half.
        Circumstances in which such clearance-holders face
    financial pressure create an inverted risk pyramid, with those
    suitable for Federal employment that may require some type of
    clearance at the relatively lower risk top and those with
    access to classified TS/SCI level information at the relatively
    higher risk bottom. Disclosure of such information could cause,
    in some cases, grave damage to national security.
        With this risk as backdrop, I will now outline our key
    findings.
        In July 2014, we reported that about 83,000 DOD employees
    and contractors eligible for various clearances during 2006-
    2011 had Federal tax-debt totaling more than $730 million to
    millions of dollars. About 40 percent had voluntary repayment
    plans with IRS. About 25 percent were eligible for a top secret
    or SCI clearance. About 76 percent accrued tax debt after being
    deemed eligible for a clearance and most noteworthy, in terms
    of increased potential vulnerability, about 31 percent had
    access to classified information and owed about $229 million.
        In September 2013, we reported that about 8,400 non-DOD,
    non-intelligence civilian agency employees and contractors
    eligible for clearances during the period of our analysis from
    2006-2011 owed about $85 million in tax debt as of June 2012.
    The median debt was about $3,800 and debts ranged once again
    from $100 to several millions of dollars. About half had
    voluntary repayment plans with IRS. About half were eligible
    for a top secret clearance and about 76 percent accrued their
    tax debt after being deemed eligible for a clearance.
        We further reported that because Section 6103 of the
    Internal Revenue Code restricts access to tax information
    without taxpayer consent, investigators primarily relied on
    clearance applicants self reporting their debts and validation
    techniques such as use of credit reports to detect tax debt.
        However, each of these are shortcomings. Self reporting is
    a relatively weak front end control without in-depth,
    independent verification and credit reports only contain
    information on debts for which IRS filed a lien on debtors'
    properties.
        Additionally, Federal agencies do not routinely review the
    tax compliance of clearance holders. There is no process to
    detect unpaid tax debt accrued after an individual has been
    favorably adjudicated unless it is self reported, reported by a
    security manager due to garnishment of wages or discovered
    during a clearance renewal or upgrade.
        Our findings underscore the importance of thoroughly
    assessing clearance applicants and holders with detailed and
    timely insight into their financial status while simultaneously
    balancing important concerns and tradeoffs about privacy and
    security. Such insight could help provide reasonable assurance
    that these individuals are not unduly exposed to financial
    pressure and mitigate related vulnerabilities to compromise.
        In the July 2013 report, we recommended that ODNI in
    consultation with other agencies evaluate the feasibility of
    developing a system that could obtain tax debt information
    through an automated means for investigating and adjudicating
    clearance applicants and monitoring the debt status of
    clearance holders.
        An ODNI working group is in the process of looking into
    this matter and we continue to monitor their progress. We will
    continue to periodically report on it.
        Mr. Chairman, this concludes my Statement. I look forward
    to the subcommittee's questions.
        [Prepared Statement of Mr. Bagdoyan follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Meadows. Thank you for your work and your testimony.
        Mr. Chvotkin.

                       STATEMENT OF ALAN CHVOTKIN

        Mr. Chvotkin. Thank you, Mr. Chairman and members of the
    subcommittee.
        PSC is also a strong proponent of creating a fair,
    balanced, and competitive Federal contracting marketplace with
    a level playing field for businesses.
        No entity should have an unfair competitive advantage by
    failing to pay taxes over those firms that pay their taxes.
    Companies that violate the tax laws should be held accountable
    for those violations and punished accordingly.
        In addition, in the Federal contracting market, those
    companies should be carefully evaluated to ensure they are
    ``presently responsible'' parties, decisions separate from
    punishment for past violations before being eligible to receive
    future Federal contracts.
        The principal requirements for tax compliance are found in
    the Federal tax laws and enforced by the Internal Revenue
    Service. There are also provisions, as Mr. Holland mentioned,
    in the Federal Acquisition Regulation to identify and provide
    due process before an agency takes action against contractors
    who fail to comply with the tax laws. The Federal Acquisition
    Regulation applies only to contracts, not to grants.
        The FAR specifically includes an enumerated list of causes
    for suspension and debarment and authorization to act against a
    contractor for having delinquent Federal taxes in an amount
    that exceeds $3,000. The FAR also contains guidance about what
    constitutes a delinquent tax debt and clearly provides that
    such debts must be finely determined, meaning that there is not
    a pending administrative or judicial challenge and all appeal
    rights have been exhausted.
        To identify contractors that may have violated Federal tax
    laws that have a tax delinquency, the System for Award
    Management, called SAM, is the Federal contractor registration
    system that all perspective contractors must use to enter
    detailed information about their company in order to be
    eligible to compete for Federal contracts.
        SAM requires companies to certify that they have not been
    convicted of or had any civil judgment rendered against them
    because of a tax evasion or violation of Federal tax laws. SAM
    also requires contractors to annually certify whether or not
    they have been notified of any tax delinquency in excess of
    $3,000.
        Under the Treasury's Federal Payment Levy Program, Treasury
    is authorized to withhold a percentage of any Federal payment
    in order to satisfy a Federal tax debt. For Federal
    contractors, Treasury is authorized to withhold up to 100
    percent of that payment.
        Despite the clear and effective initiatives to ensure
    contractor compliance with tax laws, policy riders regarding
    contractor compliance have been included in a myriad of
    appropriations laws over the past several years. These
    different approaches adopted by appropriations acts make it
    difficult to achieve a truly governmentwide approach and also
    creates significant confusion within the government and the
    contractor community about reporting and compliance
    requirements.
        PSC believes that the current FAR provisions, which have
    been in place since 2008, have had a positive impact on
    addressing Federal contractor compliance with Federal tax laws.
    Legislation that codifies, clarifies, and offers minimally
    invasive improvements to the Federal Acquisition Regulation
    could be beneficial. However, such legislation must be tailored
    carefully to avoid creating new challenges or new
    circumstances.
        We understand that Chairman Chaffetz is planning to
    reintroduce his Contractor Tax Accountability Act. PSC
    recommends that the committee adopt the improvements that I
    have identified in my prepared Statement to better align it
    with current regulations and practices, including repealing
    prior years appropriations acts, clearly stating that the
    provisions of the bill supersede those prior appropriations act
    provisions.
        Your invitation letter also requested we comment on the
    vulnerability posed by tax delinquent workers, including
    Federal employees and contractor personnel with security
    clearances.
        An assessment of a contractor employee's or a Federal
    employee's current compliance with tax laws is and should be a
    factor in the initial security clearance and background
    investigation and Federal adjudication process. It is, and
    should be, taken into account in the periodic reinvestigation
    of an individual's continued suitability for that clearance.
        We support the current Federal Government adjudication
    guidelines that evaluate the whole person when considering the
    specific impact of any single behavior and see no need to
    change those adjudicatory guidelines.
        However, if there are to be any changes to the security
    clearance process or adjudication standards regarding tax law
    compliance, it must treat all individuals who are applying for
    or holding a clearance equally.
        To repeat what others have said, it is important to note
    that Federal contracting companies often have little ability to
    address cleared personnel's compliance with tax laws because it
    is the Federal Government that manages that clearance process
    and personnel privacy issues prevent companies from knowing
    about the tax status of their employees unless they are told.
        Nevertheless, using continuous evaluation and monitoring
    techniques could improve the overall compliance with the tax
    laws by all cleared personnel regardless of whether they are a
    Federal or a contract employee.
        That concludes my Statement. I look forward to your
    questions.
        [Prepared Statement of Mr. Chvotkin follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Meadows. Thank you for your testimony.
        Ms. Gilman, you are recognized for 5 minutes.

                       STATEMENT OF MAUREEN GILMAN

        Ms. Gilman. Chairman Meadows, Ranking Member Connolly, and
    members of the subcommittee, thank you for the opportunity to
    provide NTEU's views on tax compliance issues in the Federal
    work force.
        I would like to extend regrets from NTEU's President,
    Colleen Kelly, who wanted to be here today but is recovering
    from back surgery.
        Let me begin by stating that NTEU firmly believes that
    every Federal employee should pay their taxes in a timely
    manner. There are currently rules in place that allow Federal
    employees to be disciplined and even terminated for serious tax
    delinquency.
        NTEU believes that termination for tax delinquency can be
    appropriate in some cases, but we believe that a blanket policy
    of termination is not warranted and will likely lead to more
    revenue going uncollected.
        Under current law, agencies can take disciplinary against
    employees for failure to satisfy their just financial
    obligations, including their obligations to pay Federal taxes.
    These actions can range from counseling to removal.
        In addition, there is also an efficient and successful
    process currently in place to recover taxes owed by Federal
    employees who become delinquent. In 1997, Congress authorized
    establishment of the Federal Payment Levy Program which allows
    the IRS to continuously levy up to 15 percent of certain
    Federal payments made to delinquent taxpayers.
        Under the FPLP, the IRS shares tax debt information with
    the Bureau of the Fiscal Service, which is responsible for most
    Federal payments. If a match is found, a 30-day notice is
    given, then the IRS authorizes BFS to levy all eligible Federal
    payments to that individual.
        The levy remains in effect until the debt is paid in full
    or until the taxpayer makes other arrangements to pay off the
    debt. Federal payments that can be levied through the FPLP
    include Federal salaries. It is important to note, however,
    that Federal payments, including salaries to delinquent
    employees, are exempt from the levy program under certain
    circumstances, including when a taxpayer is in bankruptcy, when
    they have applied for relief as an innocent spouse, or when the
    IRS has determined that they are in a hardship situation.
        Therefore, one reason a Federal employee that owes taxes
    may not currently be under the FPLP program is that they
    qualify for one of these exemptions. Another reason could be
    that the process of determining the delinquency and
    implementing the levy has simply not been completed.
        NTEU believes that prioritizing and providing adequate
    resources to the Federal Payment Levy Program would be a much
    better solution than a blanket employment bar. It would be a
    win-win by helping to get Federal employees with tax debt into
    compliance while recovering additional revenue that is owed.
        If, however, legislation is pursued that would prohibit
    Federal employment for those with tax debt, we believe it is
    critically important to include exemptions similar to those in
    the FPLP, especially a hardship exemption that represents a
    consistent and transparent standard, as well as a notice and
    grace period for those working earnestly to resolve their
    debts.
        As you know, the U.S. Tax Code is incredibly complex.
    People can end up owing additional taxes for many non-nefarious
    reasons. For example, if they took deductions they thought were
    allowed but were not or they got bad advice from an
    inexperienced or unscrupulous preparer or a joint filer got
    inaccurate information about a spouse's earnings.
        NTEU believes that intent should be a consideration when
    determining whether a Federal employee should be terminated due
    to tax delinquency. We also believe that ability to pay should
    be a consideration.
        If an employee is in such dire financial straits that he or
    she is exempt from the levy program, it is not disrespect for
    the law but lack of wherewithal that is behind the non-payment.
    Clearly firing that individual, who might otherwise get back on
    track, repay the debt as well as become a tax compliant,
    contributing member of society, rather than someone not working
    and possibly collecting government benefits, does not seem to
    make economic sense.
        In fact, the Joint Committee on Taxation and the
    Congressional Budget Office, who scored one version of
    legislation that would require firing tax delinquent Federal
    employees as raising negligible revenue but costing an
    additional $1 million in administrative costs in the first year
    alone.
        We urge the subcommittee to consider options such as
    prioritizing the levy program that will improve tax compliance
    within the Federal work force while bringing in additional
    revenue that is owed before moving to a blanket policy of
    termination.
        Thank you again for the opportunity to provide this
    testimony. I would be happy to answer any questions.
        [Prepared Statement of Ms. Gilman follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Meadows. Thank you, Ms. Gilman.
        I appreciate the testimony of all the witnesses. Thank you
    for staying close to the five minute deadline. Some of you
    actually came in under, so I thank you.
        I am going to defer on my questions because we will have
    votes shortly. I am going to recognize the gentleman from
    Kentucky, Mr. Massie, for 5 minutes.
        Mr. Massie. Thank you, Mr. Chairman.
        Ms. Gilman, first of all, I want to offer congratulations.
    When I look through the list here, I see the delinquency rate
    for the Department of Treasury, I assume that would include
    members of your union, is the lowest on the list which I am
    hoping would be the case. It is 1.2 percent which is admirable
    compared to the other members here and even the population in
    general, especially the population in general.
        My question is, what is it that the Treasury is doing right
    that everybody else is maybe missing?
        Ms. Gilman. Let me say that the National Treasury Employee
    Union represents employees throughout the Federal Government
    but we do represent the bulk of employees who work for the
    Treasury Department.
        Within Treasury, only IRS employees have had historically
    more stringent rules about tax compliance than the rest of the
    Federal work force. That continues today. They have had
    historically rules within the IRS manual on conduct involving
    tax violations that have made them subject to termination for
    many, many years.
        Since that time, there have been provisions included in the
    Tax Code known as the ten deadly sins which involve termination
    for willing and knowing violations of tax rules. I think there
    is sometimes a misperception that those rules involve non-
    payment. They do not. They involve purposely not filing returns
    that an employee knows are supposed to be filed or purposely
    under-reporting or lying about your income.
        The idea of whether or not your ability to pay is actually
    not part of that is considered in whether or not you face
    termination at the IRS.
        Mr. Massie. Would it be safe to say that the Treasury has a
    higher standard than the other organizations on the list and
    how maybe enforcement mechanisms and that is how you achieved a
    rate that is about one-third?
        Ms. Gilman. The IRS does, not all of Treasury.
        Mr. Massie. The IRS.
        I think Mr. Huther pointed out that just because you are a
    Federal employee does not mean that you are not still deserving
    of the protections of the laws and your civil liberties should
    still be intact. We should not single out, for instance,
    Federal employees.
        When you apply to work at a bank, I know this because the
    bankers I have talked to in my district lament the fact that so
    many young people have horrible credit ratings are no longer
    eligible to be employed by their bank. To work at a bank, you
    have to go through credit checks. This is for you, Mr. Holland.
    Do employees at HHS, your organization, have to go through a
    credit check as a condition of employment?
        Mr. Huther. Congressman Massie, it depends on the nature of
    the position. But for the vast majority of employees, at the
    time of their initial entry or periodically throughout the
    course of their careers, they would rarely be subject to a
    credit check per se. Those in the Senior Executive Service
    level and other higher ranking management officials and the
    career service, could be but it is a function really of the
    disclosure documents that they provide at the time of their
    filing of ethics Statements and the like.
        Mr. Massie. Mr. Holland?
        Mr. Holland. The situation at the Department of Health and
    Human Services is the same as Mr. Huther describes at the
    Department of Housing and Urban Development. It depends upon
    the situation and depends upon the particular position.
        Mr. Massie. I think Mr. Bagdoyan who pointed out that even
    on a credit report only if the IRS had resorted to a lien would
    it show up on a credit report. Is that true?
        Mr. Holland. That would be my understanding but I am not an
    expert in credit reports.
        Mr. Massie. It still might be worth doing.
        Mr. Bagdoyan, I have a question for you. When you went
    through the numbers and looked at the individuals who were
    eligible for clearance, how many of them are in bankruptcy? Can
    you know that or not?
        Mr. Bagdoyan. We did not identify those who were in
    bankruptcy. That was not in our scope. I can double check.
        Mr. Massie. I want to get in one question. Should the
    government verify tax information for top secret and SCI-
    cleared individuals?
        Mr. Bagdoyan. That would certainly be a consideration for
    the overall toolbox, but as several of the other panelists
    testified, the Section 6103 protections afforded tax
    information would preclude that and doing it in real time
    unless the taxpayer, in this case the security clearance
    applicant, consented for that information to be accessed.
        Mr. Massie. Thank you very much. My time has expired.
        Mr. Meadows. I thank the gentleman.
        The Chair recognizes the Ranking Member, Mr. Connolly, for
    5 minutes.
        Mr. Connolly. I thank the Chair.
        I would like to pick up on that very last point, Mr.
    Bagdoyan. Section 6103, which you referred to, was written by
    Congress and sent to the Internal Revenue Code, is that
    correct?
        Mr. Bagdoyan. I believe that is correct.
        Mr. Connolly. What do you think the purpose of that
    provision was?
        Mr. Bagdoyan. Obviously to protect the privacy of taxpayer
    information.
        Mr. Connolly. Speaking of privacy, Mr. Huther and Mr.
    Holland, you get a list every month of people who are tax
    delinquent, your employees?
        Mr. Holland. I am afraid not, Mr. Connolly, we do not get
    such a list.
        Mr. Connolly. Who would know since you do not know?
        Mr. Holland. The Internal Revenue Service knows.
        Mr. Connolly. Even if you wanted to take corrective
    measures, you are not privy to that information, is that
    correct?
        Mr. Holland. Yes, sir, that is correct.
        Mr. Connolly. Following up on Mr. Massie's point, if there
    were a lien, you might be notified as the employer so that you
    could comply with withholding, correct?
        Mr. Holland. Actually, we do not even know then. We have,
    as do all the Federal agencies, one of four Federal payroll
    providers that pay our employees. Matters of liens are handled
    directly between the lienholder and the payroll provider. They
    do not need to involve the department and we do not know when
    that happens.
        Mr. Connolly. Mr. Bagdoyan, you talked about your audit at
    DOD over a 5-year period. Those numbers in macros sound
    impressive but you pointed out that the range of taxes owed was
    from $100 to in the millions, correct?
        Mr. Bagdoyan. That is correct, Mr. Connolly.
        Mr. Connolly. What percentage of the people would you say
    were involved in relatively small amounts of money?
        Mr. Bagdoyan. I do not have that off the top of my head. I
    can look into it and get back to you.
        Mr. Connolly. That would be very useful because just the
    macro numbers alone do not tell you much of a story. As Ms.
    Gilman pointed out, there may be lots of reasons somebody might
    be technically delinquent.
        For example, if you file your taxes late, legally late, you
    seek an extension and you file in October instead of April 15.
    In compiling what you owe, assuming for a moment you owe money,
    you may find after filing what you think you owe, your tax
    preparer, that the IRS has a small interest fee or a small
    penalty fee that is relatively tens of dollars.
        Technically, you owe that to the IRS. You technically are
    delinquent. It is a matter of their accounting versus your
    accounting. You are absolutely legally within the law, you took
    advantage of a legal provision to extend when you file because
    you are busy in April, but what you owe is calculated slightly
    differently by the IRS and you pay it.
        Ms. Gilman gave a bunch of examples of people who might
    find themselves in perfectly understandable circumstances. Ms.
    Gilman, one of them might be a messy divorce, correct?
        Ms. Gilman. That is correct, Mr. Connolly.
        Mr. Connolly. If somebody finds themselves in that
    circumstance, they might even be advised by their attorneys
    before you pay the taxes or even file them on time because of a
    messy divorce, you may not want to reveal x, y or z. You may
    want to wait until this is settled and then we can settle.
        It may not be because of a willful desire not to pay your
    taxes, it may be because something else is at work that affects
    that tax obligation, is that correct?
        Ms. Gilman. That is correct.
        Mr. Connolly. Is it possible, Ms. Gilman, that somebody
    owes taxes and may not know it?
        Ms. Gilman. Yes, it is. I believe it is often the case that
    there is a lien filed and people are unaware of the lien.
        Mr. Connolly. I know of cases where the IRS had the wrong
    address or somebody moved. IRS is only obligated to notify you
    with the best available information they have, correct?
        Ms. Gilman. That is correct.
        Mr. Connolly. With the best of intentions, you may be
    innocent except IRS has decided otherwise and they have not
    reached you?
        Ms. Gilman. That is right.
        Mr. Connolly. By the way, I find what is driving this
    legislation really interesting because one of the things you
    have to concede if you want to go forward with this kind of
    legislation, it seems to me, is you have to concede the
    omniscience of the IRS. The IRS cannot possibly be mistaken, so
    when it declares you are delinquent, you are delinquent.
        I find that a little ironic when so many of my friends have
    bashed the IRS for mistakes, for incompetence and for getting
    it wrong. In this one case, if you are a Federal employee, we
    just assume they always get it right.
        I yield back, Mr. Chairman.
        Mr. Meadows. I thank the Ranking Member.
        They have called votes at this particular point. Just so
    you all know, I am going to recognize the gentleman from South
    Carolina for 5 minutes, Mr. Mulvaney, but the Ranking Member
    may pop out as we are getting close to a deadline. Mr.
    Mulvaney.
        Mr. Mulvaney. Thank you, Mr. Chairman and the Ranking
    Member.
        Thanks to everyone for doing this. It has been very
    helpful.
        I want to stay on the issue that Mr. Massie finished with
    and Mr. Connolly began with, the Section 6103 protections which
    I think we would all agree is probably well reasoned and sound.
        Mr. Bagdoyan, did I hear you or Mr. Holland say you folks
    require some people to waive that as part of their background
    for a security clearance?
        Mr. Bagdoyan. That is my understanding that if the
    applicant for a security clearance is asked about their
    financial status, they have the option of waiving their 6103.
        Mr. Mulvaney. Is the option to waive it or are they
    required to waive it?
        Mr. Bagdoyan. I believe it is an option but I can double
    check on that and get back to you.
        Mr. Mulvaney. It occurs to me there are ways to fix this.
    To Mr. Connolly's opening point, Mr. Connolly, I do not think
    the issue here is about the amount of money involved. I think
    the issue is about trust in government and the credibility that
    government workers have.
        I think both you and I know because of what we have chosen
    to do for a living, we are held to a higher standard. I think
    taxpayers, ordinary folks, expect Federal workers to be held to
    at least a slightly higher standard.
        It strikes me that may be looking at reforms to 6103 to
    make it more waivable, require it to be waived, if you want to
    work for the Federal Government might be something we could
    look at.
        Mr. Connolly. Would my friend yield?
        Mr. Mulvaney. I would be happy to.
        Mr. Connolly. Thank you, Mr. Mulvaney.
        My only point in questioning Mr. Bagdoyan about the amounts
    was simply to get a sense of the scope. I was not trying to
    make the point that $100 does not matter. I was only trying to
    find out how many are in the millions.
        Mr. Mulvaney. I was actually speaking to your opening,
    reclaiming my time, comments about whether or not this was a
    fiscal responsibility bill. I do not think it is. The CBO
    report would be meaningless unless we are trying to show people
    that the government can properly work and that people who work
    for it are good and honest people.
        What intrigues me the most is what Mr. Massie asked you,
    Ms. Gilman, the fact that Treasury seems to have it down. Your
    delinquency rate is well below 2 percent, roughly a third of
    what the average is across every other agency.
        You are doing it without the heavy hand of Congress on you
    folks and it strikes me that the rules that you put in place,
    specifically IRS, might actually work. Why not do it
    everywhere?
        Ms. Gilman. One thing I think is different about the IRS is
    that people at the IRS have 6103 authority. Information about
    their employees is available to the agency at the IRS unlike
    any other agency because they administer the Tax Code.
        It has been a tradition there for as long as I am aware
    that the IRS existed that they were able to look into their own
    employees' tax compliance because they administer the Code.
        Mr. Mulvaney. One of my takeaways is, again to the Ranking
    Member's point, that the IRS has a much lower delinquency rate
    than anybody else. What is different about the IRS? They have
    6103 authority over their own employees and I think you said
    they have a different code of ethics, was that the term you
    used?
        Ms. Gilman. They have both a manual that has always
    included provisions on the importance of tax compliance. They
    also have some statutory rules that apply only to the IRS about
    truthfulness and taxes.
        Mr. Mulvaney. Maybe this is specific to Treasury, I do not
    know, but I think you said IRS folks can actually be terminated
    for nonpayment under certain circumstances?
        Ms. Gilman. Yes.
        Mr. Mulvaney. Is that the case at HUD or HHS? Can you be
    terminated for non-payment of taxes?
        Mr. Huther. Not that I am aware of, sir.
        Ms. Gilman. If it is found to be a violation of rules that
    you are not complying with your just financial obligations,
    including Federal taxes, then you can be terminated for that.
        Mr. Mulvaney. My point is not that maybe that needs to be
    fixed or changed; my point is it seems to work. If we are
    looking for ways to encourage, to use a positive term, more
    Federal workers to file their taxes on time and do the right
    thing, maybe the model already exists and maybe the IRS is
    something we could look at, for a change, as a model for use at
    other agencies.
        With that, I yield back the balance of my time. Thank you,
    Mr. Chairman.
        Mr. Meadows. I thank the gentleman from South Carolina.
        As I said, they have called votes. I want to be sensitive
    to each one of you. In recognition of the hard work the
    committee has done, I am going to submit my questions for you
    in writing and let you respond in writing. That way we can
    adjourn this hearing and let you go so you do not have to wait
    for an hour.
        I do want to say thank you, each one of you, for your
    testimony. It is important, I think, that we point out this is
    not about the hardship cases because we all think about the
    hardship cases of when we could not afford to pay a tax or we
    had a spousal issue or something else.
        This really is about making sure Federal employees adhere
    to the highest standards. That is what the American taxpayers
    want, that is what they believe. If you are getting paid by the
    Federal Government, you ought to pay back into the Treasury.
        In doing that, it is imperative that we work together. If
    you have recommendations on how we can accomplish this without
    legislative intervention, we are certainly all ears and willing
    to hear that. I want to thank each of you for your testimony
    and for appearing here today.
        There is no other business. Without objection, the
    subcommittee stands adjourned.
        [Whereupon, at 1:55 p.m., the subcommittee was adjourned.]

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