[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
FEDERAL WORKFORCE TAX ACCOUNTABILITY
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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
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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
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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:]
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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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