[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


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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:]
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        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:]
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    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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