[Senate Hearing 114-423]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-423

         IRS CHALLENGES IN IMPLEMENTING THE AFFORDABLE CARE ACT

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

                                 HEARING

                               BEFORE THE

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS


                             FIRST SESSION

                               __________

                             APRIL 15, 2015

                               __________

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

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       COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin Chairman
JOHN McCAIN, Arizona                 THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio                    CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming             HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire          CORY A. BOOKER, New Jersey
JONI ERNST, Iowa                     GARY C. PETERS, Michigan
BEN SASSE, Nebraska

                    Keith B. Ashdown, Staff Director
                         Emily Martin, Counsel
              Gabrielle A. Batkin. Minority Staff Director
           John P. Kilvington, Minority Deputy Staff Director
     Troy H. Cribb, Minority Chief Counsel for Governmental Affairs
       Peter P. Tyler, Minority Senior Professional Staff Member
                     Laura W. Kilbride, Chief Clerk
                   Lauren M. Corcoran, Hearing Clerk
                            
                            
                            
                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Johnson..............................................     1
    Senator Carper...............................................     4
    Senator Portman..............................................    15
    Senator Sasse................................................    18
    Senator McCaskill............................................    21
    Senator Ernst................................................    23
    Senator Ayotte...............................................    25
    Senator Lankford.............................................    29
Prepared statements:
    Senator Johnson..............................................    39
    Senator Carper...............................................    42

                               WITNESSES
                       Wednesday, April 15, 2015

Hon. John A. Koskinen, Commissioner, Internal Revenue Service, 
  U.S. Department of the Treasury................................     6
Prepared statement of John A. Koskinen...........................    44

                                APPENDIX

WI constituent letter............................................    52
Responses to post-hearing questions for the Record from Mr. 
  Koskinen.......................................................    53

 
         IRS CHALLENGES IN IMPLEMENTING THE AFFORDABLE CARE ACT

                              ----------                              


                       WEDNESDAY, APRIL 15, 2015

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:01 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Ron Johnson, 
Chairman of the Committee, presiding.
    Present: Senators Johnson, Portman, Lankford, Ayotte, 
Ernst, Sasse, Carper, McCaskill, and Peters.

             OPENING STATEMENT OF CHAIRMAN JOHNSON

    Chairman Johnson. Good morning. This hearing will come to 
order.
    Commissioner Koskinen, I appreciate you coming here and 
preparing your testimony. I think we are all aware, probably 
painfully aware, that it is Tax Day today. We chose this day 
because we figured you are not particularly busy. But I know 
millions of Americans are trying to comply with our Tax Code. 
My wife was talking to me, actually last night--now, she is a 
former Internal Revenue Service (IRS) agent. And now that I 
have my job, she is actually doing our own family taxes, and 
she did ask me, when I retire from this gig, will I take it 
back over? But I think I am pretty satisfied with the current 
arrangement, so I would like to do that.
    But, of course, it is Tax Day, which is different from Tax 
Freedom Day. So I did ask my staff to find out when that is, 
which means, that is the day when Americans actually have paid 
taxes to the Federal Government. All the money that they have 
earned up to that point in time on average goes to the Federal 
Government. Past that point they get to keep the fruits of 
their labor. Tax Freedom Day is April 24, which my recollection 
of this is actually starting to move back a little bit closer 
to the actual Tax Day. But it is still a very long period of 
time that we work for the Federal Government.
    Now, as is my custom, I have got an opening statement, 
which I will ask unanimous consent to enter into the record.\1\ 
And I always get it because Senator Carper is a nice man.
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Johnson appears in the 
Appendix on page 39.
---------------------------------------------------------------------------
    Senator Carper. Reserving the right to object. I will not 
object.
    Chairman Johnson. Without objection, it is entered.
    What I would like to do is read something else, and this is 
the letter we received from a constituent, and I think it is 
pretty appropriate to read today. It is a little bit long, but 
if you would bear with me, I think this would set really the 
discussion that we need to have today, because it is a serious 
letter and there are some serious concerns.
    ``Senator Johnson: We are writing to you because we are not 
sure where else to turn and also to make you aware of yet 
another issue with our affordable health care. We are both 
retired. We live on a moderate annuity payment which we each 
have and Scott's Social Security. We had been receiving a 
distribution from an additional retirement plan, which was 
discontinued in May 2014.''
    By the way, let me mention this is written to me by Scott 
and Julie Thompson. They did allow me to use their name, which 
we are finding is getting more and more difficult to have 
taxpayers allow us to use their name because they are concerned 
if the IRS knows who they are and they are complaining about 
something at the IRS, they are afraid of being targeted. Now, 
that is pretty sad.
    But, anyway, Scott and Julie Thompson were willing to let 
us use their name, so let me continue.
    ``In the spring of 2014, we moved back to Wisconsin from 
Colorado to care for Scott's elderly, dying father. In doing 
that, we moved out of the network of our Colorado health 
insurance. With the changes in the health insurance for 2014, 
we were buying a high-deductible health insurance plan through 
an insurance agency in Colorado. At that time our income was 
too high for us to qualify for subsidized premiums.''
    ``In April 2014, we contacted the Health Insurance 
Marketplace because that was the contact for health insurance 
coverage for Wisconsin. We were unsure if we would be able to 
change insurance in the middle of the calendar year. We spoke 
with the Marketplace agent who informed us that we had two 
qualifying events: the move from Colorado out of the network of 
our health insurance and the substantial reduction in our 
income as of May 2014. We were told we were eligible for 
coverage through the Marketplace and arranged for coverage with 
a plan that has providers in our area, effective June 1, 2014. 
We were told that we were eligible for a premium credit and 
arranged the full premium credit would be applied toward our 
monthly premium, leaving us with a monthly cost we could 
afford, just over $400 a month.'' ``We were told we needed to 
submit proof of our new current income by July 20, which we 
did. In response, we received a letter from the Marketplace 
dated September 20, 2014, stating, ``We have verified your 
information. Your eligibility as described in your eligibility 
determination notice will continue unchanged.''
    ``Fast forward to February 2015. In the process of 
completing our 2014 Federal income taxes, we now find out that 
our total income for 2014 is being used as the basis for our 
eligibility for the health insurance coverage. With that, we 
are not eligible for subsidized premiums and are now told we 
must pay a penalty, returning the entire subsidy amount of 
$11,550.''
    ``There is nothing in the reporting process which allows 
for taxpayers to report when there was a qualifying event. We 
knew that our income in the first half of 2014 was too high for 
us to be eligible for coverage. That is why we had to buy our 
own insurance in Colorado. We were very straightforward about 
our situation in coming back to Wisconsin when we spoke with 
the Marketplace in April. We were told that a qualifying event 
would make us eligible for the premium subsidy, even in mid-
year.''
    Now, again, this is a couple moving to Wisconsin to take 
care of a dying father. They followed all the rules. They 
talked to people they thought were knowledgeable. They were 
told they would be eligible for a subsidy. And now all of a 
sudden they are finding that they are going to have to pay back 
$11,550 of subsidy.
    I will continue: ``Our entire gross annual income for 2014, 
including the distribution received for 4 months early in the 
year and Scott's Social Security, is just over $62,000. The 
penalty being imposed is $11,550. This is 18.5 percent of our 
entire gross annual income. Considering the fact that it is 
being imposed via our income taxes, it is actually going to 
have to be paid out of our after-tax dollars, raising that 
percentage of our income even higher. And for a real ironic 
turn of events, we will possibly have to withdraw this money 
from a retirement account, which will create $11,550 of income, 
which will probably create a penalty for our 2015 coverage.''
    ``We do not know what the threshold is for eligibility for 
health insurance, but an $11,550 penalty on an annual income of 
approximately $60,000 for two people seems excessive. We really 
do not have any options except to pay this penalty in order to 
file our Federal and State income taxes by April 15. We do 
intend to file an appeal with the Marketplace. We did not do 
anything criminal. We did exactly as we were told by the agents 
for the Marketplace. We paid for coverage even when it was very 
expensive so that we would be compliant with the new law.''
    ``Moving to Wisconsin was a difficult, emotional time for 
us. We were thrilled that our new circumstances would allow us 
to have some good health insurance coverage. We never expected 
that what we were told would not be true. It seems to us that 
there must be many other people who had things happen to them 
during the year that affected their health insurance and their 
ability to pay for it. Can you help us at all? Scott and Julie 
Thompson.''
    Now, the sad fact of the matter is--and this is what this 
hearing is about--how the IRS is trying to comply with the 
Patient Protection and Affordable Care Act (ACA). That law is 
in place now. It did not particularly protect Scott and Julie 
Thompson. And there are thousands, if not millions, of 
Americans that we know lost their health care coverage, are 
paying higher amounts, are having to comply with now an even 
more complex tax system. And, of course, that is really the 
purpose of the hearing: How is the IRS trying to grapple--
again, I have a great deal of sympathy for your agency in terms 
of the task it has trying to deal with and help taxpayers try 
and comply with the even added complexity of the Patient 
Protection and Affordable Care Act.
    So, again, that is the purpose of the hearing. I am looking 
forward to your testimony and your answers to our questions.
    With that, I will turn it over to our esteemed Ranking 
Member, Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thank you, Mr. Chairman. And, Commissioner 
Koskinen, it is great to see you. You have a tough job. Our 
jobs are not easy; you have a really tough job. And I just want 
to say thank you for your willingness to do this, to continue 
to serve the people of our country, and our thanks to those on 
the team that you lead for the difficult work they do. We do 
not make your job any easier. We do not make your job any 
easier because we do not fully fund the work that needs to be 
done, whether it is providing service to people or whether it 
is actually doing the audits and so forth to make sure that 
people are paying what they ought to be paying. We wait and 
delay passing Tax Code changes until it is well beyond any kind 
of reasonable deadline. We provide uncertainty in the Tax Code, 
and we expect you to come along and clean it up after us.
    There is an old cartoon character, Pogo, who said, ``We 
have seen the enemy and it is us.'' And many of the concerns 
that were cited by our Chairman can be really laid at our feet. 
My hope is that he will be able to help this constituent. 
People call my office every day for help in any variety of 
areas. And one of the reasons that people have called my 
office, probably thousands of times in the last 14 years, is 
because they did not have any health care coverage. And for a 
lot of them, health care was a visit to the emergency room or, 
frankly, just doing without. And that is not a good option 
either.
    The question is: What are we going to do about it? People 
talked about doing something about it for years. And we did 
not. When Hillary Clinton was First Lady, she tried to do 
something about it, and it foundered and did not work out. And 
Barack Obama becomes President, and he says, ``Well, let us 
give it another shot.''
    I serve on the Finance Committee, along with Senator 
Portman here. I do not know if he was with us when we did this 
work on the Finance Committee, but we tried a bipartisan effort 
for months involving three Democrats and three Republicans to 
try to figure out how to try to extend health care coverage to 
a lot of people that did not have it and rein in the growth of 
health care costs. And, frankly, after three or four efforts 
and months of trying led by Max Baucus and Chuck Grassley, two 
good friends, guys who worked across the aisle, we just could 
not do it. And in the end, we took two Republican ideas--the 
exchange, the marketplace, and creating large purchasing pools 
so that people did not have to be part of a big organization in 
order to get health care coverage and better coverage. We took 
that idea and we incorporated it into the law. And we took 
another Republican idea--thank you, Governor Romney--of the 
individual mandate, because the insurance companies said, ``If 
you do not require people to get coverage, we will end up 
having to cover just the lame, the unhealthy, and the blind, 
and it is not an economically feasible approach.''
    So we ended up taking those two good ideas and incorporated 
them into the law, and one of the ideas behind the exchange, as 
you know, is that for people whose income is not great, we 
wanted them to be able to purchase health insurance through 
this purchasing pool to maximize their leverage. But for folks 
whose income is low, they get a tax credit, and the tax credit 
eventually phases out at, I think, 400 percent of poverty.
    Whether the origin of those ideas was Republican or 
Democrat, I think they are good ideas. And the question is: How 
do we make it work? And one of the ways we make it work is to 
make sure that you have at the IRS the resources so when people 
call you with questions about this stuff, you can actually give 
them a good answer.
    On Thursdays, tomorrow, our Senate chaplain, Barry Black, 
hosts a Bible study group. He does it every Thursday that we 
are in session for the most part. It includes Democrats and 
Republicans, those of us who need the most help. And one of the 
things he often shares with us is Matthew 25: ``When I was 
hungry, did you feed me? When I was naked, did you clothe me? 
When I was sick and in prison, did you visit me? When I was 
thirsty, did you give me to drink?'' Matthew 25 does not say 
anything about, ``When I had no health care coverage, did you 
do anything for me?'' Two thousand years ago I guess they were 
not thinking about that.
    But it is very real to us today. We had some 40 million 
people who had no health care coverage just a few years ago, 40 
million people. And today that number has been knocked down by 
about a third. And on behalf of all those people who have 
coverage, including the kids the--the young people up to the 
age of 26 who have coverage on their parents' plan, that is a 
very good thing that has happened. The question is: Can we do 
better at this? You bet we could. And we will. And my hope is 
that we will, as we go forward, instead of trying to kill the 
Affordable Care Act, we will find ways, in a bipartisan way, 
working with the administration to fix the problems that need 
to be fixed. And I am encouraged that we will do just that.
    I have more in a statement here that I would like to enter 
for the record.\1\ But I am happy that you are here and look 
forward to a good conversation. And if it is not perfect--as I 
like to say, let us make it better.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Carper appears in the Appendix on 
page 42.
---------------------------------------------------------------------------
    Thanks so much.
    Chairman Johnson. So are you going to ask permission for 
that?
    Senator Carper. Yes.
    Chairman Johnson. Without objection.
    I would also like to ask that I enter the letter from the 
Thompsons into the record as well.\2\ Without objection, so 
ordered.
---------------------------------------------------------------------------
    \2\ Constituent letter submitted by Senator Johnson appears in the 
Appendix on page 52.
---------------------------------------------------------------------------
    Chairman Johnson. It is the tradition of this Committee to 
swear in witnesses, so, Commissioner, if you would please 
stand? Do you swear that the testimony you will give before 
this Committee will be the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Mr. Koskinen. I do.
    Chairman Johnson. Thank you.
    Commissioner John Koskinen is the Commissioner of the 
Internal Revenue Service. Prior to his appointment, Mr. 
Koskinen served as the Non-Executive Chairman of Freddie Mac 
from 2008 to 2012 and as Acting Chief Executive Officer (CEO) 
in 2009. Commissioner.

 TESTIMONY OF HON. JOHN A. KOSKINEN,\1\ COMMISSIONER, INTERNAL 
        REVENUE SERVICE, U.S. DEPARTMENT OF THE TREASURY

    Mr. Koskinen. Thank you, Chairman Johnson, Ranking Member 
Carper, and Members of the Committee, thank you for the 
opportunity to appear before you today. In the spirit of 
without objection, I would like to have my entire testimony 
submitted for the record and give you a brief synopsis.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Koskinen appears in the Appendix 
on page 44.
---------------------------------------------------------------------------
    Chairman Johnson. So ordered.
    Mr. Koskinen. The subject of today's hearing, IRS 
implementation of the tax-related provisions of the Affordable 
Care Act, is an important one and is discussed in detail in my 
written testimony. But before addressing the Affordable Care 
Act and because today is, as the Chairman noted, April 15, I 
would like to provide the Committee with an update on the tax 
return filing season.
    I would also like to note that today marks the 60th 
anniversary of the April 15 tax deadline. Congress moved the 
deadline back from March 15 to April 15 starting in 1955 to 
provide more time for processing tax returns.
    In some ways, this is like the start of a Dickens novel, as 
I have said in other contexts. It is the best of times; it is 
the worst of times.
    Let us begin with the best of times. I am pleased to report 
that the 2015 filing season has gone smoothly in terms of tax 
return processing and the operation of our information 
technology (IT) systems. Thus far, the IRS has received more 
than 120 million tax returns from individuals on the way to an 
expected 150 million individual returns. We have issued more 
than 83 million refunds for more than $230 billion. For the 
vast majority of taxpayers who did not have issues with their 
returns and who chose direct deposit, refunds moved quickly 
through the system and reached them in 21 days or less.
    Since today is the filing deadline, I would like to remind 
anyone who has not finished their taxes that, while time is 
running out, anyone who cannot make the deadline can file an 
automatic 6-month extension.
    Return processing this filing season has gone even better 
than anticipated given the challenges we faced beforehand. 
Along with our normal preparations, we also had to prepare for 
the tax-related Affordable Care Act changes and changes related 
to the Foreign Account Tax Compliance Act, and there was also 
late tax extenders legislation passed in December.
    Integrating all of these changes into our antiquated IT 
systems and still being able to open filing season on schedule 
on January 20 was a great accomplishment by our experienced and 
dedicated employees. I deeply appreciate their commitment to 
the mission of the IRS and their hard work.
    I also want to thank our partners in the tax industry, 
especially tax professionals and developers of tax software and 
other products. Without them, the filing season could not run 
smoothly.
    We are also indebted to the more than 90,000 volunteers who 
help people prepare their returns at more than 12,000 volunteer 
income tax assistance sites all over the country each year. I 
am proud to say that many of these volunteers are current IRS 
employees or retirees.
    Specifically regarding the IRS portion of the ACA, all 
indications are that most taxpayers have been able to fulfill 
their filing obligations without a great degree of difficulty. 
I would like to talk a little later about the letter you 
received.
    We provided an array of communication products to taxpayers 
and tax preparers well in advance of the tax filing season. We 
also developed a special section on our website providing 
information about the Affordable Care Act. We also worked with 
software developers to ensure that the estimated 90 percent of 
taxpayers who were going to file using software or tax 
preparers would be easily able to provide the necessary 
information required by the ACA and file their returns without 
difficulty.
    We believe these activities taken together were a big 
reason why processing of returns with shared responsibility 
payments and premium tax credits generally went smoothly. I 
would note that for the vast majority of people, the ACA 
provisions only took a moment or two to handle. All most 
taxpayers had to do was check a box when prompted by their tax 
software indicating that they had coverage.
    Now a word about the worst of times. Return processing has 
gone smoothly if you are simply filing your return without 
questions or need to contact us. That is the situation most 
taxpayers found themselves in this tax season. But if you 
needed to contact us, it has been very difficult and a much 
less positive story.
    Customer service both on the phone and in person has been 
far worse than anyone would want. It is a simple matter of not 
having enough people to answer the phones and provide services 
at our walk-in sites as a result of the cuts in our budget.
    We are dismayed by the reports of taxpayers lining up 
outside our Taxpayer Assistance Centers hours before they open 
just to get service. Taxpayers who called us had long wait 
times on the phones. On bad days, fewer than 40 percent of the 
calls were able to reach a live assister, and that was often 
after a 30-minute wait or longer. This was frustrating not just 
for taxpayers but also for the IRS customer service 
representatives who want to have the resources to be able to 
provide much better customer service.
    As we begin preparations next month for next year's filing 
season, one complicating factor is the need for us to implement 
as part of the ABLE Act the certification requirement for 
professional employer organizations on a tight timeline and 
without any additional funding.
    Complicating matters still more is the work ahead of us to 
continue implementing the tax-related provisions of the ACA for 
the next filing season along with the expanded requirements for 
the Foreign Account Tax Compliance Act. And we expect another 
round of tax extender legislation later in the year which we 
hope will be passed well in advance of December.
    So I am concerned that when I testify next year on the 2016 
filing season, the report on the return processing front may 
not be as good as it was this year. The employees of the IRS 
will do everything they can to effectively and efficiently 
deliver next year's filing season, but we need help. We need 
the Congress to pass any legislation regarding tax extenders as 
early as possible this year and to provide us additional 
resources in the 2016 budget. With that help, I am much more 
confident about the chances of delivering another smooth filing 
season for the Nation's taxpayers next year.
    With regard to the letter the Chairman recited and 
received, obviously this is the first year of the program, and 
taxpayers are, in fact, and tax preparers are adjusting to the 
requirements of the act. There is a reference there to the 
penalty. It is not a penalty. It is actually a repayment of the 
premium advanced payment provided. We spent a significant 
amount of time last year, starting about a year ago, trying to 
remind taxpayers that if their circumstances changed during the 
year, particularly if their family size changed or if their 
income changed, either up or down, they should contact the 
marketplaces and advise them. It sounds as if they provided 
income information that was not properly applied to their 
situation, which is a relatively rare circumstance. It is 
actually the first time I have heard someone say that they got 
the wrong information from the health care marketplaces. We 
have encouraged most of the people who discovered that they 
have underestimated or overestimated their income and, 
therefore, have an adjustment in their premium tax credit, did 
it because it is difficult for all of us to estimate a year in 
advance what our income is going to be. But the indications are 
that close to half of the people, about 45 percent of the 
people, are actually getting a bigger refund because they 
overestimated their income to be careful; 50 to 55 percent are 
getting a smaller refund. Again, while we will not have full 
data for another 3 or 4 weeks, it does appear that there are 
relatively few people who are in a situation where they 
actually owe taxes as a result of having underestimated their 
income for the year.
    I would stress that we are doing everything we can in this 
transition year to help taxpayers whatever their difficulties 
are. The Treasury Department issued a policy saying that, to 
the extent that taxpayers are having difficulty with their 
payments, either in terms of understanding exactly what they 
owe on April 15, or to the extent that they owe additional 
funds, there will not be any penalty for an inability to pay. 
You still owe interest and you still should file, but the 
Treasury has removed any penalties for difficulties in this 
transition year.
    As I say, we have been delighted--and I think it is because 
over 90 percent of people used software--that we have not 
seen--and we monitor the calls we get every day--a significant 
response from the public with regard to any difficulties they 
are having. As I say, if you use the software, you just answer 
the questions. You never have to deal with the instructions. 
You never have to deal with the forms.
    I am struck by the Chairman's concern, which it is my 
concern, and that is, the point that people are nervous about 
revealing their names if they have a problem because somehow 
they will then be disadvantaged in dealing with the IRS. I 
think it is critical for compliance and it is critical for just 
the operation of the tax system in the United States for every 
taxpayer to feel comfortable that they are going to be treated 
fairly no matter who they are, no matter who they voted for in 
the last election, no matter what organization they belong to, 
and, in particular, they are going to be treated fairly even if 
they have a problem. We encourage not only our employees but 
taxpayers to let us know if things are not going the way they 
think they ought to or the way we think they are going to go, 
because the only way we will be able to fix systems, the only 
way we will be able to get better is if we know what the 
problems are.
    So my encouragement to any taxpayer is if you have a 
problem, we are here to help you. As our revenue agents say, we 
distinguish between those trying to become compliant and those 
trying to cheat. If you are trying to become compliant and you 
have a problem--you have had a change in circumstances, you 
have difficulty with your ability to pay your taxes--we really 
want to work with you. We spend a significant amount of time 
and money trying to help taxpayers figure out what they owe and 
how to pay it. We have online installment agreements you can 
enter into if you cannot meet your payments when you file on 
April 15. We negotiate offers in compromise for people who have 
difficulty now and into the future meeting their tax 
obligations. And we simply want to stress that if you have a 
problem, we are here to help you.
    I would also remind people, though, if you are going to try 
to cut corners and cheat, we actually are going to find you, 
and we will not be happy about that. But we are anxious, as I 
say, wherever a taxpayer has difficulty, to try to help them. I 
always say, ``Call us and we will help.'' I always get a little 
nervous when I say call us because I know how long it takes to 
get through. And as Senator Carper said, when we ask for more 
funds, it is not that we want to add back the 13,000 people 
that already have been retired from the agency and not 
replaced, but we do need funds in the interim while we are 
building toward the future to be able to have enough people 
simply to answer the phones when people call.
    With that, I would be delighted to answer any questions you 
might have.
    Chairman Johnson. Well, thank you, Mr. Commissioner.
    I will say that this is not unusual that taxpayers are 
afraid to offer their names because of fear of retribution. 
That is very prevalent in people that certainly I talk to. And 
that is a real problem because of the targeting, and I think it 
makes it even more important that we actually hold people 
accountable, that the American people see that those that did 
the targeting are brought to some semblance of justice, and 
that it is actually correct in the IRS. This is a problem, and 
it is very prevalent. This is not just something that is 
unusual.
    It did strike me, I was actually surprised, that this is 
the first time you have ever heard that the marketplace or one 
of the exchanges gave out incorrect information. I would think 
that because of the complexity of the law it would be far more 
prevalent.
    Mr. Koskinen. I meant in terms of an individual being told 
the wrong information about the validity of their income. 
Obviously, as has been widely publicized in this first year, 
the Centers for Medicare and Medicaid Services (CMS) has been 
very forthcoming about the 1095 information returns and the 
errors that have appeared in some of those and have been trying 
to make sure that taxpayers get the updated, correct 
information in their 1095-As. I know CMS has been working with 
thousands of taxpayers to make sure that the information in 
those 1095-As is correct. So to that extent, clearly in a 
transition year there have been a reasonable number of cases, 
but still compared to the 4.5 million taxpayers we expect to 
file, the numbers are surprisingly smaller than you would 
expect. But you are exactly right. As you would expect in the 
first year of one of these programs, some of the information 
returns have had to be corrected, have had to be updated. Some 
taxpayers, appropriately, have said the information in that 
return does not correspond with either the payments I have made 
or the premium support I have gotten. And there are 30,000 or 
40,000 of those that are being worked through by CMS.
    Chairman Johnson. I think correctly, and you did correctly 
state that what they are paying, the $11,550, is not a penalty. 
It is just reimbursement of the subsidy that they were 
incorrectly provided. But, again, they view that as a penalty. 
You can kind of understand that.
    Mr. Koskinen. I understand.
    Chairman Johnson. They followed all the rules. I was just 
reading what they said. I take your point.
    But speaking of penalties, one of the things I found 
interesting in the briefing packet here is that the average 
penalty paid by people, an individual decided to really 
exercise their freedom and not purchase insurance--by the way, 
is that a penalty or a tax, that $95 or the greater of one 
percent? Is that a penalty or a tax? I forgot how that was 
ruled.
    Mr. Koskinen. The ruling I think has been it is a tax. It 
is called the ``shared responsibility payment.''
    Chairman Johnson. OK. So my point being that the average 
tax, shared responsibility tax, is not the $95 minimum. It is 
the one percent of income, which ends up being about $172. Is 
that correct for this year?
    Mr. Koskinen. I do not have that number, but clearly 95 is 
the minimum, but it goes to one percent of your income.
    Chairman Johnson. And it is the greater of?
    Mr. Koskinen. Yes. And it is $95 for adults in your family. 
So if you have two or three people----
    Chairman Johnson. So if you extrapolate that, that is about 
80 percent higher than the minimum. So the average, 172 is 1.8 
times the minimum of 95. So if you extrapolate that to next 
year, the minimum penalty will be $325, correct?
    Mr. Koskinen. Yes.
    Chairman Johnson. Or one percent of your income, whichever 
is greater.
    Mr. Koskinen. Next year it goes to 2 percent, I think.
    Chairman Johnson. Oh, OK, it goes to 2 percent. OK. So I 
just did the math on one percent. It is going to double that 
then. So what I was looking at is $325 times 1.8 percent would 
be 588, double that then. Correct? So the average tax penalty 
will be closer to $1,200 next year.
    Mr. Koskinen. Well, the one percent, you do not add both 
the 95 or the----
    Chairman Johnson. I understand. I am just trying to 
extrapolate what this is going to be in the future.
    Mr. Koskinen. Clearly, the statutory shared responsibility 
payment is geared to go up, and that is designed to encourage 
people to get health insurance.
    Chairman Johnson. I am trying to figure out about what we 
can extrapolate that penalty will be next year. So you are 
saying it is the greater of $325 or 2 percent of income?
    Mr. Koskinen. That is right, but let me just check. I have 
experts here.
    Chairman Johnson. Is that correct?
    Mr. Koskinen. OK. The consensus is we think it goes to 2 
percent. We would be happy to make that clear. In any event, 
either way, the statutory framework provides that the payment 
goes up if you do not have coverage in the second year to a 
reasonable higher amount than for the first year. So it will be 
increasingly encouraging people to buy health insurance.
    Chairman Johnson. Right. So here is my point, because what 
gets laid out there is the $95, the $325, and the $695. That is 
a number. And then as a percentage of income, the greater of. 
So this year, the percentage of income is really what drove it, 
so the average penalty was 1.8 times that minimum $95. So if 
you extrapolate that, if it is one percent, it will be $588 
next year; if it double that, it will be $1,176.
    Mr. Koskinen. You would not----
    Chairman Johnson. If you are talking as a percentage of 
income, that will be a pretty good extrapolation in terms of 
what the average penalty would be.
    Mr. Koskinen. Right.
    Chairman Johnson. If this year's is 172 at one percent, 
next year's at 2 percent will be $1,176. And the third year of 
the implementation of Obamacare, then we could look for, 
instead of--not $695 as the minimum penalty, extrapolate our 
experience from this year, it will be closer to $2,500 will be 
the average penalty paid if Americans exercise their freedom 
and choose not to buy an individual policy. So I kind of want 
to lay that on the table there. That is what the government is 
going to tax--I think it is a penalty, but that is what we will 
tax the American people for not buying health care.
    I was a little surprised--I should not have been 
surprised--that only 4 percent of the subsidies that are 
provided are calculated properly, and you say about half of 
them are calculated too high, half of them are calculated too 
low. Do you kind of expect that trend to continue? It is just 
going to always be difficult to calculate that and estimate it, 
correct?
    Mr. Koskinen. No, I think what is going to happen, right 
now 70 percent of people, give or take a little, get refunds on 
their taxes generally, and they do that because we all over-
withhold. Nobody knows exactly--well, if you get the same job 
and do not do anything different, you know what your income is 
going to be. But most taxpayers estimating their income 
understand you cannot estimate accurately, so they tend to 
over-withhold so that, in fact, they get a refund rather than 
having tax owed. We expect that taxpayers have done that--
nobody tells them they have to do that. Taxpayers do that, 
learning the situation, we expect that what will happen is 
people will be careful in estimating their income as the basis 
for calculating the premium tax credit, and they will make sure 
that they overestimate their income to make sure that, in 
effect, the adjustment is in their favor when they get to file 
their taxes.
    So we expect that as consumers adjust to the law, 
increasingly what will happen is that there will be positive 
increases in refunds or declines in amounts owed because people 
will have adjusted to the fact that you want to be careful when 
you estimate your income and you want to build in the 
possibility that you will get a pay raise or your spouse will 
get a job, and if there is a big change, again, you should call 
the marketplace. But I think what we have seen in withholding 
generally is people are careful, and they basically in the case 
make sure that they have a refund coming rather than a tax 
owing.
    Chairman Johnson. Very quickly, last question. How are you 
coming in terms of 100 percent income verification to really 
evaluate the correctness of those subsidies? Do we have 100 
percent income verification now?
    Mr. Koskinen. Well, to the extent we ever have 100 percent 
income verification--that is one of the reasons I say it would 
be nice to get W-2s in January rather than March. Most 
taxpayers are trying to be compliant. They provide us their 
income, and we then audit it over time when we get information 
returns. Ultimately it is as correct as what the taxpayers tell 
us and what the information returns do. We assume ultimately 
that the income provided to us after the fact is correct.
    Chairman Johnson. OK. Thank you. Senator Carper.
    Senator Carper. Commissioner Koskinen, I often say, almost 
every day, find out what works, do more of that. When we are 
trying to figure out how to make sure that we did not end up 
with an insurance pool which was largely older people, sicker 
people, less healthy people, to try to find out what works. We 
turned to Massachusetts, the one State that actually tried to 
address this issue, set up exchanges for health care coverage, 
and Governor Romney and the State of Massachusetts established 
the individual mandate. That is really where we took that idea 
from. They were several years ahead of us, and we are just 
going through our first tax filing season where all this is 
before us and before your employees.
    Massachusetts has been doing this for not just one year. 
They have had several years of experience. Do you have any 
idea, does anybody with you have some idea of has it smoothed 
out? Has it smoothed out over time as people become used to 
this, working with the exchanges, working with their Tax Code 
there? Has it gotten any easier?
    Mr. Koskinen. Anybody know? At this point--and, again----
    Senator Carper. And what, if anything, can we learn from 
them?
    Mr. Koskinen. I think we could probably learn a lot. The 
tax policy side of this in terms of what works or does not work 
really is--tax administration, the policy issues are Treasury, 
the administration, and the Congress. But in all that I have 
seen, I have not seen that there is an ongoing issue in 
Massachusetts which would lead you----
    Senator Carper. I have not heard about it, if there is one.
    Mr. Koskinen. We have not, so that would lead you to 
conclude, to the extent the mandate still exists there, people 
have adjusted to it, and it has been implemented and executed 
without difficulty over time, because, as I say, policy is the 
issue of--people outside of tax administration, we have and I 
have personally just kept track of what is in the press, and I 
have not seen any indications that Massachusetts has run into 
any difficulties at this point.
    Senator Carper. OK. Good enough.
    I want to go back to the example cited by our Chairman to 
make sure I understand this. Let us say a year ago my family 
and I thought we were going to earn about $50,000 in 2014, and 
my wife got a job, and we ended up making twice that. We will 
say $100,000. And we had felt at the beginning of the year we 
were going to be eligible for tax credits at a certain level 
toward the purchase of our health care through the exchange. 
And as it turns out, at the end of the year, because of her 
income, additional income that we had not anticipated, we were 
not eligible for either as much in tax credits or maybe any tax 
credit at all. And we will say in this example it turns out I 
got a tax credit for $5,000, and ultimately I was not eligible 
for that. I had to pay that back, I presume through the Tax 
Code, through the filing. But that is not a penalty. That is 
basically an overpayment for a tax credit that was extended to 
me that I ultimately was not eligible for.
    I want to make sure we are talking apples and apples here, 
but is what I just laid out, is that essentially what is 
happening in the situation that Senator Johnson shared?
    Mr. Koskinen. Yes. Actually, it is important to understand 
where the money went. In effect, a taxpayer generally comes to 
the marketplace, buys a policy. It is determined what their 
premium is going to be and what portion of that premium paid to 
the insurance company will be paid on their behalf as a credit. 
So in the particular case here, or any case, at the end of the 
year what has happened is you bought insurance, the premiums 
have been paid to the insurance company, and the question is: 
How much of that premium you owe and how much was eligible for 
the credit?
    So in this particular case, ultimately it was determined 
that the insurance was bought, that $11,000 was a premium 
payment to the insurance company, and the question is in this 
particular case the taxpayer owes the premium, was not entitled 
to a credit for that premium paid. So it is not a penalty. It 
is not money that went to the taxpayer. It helped buy the 
insurance for the taxpayer.
    It is one of the reasons we spent a lot of time last year 
and we are going to continue to spend time this year reminding 
people in your circumstance, for instance, where your situation 
changes, your wife gets a job, you get a pay raise of any 
significant amount, you should contact the marketplace and 
advise them of the change, and the premium advance payment will 
be adjusted accordingly. Therefore, over time we think that as 
more and more people get adjusted to the fact that it is not 
just a question of stopping payment, you actually need to make 
sure the marketplace is updated, as I said to the Chairman 
earlier, we expect over time people will make those calls and 
make those adjustments earlier. They also will be careful in 
their estimates of what they are going to earn to make sure 
that they do not underestimate it. And so we think that this 
will work its way out to even a smoother filing system.
    As I say, thus far--we monitor the calls that come in--we 
have not seen a significant number of calls with people who 
have problems. We know, as I said, there have been adjustments 
made by CMS, which runs the marketplace with any number of 
taxpayers, but even there, of the estimated 4.5 million 
taxpayers who will file returns reconciling the premium tax 
credit, the number of people affected is a relatively smaller 
percentage for the first year.
    Senator Carper. OK. Thank you.
    Gene Dodaro was here sitting in your seat yesterday, by 
himself, and he spoke, as you have, pretty much without notes 
and did a terrific job. One of the questions that I asked him 
was what more can we do to help the IRS serve the people of 
this country to make sure that we are meeting our 
responsibilities as taxpayers, but also making sure that we are 
providing the kind of service that we would expect, hopefully 
the kind of service that--Claire McCaskill was auditor for the 
State of Missouri, and when I was State treasurer, we tried to 
provide really good service. And the State of Delaware Division 
of Revenue won the quality award a couple of years ago because 
they provide excellent service. We are very proud of that.
    But it galls the hell out of me to know that people call 
the IRS and they have to wait forever to get somebody on the 
line, or they go to the IRS office and they have to wait to go 
see somebody. We are complicit in that. We in the Legislative 
Branch are complicit in that because we are not providing a 
reasonable amount of funding for the IRS.
    Yesterday, Gene Dodaro said there are things that the IRS 
has done to be able to use the resources they have more 
efficiently, and he said this is good. He said there are some 
things that you have not done that they believe you ought to. 
And he said we should provide more in terms of resources, like 
three things. And what I would hope that we will do is act on 
his advice, and certainly with your participation and that of 
your team.
    The last thing I want to say, we have a bunch of people who 
are preparing tax returns on which there is an earned income 
tax credit. We know there is a high improper payment related to 
earned income tax credits. A lot of those tax returns are 
prepared by people who are not credentialed. And I know you 
have been pushing for us to do something to better ensure that 
people who are helping millions of taxpayers prepare their 
returns have some reasonable amount of credentials. Would you 
just take a minute on that? I know I have run out of time, but 
this is an important point.
    Mr. Koskinen. Yes. I would stress, as I said, we have a 
wonderful working relationship with the tax preparer community, 
and the vast majority know what they are doing, do a good job, 
work their way through the complexities of this Tax Code, which 
is obviously more complex than anybody wants it to be.
    But there are about 400,000 of those tax preparers that 
have no credentials. They have not become enrolled agents. They 
are not CPAs, they are not lawyers. Of that 400,000, as I say, 
a lot of them study hard, work hard, and do provide a good 
service.
    There are a group of them that do not have a lot of 
background, much training, and do their best but make a lot of 
mistakes. And then there is a small percentage of them that are 
crooks, that you can find them easily because you can drive 
through any center city and there will be a sign saying, ``Come 
to us. We can help you get a better refund. We can get you a 
bigger refund. Just sign a blank return. We will take care of 
it for you.''
    And across the board we think people have noted numerous 
times it takes more credentials to cut your hair than to 
prepare your taxes. And at some point there ought to be some 
minimum qualifications before you can actually go to a taxpayer 
and say, ``I will take care of your taxes for you.'' And we 
have a voluntary program. The courts ruled we did not have the 
authority to require minimum qualifications, so we have asked 
the Congress for legislation that would require some minimum 
level of continuing education just the way CPAs and lawyers and 
others have to just keep up.
    Senator Carper. Thank you. I would just ask my colleagues 
on this Committee, including those who serve on Finance, to see 
if we cannot address this. This is an issue that cries out to 
be addressed. Thanks so much.
    Chairman Johnson. Thank you, Senator Carper. It does almost 
speak probably to the overregulation of the hair-cutting 
industry. [Laughter.]
    For the record, because we got the information, my back-of-
the-envelope calculation here on the penalties. The first year, 
$95 or one percent of your income. This year it is about $172. 
That is 1.8 times the minimum. Next year it is going to be 2 
percent of income, so the $325 minimum penalty times 1.8 times 
2 is $1,176, would probably be the extrapolated average 
penalty, tax, next year. The third year, $695 times 1.8 is 
$1,258 times 2.5 percent would be $3,145. That is the 
extrapolated average penalty over the next couple years, 172, 
ramped up to about $1,176, to the third year over $3,000. So, 
with that----
    Mr. Koskinen. I think part of the calculation is you either 
pay the minimum $95 or the $325 or the 1 or 2 percent, but you 
do not add them all up.
    Chairman Johnson. I understand, whichever is greater. 
Again, I am just saying the average penalty goes from 172, 
probably to 1,176, probably to 3,146, in the ball park. Senator 
Portman.

              OPENING STATEMENT OF SENATOR PORTMAN

    Senator Portman. Thank you, Mr. Chairman. And, 
Commissioner, thank you for being here today. I usually see you 
over at the Finance Committee, and this I guess is really a Tax 
Day hearing, so it is appropriate to talk about the broader 
issues. But I want to focus in on the 1095-A issue that--the 
relationship to the Affordable Care Act. A couple months ago, 
as you know, the administration announced that it had sent out 
about 800,000 incorrect tax statements, and obviously it is 
very important to my constituents and folks around the country 
because they rely on these statements. I think they were 
initially told, do not worry about filing your taxes until we 
get a corrected statement, and then more recently told go ahead 
and file your taxes and you will not be penalized based on 
information you relied on that is inaccurate.
    So it has caused a lot of confusion, and I am sure you have 
heard a lot about it.
    Mr. Koskinen. Yes.
    Senator Portman. I have, as I am sure many of my colleagues 
have. I have a constituent named Linda from Ohio. Unlike the 
Chairman's constituent, she is not interested in sharing her 
last name today, but she got the incorrect 1095-A from the 
marketplace in mid-January. She has been trying to correct it 
ever since. And, one of these stories of contacting folks at 
the IRS, February 15, she was informed by two different people 
her correction was denied. February 17, she received a phone 
call that it had not been denied, but it was in escalation. She 
was able to arrange a phone call between the supervisor and the 
marketplace, but, anyway, she was still not able to get a 
straight answer out of the system.
    Mr. Koskinen. I would note that she is calling CMS, not the 
IRS. The issues about the 1095, the data in it, is all managed 
by CMS. And they do have a very vigorous customer service 
effort working through those kinds of questions.
    Senator Portman. I appreciate that and stand corrected. I 
believe she did call the IRS initially but was redirected----
    Mr. Koskinen. Probably got referred to the CMS.
    Senator Portman. Yes. Anyway, lots of questions about how 
we can help solve this problem and really the scope of the 
problem. If you could today give us what the IRS' best estimate 
is of the percentage of people who received a subsidy in 2014 
and have to repay a portion of that subsidy, do you have a 
sense of that?
    Mr. Koskinen. We will not know because it takes us awhile 
to post, and it will be another 3 or 4 weeks. But thus far, it 
appears that slightly less than half of the people are getting 
an increased refund because they got smaller advance payment of 
the premium tax credit than they were entitled to, and that is 
based on their final income. About 50 to 55 percent are getting 
a smaller refund because they got too much advance payment 
beyond what they were--but they are still getting a refund, but 
it has an adjustment. And the adjustments are--we do not know 
what the dollars are. I have seen tax preparers estimating that 
their experience is that it is $300 one way, $500 another way.
    We do not have information or indication of who actually as 
a result of having gotten too much of an advance payment to the 
insurance company on their behalf actually end up as a result 
owing tax, the situation that the Chairman's constituent is in. 
Thus far, the indications are--although, again, I would stress 
we will have better information in 2 or 3 weeks when we 
evaluate it is a small number of people in that category. That 
was what our estimate was, that to say the vast majority of 
people get a refund in any event, the swings in whether you got 
too much of an advance payment or too little of an advance 
payment are relatively modest enough that they are absorbed 
within the refund itself. But we will have much better data for 
you in probably about 3 weeks.
    Senator Portman. We would appreciate getting that data. 
Without answering the question today, just if we could submit 
the question to you today, and we will also submit more for the 
record, an estimate of what that percent would be in terms of 
the folks receiving a subsidy that have to repay a portion of 
it if the income verification process were more accurate and 
working properly, because that is obviously one of the big 
challenges that we have.
    The other issue that I think is going to continue to be 
something we hear about from our constituents is the State-
Federal data sharing. There was a story in the Wall Street 
Journal--you probably saw it; I think it was yesterday--about 
Marta Champan from New Mexico. She expected to receive an $850 
Federal refund. Instead, she had to pay taxes, and the reason 
is that apparently the exchange did not account for her 
husband's Social Security benefits of $9,000. So there may be a 
lot of reasons for that failure, but it gives me concern that 
the State-based exchanges might not be communicating properly 
with the Federal databases. It seems like the government should 
have been able to help her avoid that error.
    In any event, she reports that she felt this was--a quote 
in the Wall Street Journal--``kind of a trick'' that she would 
not have gotten the insurance had she understood its full price 
and now has dropped her plan for this year. So I guess my 
question for you there is: In terms of the information flow 
between the State and the Federal Government, do you believe 
that that is adequate? And how could that be improved?
    Mr. Koskinen. At this point, about income verification I 
should explain a little how the process works. The taxpayer 
goes to the marketplace and makes an estimate of what they are 
going to earn.
    Senator Portman. Right.
    Mr. Koskinen. For instance, if you enrolled last fall, you 
would estimate what you are going to earn in 2015. We then get 
pinged by the marketplace, either the State or the Federal 
marketplace, and asked for an income verification, and that 
income verification, surrounded by protections and not 
revealing it to anybody outside, basically says what was your 
earnings in the previous tax year. So in the case of the Social 
Security payment, if that was on the income the year before, 
that data would have gone back to the marketplace. So, in other 
words, suppose the taxpayer came and said, ``I am going to make 
$25,000 new year,'' we would be asked what did they actually 
file the year before, and if that was $42,000 or $35,000 with 
some Social Security payments, that information would go back 
to the marketplace, and they would have a discussion with the 
applicant or make a note to the applicant that their estimate 
of income does not correspond with the verification.
    The Inspector General (IG) looked at the income 
verification information we provided in the initial enrollment 
period over 15 to 20 million, and found that we were 99.5 
percent accurate in terms of the information we gave both to 
the State and to the Federal marketplaces. So it ultimately is 
up to the consumer to make an estimate, just as I say we all do 
when we are filing our withholding estimates and our estimated 
tax payment estimates. What are we going to earn in the next 
year? Most people with any variety in their employment 
circumstances never know exactly what that is going to be. So, 
again, our expectation is that as the process moves, more and 
more people will understand they have to be careful about 
estimating their income. If you underestimate it and, 
therefore, get a bigger premium paid to the insurance company 
on your behalf, it will all work out when you have to reconcile 
and you will pay it back. So our expectation is that those 
percentages of the number of taxpayers when they reconcile who 
get larger refunds will go up because just the same way people 
when they file their taxes, 60 to 70 percent of them get 
refunds, because they, in effect, overestimated what they are 
going to owe, so they will have a refund. And we think that is 
where it will work.
    But in terms of the actual accuracy, the accuracy of the 
information that we are providing to verify the estimate 
provided by the taxpayer thus far is not a difficulty and not a 
problem, and the States get the same information from us 
automatically.
    Senator Portman. Commissioner, I have lots of other 
questions for you, and I will submit those for the record. And 
a lot of it to me goes to the process here. One of the things 
that the Inspector General, as you know, has said is that the 
ability to detect overpayment of subsidies is going to be tough 
until you have implemented a predictive and analytical fraud 
model. So I will submit some questions to the record about that 
process.
    Again, I appreciate your service and the fact that it is 
going to be a complicated tax season for you, and we will be 
following up with more questions.
    Mr. Koskinen. That would be fine.
    Senator Portman. Thank you.
    Chairman Johnson. Thank you, Senator Portman. Senator 
Sasse.

               OPENING STATEMENT OF SENATOR SASSE

    Senator Sasse. Thank you, Mr. Chairman. Thank you, Mr. 
Commissioner, for being here.
    Are you familiar with the Jonathan Adler piece in the 
Washington Post yesterday about the 100 to 400 percent Federal 
poverty level (FPL) qualification levels for the ACA?
    Mr. Koskinen. No, I did not see that article.
    Senator Sasse. OK. So he is summarizing essentially a Yale 
Journal of Regulation Piece about the ACA's authorities and who 
qualifies for the tax credits, and it is my understanding that 
it is 100 percent to 400 percent of the Federal poverty line. 
Correct?
    Mr. Koskinen. I think that is right, yes.
    Senator Sasse. OK. It looks like you all have written a 
rule essentially rewriting Section 36B of the statute that 
disregards the 100-percent income level. I am curious if that 
is true and how you have the legal authority to do that.
    Mr. Koskinen. I am not aware of that. I will be delighted 
to get you information. I am not aware that we have done 
anything that would ignore the statutory framework.
    Senator Sasse. OK, great. Thank you. We will followup with 
a letter and try to engage your staff and understand how that 
would work.
    The particular concerns I have are related to the broad 
application of IRS discretion, obviously in the regulatory and 
rulemaking process, but also in particular cases. I think as 
the Chairman and Ranking Member mentioned, many of our 
constituents, when I travel Nebraska, there is genuine fear of 
the IRS because there is a lack of understanding about how 
discretion is applied by the agency. And if Section 36B were 
rewritten, it is not clear that an employer would not be 
subject to employer mandate penalties if employees that they 
have that would have been Medicaid eligible end up on exchange 
through no fault of the employers, they could suffer a penalty 
in that case. So I would love to get more information about 
that.
    Could you help us understand more broadly how policy 
decisions in the rulemaking process are made between the 
Department of Health and Human Services (HHS), the IRS, and the 
White House? You have 36 components of the ACA under your 
jurisdiction. Is that true?
    Mr. Koskinen. Actually, all the tax provisions of the ACA 
come under our jurisdiction. As I said, as a general matter, 
our role in life is tax administration. So policy issues about 
what legislation ought to look like, what changes in this act 
ought to be, are decisions made by the Treasury, the White 
House, and the Congress ultimately. We simply implement what 
goes on.
    Issuance of regulations is a joint effort between the 
Treasury Department and the IRS. We are a bureau of the 
Treasury Department. We do not issue regulations by ourselves. 
They technically have the authority, but obviously we design 
and draft regulations with an eye on what is the impact on tax 
administration.
    If there is a policy decision about do you increase this or 
that, for instance, the policy decision about the penalty 
application, that is a decision by the Treasury Department. We 
get involved in that only to the extent that it is a question 
of what are the implications for tax administration and would 
it work better, easier, which is the best way for it to work.
    But all of the policy issues are decided, again, by the 
administration and ultimately by the Congress in terms of 
legislative either recommendations or fixes.
    Senator Sasse. So would that be true with regard to the 
credits for illegal immigrants as well, the decisions that were 
made about the refundability of credits for folks that under 
the ACA would not have qualified under the statute but appear 
to be getting credits in certain cases? The IRS plays no role 
in that rulemaking process?
    Mr. Koskinen. In the rulemaking process, we participate in 
the discussions about if you are going to make that change--we 
may chime in on what we think the law is, but the policy 
decision--there is an Office of Tax Policy in the Treasury 
Department that is responsible for tax policy. We meet every 2 
weeks going over regulations to make sure that as those 
regulations are designed, that they are designed with tax 
administration not only in mind but as a part of that to make 
sure that as the regulations get changed, they do not 
inadvertently either make life more difficult for taxpayers or 
more difficult for the administration of the tax laws.
    Senator Sasse. Got you. So in the King v. Burwell case that 
we are going to probably have a ruling from the Court in June, 
when those decisions were made about credits in the States that 
did not have state-based exchanges, those decisions were made 
in the Treasury Department's Tax Policy Division?
    Mr. Koskinen. Yes. Those interpretations of the policy 
issue are up to Treasury. We participate, as I say, in those 
issues giving our view as to how it would be for tax 
administration, what works or does not work. But the policy 
calls and the development of the act to begin with are the 
responsibility of Treasury, the White House, HHS, and 
ultimately the Congress.
    Senator Sasse. OK. So going back to the Chairman's opening 
issue with his constituent, if a decision was made--what was 
the number, $11,000, Chairman Johnson, of a tax bill?
    Chairman Johnson. Correct.
    Senator Sasse. How will the decision be made about the 
timeline of repayment of that--you said you want to dispute 
calling it a ``penalty,'' but that obligation that they have?
    Mr. Koskinen. To repay the premium that went to the 
insurance company. That is tax administration, and so the 
taxpayer will either file their taxes and add the $11,000 back 
that they owe. Or if they have difficulty with that, they will 
contact us. We keep encouraging them to do that. You do not 
have to hire somebody off late-night TV to come deal with the 
IRS. They can work on an installment agreement. Actually, you 
can develop an installment agreement yourself online, which is 
one of the new things we have developed over the last year.
    If they have substantial financial difficulties, they can 
work with us about an offer in compromise to actually figure 
out how to settle it. Those are all tax administration issues, 
and we are responsible for those.
    Senator Sasse. I am nearly into Senator McCaskill's time, 
so one last question. I earlier said 36 provisions. It is 34 
provisions of the ACA. Who is the point person inside the IRS 
for the tax administration of all the new ACA authorities?
    Mr. Koskinen. Ultimately the Commissioner is, which is why 
I am here. In other words, I have met every 2 weeks for the 
last 15 months with the IT people, the program office, the 
business people, working toward the implementation of--the 
development of the systems, the implementation of them, making 
sure this filing season got started. And so I am ultimately 
responsible.
    Senator Sasse. And it is your judgment that the IRS is up 
to the task of administering all the new ACA authorities?
    Mr. Koskinen. Thus far, I think the filing season has shown 
that we have done a remarkable job in the face of both the 
challenges, getting them into--we have a very--what I call 
fondly ``a Model T'' with a great sound system and a GPS system 
and a new engine, but it has applications running for 60 years. 
To pull that off, I am delighted. You could have made a lot of 
money betting on that result 15 months ago.
    So I think we are up to it. I do think--and I have thought 
for a year about it--we do statutory mandates, so we will 
always have a highest priority of whatever statute you pass. 
But when our resources are cut, it means that we cannot do 
other things that we have discretion over. So it is tax 
enforcement, taxpayer service, improvement of our IT systems 
have to be put on hold. But I think in terms of the 
implementation of the Affordable Care Act, I could not be more 
pleased with what the employees of the IRS have been able to 
do.
    Senator Sasse. Thank you, Commissioner.
    Mr. Koskinen. Thank you.
    Chairman Johnson. Thank you, Senator Sasse.
    Let me just admit that back-of-the-envelope calculations 
are dangerous because my logic was in error. Really the 
extrapolation would be about $172 times 2, it would be $344 in 
the second year, and about $430. So I want to correct the 
record. I was wrong. So it really looks like the minimum 
penalty would probably be the maximum penalty if we extrapolate 
it. So we are not talking about 3,000 bucks. We are really 
talking the 325 and 695 as being average. So I just want to 
correct that. Senator McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you----
    Mr. Koskinen. I appreciate your staff's input because I 
could not do that on my own.
    Chairman Johnson. It was me. I was just thinking about it. 
It just seemed, man, that is why, I started going through that 
logic. This is unbelievable. And it was unbelievable, so I was 
wrong.
    Mr. Koskinen. 435 sounds a lot better.
    Senator McCaskill. Commissioner, everyone is offended at 
the notion--I was offended, everyone is offended, regardless of 
party or ideology--at the notion that the IRS would ever target 
groups based on their beliefs in this country. I understand the 
outrage. I understand the need to hold people accountable. But 
I would like you to explain that when we vent that frustration 
by cutting funding from your agency, who exactly we are 
punishing?
    Mr. Koskinen. Well, as other people have noted, when you 
punish the IRS by cutting its budget, ultimately you are 
punishing taxpayers because you limit our ability to provide 
the service to them that our employees want to provide. The 
people who care most about it are the people working in our 
call centers, in our assistance centers, whose satisfaction 
comes from helping people, and they feel they do not have the 
resources to do that.
    Senator McCaskill. Your budget has been cut by 18 percent 
since this scandal came up. What is the call wait now for a 
taxpayer who has a problem? What is the average amount of time 
they have to wait on the phone because you do not have enough 
personnel to answer the phones?
    Mr. Koskinen. At this point, when you get through, if you 
get through, it on average would have taken you about 28 to 30 
minutes.
    Senator McCaskill. And what percentage of the phone calls 
can you even answer at this point after these draconian budget 
cuts that supposedly were punishing you, but as it turn out 
they are punishing my constituents who cannot talk to anybody 
because you have had to cut so many people?
    Mr. Koskinen. About 60 percent of the calls this year are 
not going through, and that increases, that exacerbates the 
problem, because if you do not get through--we have had over 6 
million--the phone industry calls and courtesy disconnects, 
they are basically when the system gets overloaded and we know 
you are going to be there too long, you will just simply get 
disconnected. So you aggravate the problem because what happens 
is people have to call back. So, on average, a lot of people 
are calling two, three, or four times just to get into that 
queue to wait for the half-hour.
    Senator McCaskill. And scams. We are going to have a 
hearing later today on the Aging Committee about the scam that 
is going on in this country where people make phone calls 
claiming to be the IRS. Then they basically steal money from 
victims through coercive efforts and misrepresentations on the 
phone. When you are able to go after the criminals, what is the 
return on investment for every dollar that you are given to go 
after the criminals? And I saw those criminals firsthand as a 
prosecutor who are using the IRS and the tax code to cheat all 
of us people in America who pay their taxes. What is the return 
on investment for every $1 you get? What do you return to the 
Treasury in terms of your ability to go after the criminals?
    Mr. Koskinen. Well, on enforcement alone, the return is 
over 10 times the amount. As a general matter, when you give us 
$1, you get $4 to $6 back.
    Senator McCaskill. OK.
    Mr. Koskinen. So we are the only agency in the government, 
if you give us money, we promise to give you more back.
    Senator McCaskill. And let me make sure I understand and 
make the point because, this sometimes--and I do not want to 
get to, well, maybe I will get to an aggressively partisan 
place here. When you estimate your taxes, you are deciding what 
you are going to make and what you are going to owe to the 
government. Then you decide what is going to be withheld. If 
you are right, if you are perfect, then it is even. You do not 
owe anything and you do not get anything back. But if you 
underestimate your income, you might owe more. If you get less, 
and if you overestimate, you might have to pay more. So this is 
something every taxpayer has to do every year, correct?
    Mr. Koskinen. That is correct.
    Senator McCaskill. So really what we are doing with the ACA 
is exactly the same thing.
    Mr. Koskinen. That is right.
    Senator McCaskill. The individual has to estimate whether 
or not they are entitled to get this amount of money for their 
insurance premium or if, in fact, they are entitled to that 
amount. If they estimate wrong, they are either going to get 
money back or they are going to owe money.
    Mr. Koskinen. That is correct. And one of our goals is to 
try to educate the public--we have been doing that for a year--
to understand that.
    Senator McCaskill. And they are going to get better and 
better at this.
    Mr. Koskinen. They will, and all of our experience in all 
of these kinds of programs is after the first year, everybody 
then pays even closer attention and understands that it is not 
a free good.
    Senator McCaskil1. OK.
    Mr. Koskinen. That when you get a premium, advance payment, 
it ultimately has to be reconciled with the reality of your 
income.
    Senator McCaskill. And, finally, calling it a ``personal 
responsibility tax'' I have a couple of minutes, and I am going 
to take them. A 32-year-old man in America has enough money to 
either buy a new Harley or health insurance. And under the 
umbrella of freedom, he decides, ``I want a new Harley.'' And 
he goes out, and he puts that Harley on the pavement, and he is 
life-flighted to the nearest hospital. In America, we do not 
say to him, ``You know what? You decided to buy the Harley. We 
are going to let you die.'' Instead, we take him in the 
hospital and sometimes give him millions of dollars of health 
care. He goes bankrupt. The hospital has uninsured care.
    Now, there is no magic fairy that I am aware of--I do not 
think there is one at the IRS--that comes into that hospital 
and pays the bill. So what happens when that happens? When that 
guy decided to buy the Harley instead of the health insurance, 
the hospital calls the insurance company and says, ``We are 
going to have to charge you more for labor and delivery. We are 
going to have to charge you more for a knee replacement. We are 
going to have to charge you more for an angioplasty.'' Then, 
that insurance company calls the small business down the road 
and says, ``You know what? I am going to have to raise your 
premiums.'' And those premiums have been going up by double 
digits every year for years prior to this reform.
    Now the question we have here is one of personal 
responsibility, and I am lectured about personal responsibility 
from some of my friends on the other side of the aisle 
constantly. So the question is: Do we owe, all of us who pay 
insurance, should we pay a higher premium because he got to get 
a Harley? Or should he have personal responsibility to be able 
to cover his medical bills? And that is really the essence of 
this question.
    We say you have to have insurance when you are driving a 
car because you might, in fact, harm someone else. Well, when 
you go into the hospital with uninsured care, you are passing 
those costs on to people who have taken personal 
responsibility.
    So I get so tired of this notion that somehow this is the 
big arm of government instead of the notion that it is time in 
America we acknowledge that personal responsibility in the 
health care sector is just as important as personal 
responsibility in any other sector.
    I feel better. Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator McCaskill. Senator 
Ernst.
    Senator Carper. Mr. Chairman, could I just say something?
    Chairman Johnson. Sure.
    Senator Carper. I am Tom Carper, and I approve that 
message. [Laughter.]
    Chairman Johnson. Senator Ernst.

               OPENING STATEMENT OF SENATOR ERNST

    Senator Ernst. Thank you, Mr. Chairman, and I would like to 
state for the record I do ride a Harley, I have insurance, and 
I wear personal protective gear. So, yes, thank you very much. 
I am personally responsible.
    Mr. Koskinen. Did you all work this out beforehand?
    Senator Ernst. No, we did not. Fortunately, I do not make 
that choice. I know what I can afford, and do so accordingly.
    Anyway, a little bit more--I know Senator Sasse had brought 
up some good discussion about King v. Burwell where your role 
will be once that decision is made. If it goes the way I 
believe it should go, then we will have subsidies that have 
gone to States and to individuals that should not have gone to 
those individuals. But what do we do--and maybe you have 
thought about this--in those hybrid situations? There is a 
handful of States, of which Iowa is one. It is a hybrid 
exchange. It is neither State nor Federal. It is a combination 
of both. Have you thought through that and what role the IRS 
might be playing, Commissioner?
    Mr. Koskinen. No, we have not. Basically there is no way 
for us--so we do not spend any time thinking about it--of 
trying to predict what the Court will hold and what it will 
decide in terms of how to parse through all of this and what 
the responsibilities are of States, the Federal Government, the 
Congress. And much like potential tax extenders, we basically, 
as I say, play the hand we are dealt. The Court will make a 
decision, and then we will respond.
    The policy issues, back to the earlier questions, about 
what the implications are beyond tax administration will be 
decisions made by the Treasury Department and the 
administration. But at this point, we have enough challenges 
running the filing season and the program as it is, and so it 
is what we are focused on.
    Senator Ernst. OK. I do appreciate that. I hope that once 
the decision is made we can all jump on that together and 
figure out how we are going to handle that situation. So I do 
appreciate that.
    Since September 2014, Health and Human Services has dropped 
over 300,000 individuals from Obamacare because those 
individuals have failed to document their legal residency. So 
we do not know what their status is. Many of those were 
enrolled under the law for over a year, so 300,000 individuals. 
And during that time, many of them did receive premium 
assistance, tax credits, and cost-sharing subsidies for which 
they are not entitled. They cannot prove their residency; they 
are not entitled to those.
    So under the administration's current policies, if an 
individual or family is unable to prove his or her citizenship 
or lawfully present status, HHS provides coverage and taxpayer-
funded subsidies under the Affordable Care Act before the 
individual's legal status can be verified by any government 
agencies. So if citizenship or lawfully present status is not 
verified or cannot be verified, then those individuals are 
dropped. So, again, 300,000 individuals have been dropped from 
Obamacare. And because many of those are part of this 300,000, 
if they are illegal immigrants, they are not necessarily filing 
tax returns, and so I understand that it would be difficult for 
the IRS to try and recoup improper payments or credits or 
subsidies because they will not be subject to the 
reconciliation process when they file tax returns, because they 
do not file tax returns.
    So how as the IRS are you able to handle that situation? 
What is the plan moving forward for those folks that were 
receiving credits or subsidies that are not filing?
    Mr. Koskinen. Those determinations and qualifications were 
made by CMS and HHS, which runs Medicare and Medicaid and has 
experience on recouping improper payments or payments made in 
error. And so this is an area where they will be responsible 
for doing that.
    Senator Ernst. That will not even be run through the IRS?
    Mr. Koskinen. No. In other words, if they were not filing, 
they will--if the premiums have been paid on their behalf, at 
this point the idea is that CMS will pursue those to the extent 
that they pursue any other payments that they make, that turned 
out to be improper.
    Senator Ernst. OK. I can see that this is going to be a 
very difficult situation with so many different entities that 
are involved with subsidies, with tax credits, one agency not 
knowing how another agency is going to handle it.
    Mr. Koskinen. Well, no, we work together on that. There is 
not a gap. This has been, as somebody noted earlier, an effort 
that is not totally unique, but for us we spend a lot of time 
with CMS and have very good communications and working 
relationship with them. We spend a lot of conversation with the 
Treasury Department. As I note, we are bureau. But the policy 
issues are regularly reviewed by HHS and Treasury together. We 
chime in in terms of how it is going to affect tax 
administration, but I do not think there is any gap in where 
they are. As new issues come up, they obviously have to be 
resolved. But that is part of an ongoing discussion the 
agencies have.
    Senator Ernst. OK. Well, I do appreciate that. I know it is 
a very difficult situation. You have been thrown into this, and 
I appreciate your service, and thank you for coming today to 
testify.
    Thank you, Mr. Chairman.
    Mr. Koskinen. Thank you.
    Chairman Johnson. Thank you, Senator Ernst. Senator Ayotte.

              OPENING STATEMENT OF SENATOR AYOTTE

    Senator Ayotte. Thank you, Chairman. Thank you, 
Commissioner, for being here.
    So I wanted to ask you about a situation that we have been 
facing in New Hampshire, but I do not think New Hampshire is 
unique on this. I received a number of complaints from my local 
libraries that they did not receive the necessary tax forms and 
instruction booklets. So in New Hampshire, we happen to have a 
high percentage of people that actually will file by paper, and 
historically they have been able to go to their local library 
and get the tax forms so that they can do their taxes.
    I wrote to you originally, I believe, in February about 
this issue, and the first response I got back, one of the 
primary reasons, you said, that these forms were not being 
provided to people at their libraries in New Hampshire was that 
the IRS budget was cut. But the reality is that on taxpayer 
services, Congress allocated the same amount of money. So why 
is it the IRS is unable to provide the same level of customer 
service this year? Because it is not just this library issue. 
For us in New Hampshire to have to go through the runaround 
that we did to get our libraries the basic tax forms so people 
could file their taxes, I mean, it just was kind of 
unbelievable to me when my staff told me all the runaround we 
were going through.
    So can you help me understand why this is happening? And 
what troubles me even more is that the National Taxpayer 
Advocate recently testified before the Senate Appropriations 
Committee that this year taxpayers are receiving the worst 
levels of taxpayer service since at least 2001, and the 
statistics are staggering in terms of 40 percent of the calls 
that the IRS is receiving from taxpayers are not being answered 
or responded to in any way.
    Mr. Koskinen. Right, and the answer to that is we get an 
appropriation in buckets for enforcement, for operations, which 
is taxpayer service and information technology; IG and Taxpayer 
Advocate are off on the side. We also have user fees that go 
through part of our operating budget that the appropriators are 
aware of. Historically, we have never been fully funded for 
taxpayer service. The amount of money provided has been then 
supplemented by, on average, about $150 million out of the 
various user fees that we charge.
    Because in both 2014 and 2015 we were zeroed out in funding 
for the Affordable Care Act, we asked for $300 million each 
year just for IT, and the Congress provided us zero. So the 
only way we could do it was to move money from wherever it was. 
So while the base appropriation for taxpayer service is the 
same, we had to take $100 million out of our user fee 
allocation to taxpayer service to put it into information 
technology to implement the act. So we have a significantly 
smaller amount of money available for taxpayer service than we 
have had before, and the appropriators understand that because 
we go through that with them regularly.
    We are as concerned as you are about the low level. As I 
said, I have now visited 37 cities. I have talked with, in town 
halls and otherwise, 13,000 IRS employees. And one of the 
common themes is not that they are overworked. One of the 
common themes is they want to help taxpayers. They get 
satisfaction out of answered questions. One of the concerns 
they had was when we told them they could only answer simple 
questions, not complicated questions, because complicated 
questions let the queue get longer.
    So it is clear, and we have tried to make it clear, we told 
the Congress last year, the appropriators, that if our budget 
was flat let alone cut by $350 million, we expected the level 
of service would drop to 53 percent. When we got cut by an 
additional $350 million, we had no choice, because we have to 
implement the statutory mandates. We have to run the filing 
season. We collect over $3 trillion for the government in the 
ordinary run of the filing season. So we cannot afford to have 
that not work. So when you cut our budget, the only places that 
get cut are enforcement, taxpayer service, and improvements in 
our information technology.
    Now, with regard to the forms, first of all, as I hope I 
thought when I read the letter to you and signed it and talked 
to people--our experience has been 85 percent of the forms we 
have been sending out do not get used. So we have been actually 
providing a lot of forms for landfills. For the libraries, as, 
again, we have tried--we worked with the Library Association. 
We provided them the basic forms, not schedules and others, but 
we provided them a format that would allow them to make copies 
of any form they wanted. They could download and make other 
copies of those. Anybody could call us--we have a special line 
for documents--and ask for documents; we would mail them to 
you.
    Now, there was as problem because with the extenders and 
the development of the forms, we could get them up online and 
you could download them online. You could go straight online to 
get them. If you called us, it was going to take a few weeks 
longer before they actually got through the formal process.
    So we tried for taxpayers to give them alternatives. The 
library concern, which I understand, was printing documents, 
making copies is not a free good, you know, whether it is 10 
cents or 15 cents a copy. With limited budgets libraries are 
strained by that. But that is why we tried to encourage them to 
say for their constituents they could go online and download 
them themselves. Some people do not have access to----
    Senator Ayotte. The problem is the people are going to 
libraries do not necessarily have access to that.
    Mr. Koskinen. Have access to the Web, and those people--we 
have tried to give visibility to it--could call a special line, 
and we would mail them the form.
    Senator Ayotte. Well, I literally had to send my staff 
repeatedly over to get these forms for people in New Hampshire, 
and, we were only able to get 10 at a time. It was a little 
crazy.
    Let me just point out that from your testimony the one 
thing that people need to understand is you had to take money 
from the taxpayer services line to fund the implementation of 
the Affordable Care Act, essentially is what happened here.
    Mr. Koskinen. Yes.
    Senator Ayotte. Because we funded you the same on taxpayer 
services, and you took the money to implement Obamacare.
    Mr. Koskinen. The money you gave us for taxpayer service is 
spent on taxpayer service. We actually put $50 million of user 
fees into it. It is the $100 million we had to put into the 
statutory mandate, and we have to do statutory mandates. We do 
not have a choice----
    Senator Ayotte. Well, yes, and in the 2015 budget, the GAO 
found the IRS used $12.1 million that was appropriated for 
taxpayer services to implement the Affordable Care Act.
    Mr. Koskinen. Yes. We have no choice. If you pass an act, 
the Congress passed--as I have said, ironically, 3 days after 
our budget was cut by $350 million, the Congress passed the 
ABLE Act with no additional funding and said, ``You have until 
June 1 to do that,'' and the Professional Employees 
Organization Act.
    Senator Ayotte. So before I leave----
    Mr. Koskinen. We will do that because you have told us to 
do it. But the only way we do that is we have to find the money 
somewhere. We have to take it where we have discretion.
    Senator Ayotte. Right, so we are taking it from our core 
functions to do this.
    Mr. Koskinen. That is correct.
    Senator Ayotte. I wanted to followup on an issue that--
someone may have already asked you, but I want to followup, and 
that is the incorrect 1095-A forms sent to 800,000 individuals 
who enrolled in the health insurance through the Federal 
exchange. Do you know how many taxpayers in New Hampshire 
received an incorrect 1095-A form?
    Mr. Koskinen. I do not. Those forms are provided and 
designed and filled out by CMS, so they would be the ones 
that--if anybody knows, they would know.
    Senator Ayotte. And do you think that the people who waited 
a little longer, as I understand, they are being treated 
differently and are still on the hook for paying, that if they 
owe a larger premium, that they--as I understand, there may be 
a distinction between those, depending on when they filed and 
how they are going to be treated. How are the people in this 
country that, were misled in terms of what they thought that 
they were going to be receiving or not receiving or having to 
pay, how are you going to treat those individuals? And what are 
we going to do with the lost revenue on that?
    Mr. Koskinen. We have to sort through this. Of the 800,000, 
the estimate by CMS was about 50,000 had filed, and 750,000 
were in the same pool, and the 50,000 could file amendment if 
they wanted to. So it is not a distinction.
    In terms of being misled, we have had a long, I think 
informative decision that--and I think after the transition of 
the first year, people will understand it better. When you 
register and apply for insurance coverage, you make an estimate 
of what your income is going to be for the year going forward, 
the way we all make estimates when we file our estimated 
payments and withholding. You make that judgment. We then 
provide income verification about what your last tax return 
filings were so that the marketplace can determine whether, in 
fact, you have an accurate estimate going forward. And on that 
basis, a determination is made. First, by working through what 
the premium for your insurance is, and then a calculation is 
made, how much of that premium will be paid on your behalf to 
the insurance company in an advance payment.
    One of the things that we have tried to make clear from our 
standpoint, because we wanted people to make sure if they had a 
change in circumstances, if they had a different estimate of 
what they were going to earn, they needed to go back to the 
marketplace so they would not have any bigger adjustment than 
necessary. But a lot of people actually, I think, went through 
and assumed that once they got the premium payment paid to the 
insurance company that somehow it was never going to get 
reconciled. Most people understood that it had to be 
reconciled, but a lot of people have, one way or the other, not 
understood that. We think going into next year everybody will 
understand when you make an estimate of your income and your 
family circumstances--if your income goes up, then you are 
entitled to less support for your insurance payment that goes 
forward. You still have the same insurance policy. It is just a 
question of how much do you pay, how much does the government 
pay. If the amount of income you are making goes up, you are 
going to be eligible for less. And if you let the marketplace 
know that immediately, it will adjust the advance payment 
immediately, and you will have no change or reconciliation at 
the end of the year.
    So we have spent a lot of time, CMS has spent a lot of time 
over the last year trying to get people to understand as 2014 
unrolled that if your estimate was wrong or changed, you needed 
to get back to the marketplace. A number of people did. That 
would mean you would get a 1095-A for the part of the year that 
you were under one coverage, and then you would get another 
1095-A when your premium changed. So at the end you would know 
exactly what your premiums were. We think that is going to get 
much better in the second year because everybody will have now 
been through it once and will understand that you are making an 
estimate of your income, and you just have to be careful that 
that is as close to what the reality is going to be as you can 
make it. And if it changes over the course of the year, you 
need to get back to the marketplace.
    Senator Ayotte. Thank you.
    Chairman Johnson. Senator Lankford.

             OPENING STATEMENT OF SENATOR LANKFORD

    Senator Lankford. Thank you. Commissioner, it is good to 
see you again. Thanks for the work you are trying to do for the 
American people and all that is going on. There is a tremendous 
amount that needs to be done. You have walked into the middle 
of a lot of chaos with laws that we all have some frustration 
with, and I appreciate what you are trying to do.
    I want to talk through just a couple of things. We have 
talked before about the EITC and the identity theft issues. I 
want to just try to get a general sense of a timeline. You put 
together working groups. You are trying to get outside input on 
this. How do we get on top of this? We have a 22-percent 
estimated fraud rate over the EITC, somewhere around $13 to $16 
billion in loss in that one program, and trying to be able to 
manage that.
    The challenge has always been--this has been a high-
priority issue of how to get on top of this. You have come in 
in the last 2 years. You walk into the middle of all this. What 
is the plan now to try to get on top of this $13 to $16 billion 
of loss?
    Mr. Koskinen. It is a major challenge for us. I have been 
concerned about it since I started. When I started, the 
challenges were to implement the back end of the Affordable 
Care Act, the front end of the Foreign Account Tax Compliance 
Act (FATCA), deal with extenders, deal with the filing season, 
deal with overall identity theft. We have made progress, good 
progress in some areas, progress in all those areas except for 
EITC. And if you look back over it over the last 10 years, the 
percentage of improper payments and the dollar volume of those 
have been pretty much within a range and not changing.
    Senator Lankford. Right. So how do we get on top of that? 
What is the plan for----
    Mr. Koskinen. So the plan is I did put together a working 
group of everybody who knew anything about this to say we 
cannot keep doing the same thing--although we have tried a lot 
of stuff, we cannot keep doing it expecting somehow it is 
magically going to get better. So we went back to the drawing 
board.
    and we asked for support from the Congress. We need to get 
W-2s earlier so we can front-end validate what people are 
asking for. We need to have what is called ``correctable error 
authority.'' We see in the returns when there are errors. Two 
people claim the same dependent. You have said you have four, 
and our database says you have two. We cannot make that 
correction without sending you a letter and entering into a 
formal negotiation or audit or exam, and there is a limit to 
what we can do. We did last year about 450,000 of those exams, 
but we have 27 million applicants. And to the extent that 20 
percent of them, 4 or 5 million, are getting the improper 
payment, we are never going to be able to audit our way out of 
the problem with resources.
    So we have said if we had correctable error authority, we 
could make that correction, advise the taxpayer. The taxpayer 
would still have the right to come in and say, ``No, the person 
who claimed the child was wrong,'' or, ``I have really got 
three kids as opposed to one.'' So you would always have the 
ability to make that clear. But we would be able to make those 
corrections directly.
    And then as we talked earlier, over 50 percent of the EITC 
returns are filed by tax preparers, and as I say, most of them 
know what they are doing. They tried to do the best they can. 
It is a complicated statute that if somebody wanted to 
simplify, we would be happy to support that. But it is 
complicated. So for an untrained preparer, it is very difficult 
to work through, so they are making honest mistakes.
    Then as I say, there are crooks who are advertising, ``Come 
with us. We know how to get you a good refund.'' We have tried 
to warn taxpayers. Certainly if your preparer says, ``Just sign 
a blank return. I will take care of it for you,'' you better 
get another return preparer, because, A, you may never see the 
refund; B, the refund may have nothing to do with what your 
reality is.
    So if we could get W-2s earlier, if we had correctable 
error authority, and if we had minimum requirements and 
qualifications training for tax preparers, we think the 
evidence is over the last 10 years we could make a dent in this 
problem. We are never going to get it to zero, but to me, you 
just cannot--I have told people you cannot keep running the 
system this way. It looks either like we do not know it is a 
problem or we do not care about it or we cannot do anything 
about it. I think we can.
    Senator Lankford. And I would say that is a prime aspect of 
this Committee, is to be able to determine where we are stuck, 
let us know what we need to do so we can get it unstuck.
    Mr. Koskinen. Right.
    Senator Lankford. And you just articulated three different 
issues that you need Congress to be able to help with: the W-2 
issue, correctable error authority, and simplify the statute, 
EITC, so there is less gray area, basically that it is more 
black and white of who gets it and who does not get it, and how 
that gets applied. Is that correct, those three that I am 
picking up?
    Mr. Koskinen. What you got is really four. We need W-2s 
earlier.
    Senator Lankford. Right.
    Mr. Koskinen. We need correctable error authority. We need 
minimum requirements, qualifications for preparers. And if we 
could simplify the statute, it would be helpful.
    Senator Lankford. All right. This again is something you 
are trying to manage in the middle of all the transition in 
Obamacare. In September 2014, HHS dropped 300,000 people saying 
that they did not have the correct documentation for legal 
residency status. Some of those individuals were already in the 
process with the tax credits and the subsidies and everything 
else. What is the plan to recoup? Is there a way to recoup? Is 
there just a loss? We have 300,000 people there that received a 
subsidy that HHS came later back to and said no, they are not 
eligible for this after all? How is that working out?
    Mr. Koskinen. As you can imagine, it is a complicated 
situation. Basically what they got was advance payments of the 
premium tax credit, so they actually never got to the tax 
credit form. Basically the government had made an advance 
payment to the insurance company on their behalf. And so as a 
general matter, the policy has been that HHS and CMS, who deal 
with Medicare and Medicaid payments that often sometimes are 
made improperly, are retrieving those. And so the basic policy 
is that CMS and HHS are responsible. But when the payments are 
made on the basis of improper identification, at that point 
recouping those or collecting them again is up to them.
    Senator Lankford. So that is not up to you; that is up to 
HHS to----
    Mr. Koskinen. That is right.
    Senator Lankford. We have 300,000 people that apparently 
received that advance payment that do not have citizenship or 
do not have documentation for citizenship at this point, and 
they are receiving this advance payment. But that is over 
there.
    Mr. Koskinen. That is over there, yes.
    Senator Lankford. OK. Let me ask another issue on this. The 
law itself with the Affordable Care Act, the law prohibits 
employers from reimbursing or otherwise providing financial 
support to employees to help them pay for an individually 
purchased plan for these smaller businesses and individuals. So 
if someone says they are going to go out onto the general 
market, the employer is going to just provide them some sort of 
tax-free amount. In the past, employers, especially small 
businesses, would say, ``OK, I cannot afford you a policy, but 
I know you are going to go buy something; I am going to try to 
find some way to be able to help you do that.'' My 
understanding is that is not legal anymore under the Affordable 
Care Act. Are you aware of what the tax policy is and the tax 
implications of that?
    Mr. Koskinen. That is my understanding, that is the tax 
policy. Again, it is not a policy the IRS sets. It is a policy 
set by the Treasury Department in response to the statutory 
language.
    Senator Lankford. Would the IRS have to carry out the 
penalty part of that, though, for the employer especially? 
Because my understanding is the employer actually----
    Mr. Koskinen. Once somebody has decided either in the 
statute or the policy under the statute, what the policy is, 
the tax administration is our responsibility. So to the extent 
that once the rules are set, we are responsible for 
administering them so the penalties or the tax payments would 
be our responsibility.
    Senator Lankford. So at this point there is a consequence 
that could come down on someone who is trying to help someone 
pay for their premiums out on the general market rather than 
providing an individual coverage?
    Mr. Koskinen. Right. The Treasury Department has provided 
guidance in that regard, and so that point has been made.
    Senator Lankford. Mr. Chairman, can I make just one quick 
comment as well?
    Chairman Johnson. Sure.
    Senator Lankford. The Kaiser Family Foundation has done a 
tremendous amount of research on all this and has done a very 
good job of getting the background. They listed in their 
research only 4 percent of households received the correct 
Obamacare subsidy. Now, again, that is not your responsibility 
to chase that down, but that becomes a big issue long term on 
managing, and it affects a lot of people as they go through all 
their tax planning and preparation. It is one of the aspects 
that has to be corrected. If we have 4 percent of these folks, 
according to the Kaiser Family Foundation, that are receiving 
the correct subsidy amount up front to know what they are 
dealing with, we have a major problem that needs to be dealt 
with, with CMS and HHS. Otherwise, they are trying to clean up 
the consequences of it.
    Mr. Koskinen. I would just simply note that I am not sure 
we have a much higher percentage of people estimating their 
income and their withholding. In other words, what you are 
doing at the front end is making an estimate of what are you 
going to earn in the future. And that determines the advance 
payment you are entitled to. And so unless you know your job 
today and you know that no income is going to change, your 
family is not going to change, you are always going to be 
making an estimate that almost by definition is never going to 
be 100 percent.
    Senator Lankford. So this basically sets up Americans to 
fail at this point, or it sets them up to where they are going 
to have to file multiple forms through the year to be able to 
update pay.
    Mr. Koskinen. No, what is going to happen is what people do 
with their withholding. Right now the reason 60 to 70 percent 
of people get refunds is because they overestimate----
    Senator Lankford. They guess high.
    Mr. Koskinen [continuing]. And that is what we expect 
people will do here, is they will be careful about estimating 
their income. They will not try to make it down the last 
dollar. They will say, ``I am going to overestimate my income 
to make sure that the premiums going to the insurance company I 
am entitled to, and that means I will probably get a bigger 
refund, because when it gets calculated, much like people 
getting refunds for their withholding and estimated tax 
payments, I will get a refund in April.'' And so it will be, I 
think, that normal taxpayer behavior, which is the way they 
behave generally.
    Senator Lankford. Thank you. I yield back.
    Chairman Johnson. Thank you, Senator Lankford.
    Mr. Commissioner, in probably June of this year, the 
Supreme Court is going to be deciding on an IRS ruling in the 
King v. Burwell decision. Has the IRS done any planning in case 
that ruling comes down and is an adverse ruling in terms of 
your rulemaking?
    Mr. Koskinen. Well, as I said earlier, there are a wide 
range of possibilities of how the Court is going to rule in 
terms of both what it decides and how it decides it wants to 
have its ruling implemented. And in light of our challenges, 
just moving forward and actually, as I say, next month we have 
to start preparing for the next filing season, there is no way 
we can adjust the filing season planning trying to anticipate 
the various options. So much like we do with tax extenders, we 
basically run on the assumption life will continue to look like 
it is, and then we have to adjust afterwards.
    Chairman Johnson. So, bottom line, no planning whatsoever. 
If the Supreme Court rules the way I believe the law is 
written, that the subsidies can only be paid through exchanges 
established by the State, that is going to create some real 
problems for the IRS, correct?
    Mr. Koskinen. But it depends on how the Court rules. The 
Court could rule----
    Chairman Johnson. I understand that, but let us say they 
actually follow the law the way it is written, and they say 
that only subsidies can be paid through those exchanges 
established by the States, we have how many States that have 
Federal exchanges? How would you possibly handle that? Have you 
made any--again, my question is: Have you given any thought to 
that, any planning whatsoever in terms of that very possible 
eventuality here?
    Mr. Koskinen. No, there will be a set of issues, just as 
with statutes, there are policy questions about how to 
implement them. Some statutes are passed, and then people are 
given more time to transition. So depending on what the Court 
decision is, there will be policy decisions made about how to 
transition from one point to another. But depending on the 
decision, it could make life much more complicated for 
everybody.
    Chairman Johnson. You were not Commissioner when that 
ruling was handed down, correct?
    Mr. Koskinen. That is correct.
    Chairman Johnson. Did you ever look into or research how 
that ruling was developed?
    Mr. Koskinen. No. I have a rule of life--I have spent 45 
years parachuting into 20 years in the private sector, 20 years 
in the public sector, agencies and organizations under 
challenge. And my rule of life is play the hand you are dealt 
and move forward. And so that decision was made before I got 
here, and my job is to administer the agency as best I can 
where we are.
    Chairman Johnson. So you have never looked into whether or 
not the IRS was working hand in glove with the White House and 
trying to get direction from them in terms of how they should 
rule on that?
    Mr. Koskinen. No, except as a general matter, we do not 
work hand in glove with the White House on anything, but these 
policy discussions we have are primarily with the Treasury 
Department. The regulatory process is worked with the Treasury. 
But I have no idea who talked to whom and how that process and 
those decisions were made.
    Chairman Johnson. OK. The IRS is also responsible for 
evaluating the exemptions for the individual mandate. How many 
Americans in general--or what is the estimate in terms of 
Americans that will qualify for the various exemptions that 
have been provided for?
    Mr. Koskinen. At this point, as I say, we have not pulled 
that data out of the returns, so I cannot give you an answer on 
that. But the assumption was basically that probably more 
people would file for exemptions, hardship exemptions, or that 
they had coverage for part of the year than people who will pay 
the shared responsibility payment. It will be, a number that we 
will actually see, and as I say, in 3 or 4 weeks we will be 
able to accumulate all of that data and understand where it is.
    Chairman Johnson. And, again, those that will be granted 
exemptions, that is going to be pretty much on an honor system? 
Is there going to be any way of trying to verify that through a 
potential auditing process?
    Mr. Koskinen. Yes, what we will do in all of these matters, 
as we always do, is the computer selects returns that have 
issues, whatever they are. When we go into those, then we look 
at everything. And so of the 75 percent, give or take a little, 
of Americans who have checked boxes saying they have coverage, 
if we actually have an issue with your return, we will ask you 
for backup support for the fact that you had coverage, because 
you said you did.
    So we will track through, when somebody says, ``Well, I had 
a hardship,'' and it turns out you made a lot of money, and we 
are auditing you on that basis, it will be noted that while you 
applied for this exemption, you do not seem to qualify for it. 
And then you are subject to, in effect, penalties and interest, 
and the penalties for purposely understating your income can 
over time mount up.
    Chairman Johnson. Getting back to the couple that wrote me 
the letter and their $11,550 of subsidy they have to repay and 
just the timing of that, at what point in time, if they are 
just unable to repay it--I mean, they were talking about 
because they do not have the cash on hand, they do not have the 
ability to pay other than potentially having to pull money out 
of their retirement fund--which there is a pretty high penalty 
for doing that, correct? I mean, if you pull money out of your 
retirement fund, there is, what, a 10-percent penalty on that, 
plus you have to count it as income?
    Mr. Koskinen. If you have already retired and you are 59\1/
2\, then you can pull money out of your retirement fund, and 
all you do is pay income tax on it. There is on----
    Chairman Johnson. They are not retired. They are actually--
well, they might have been retired.
    Mr. Koskinen. If they are over 59\1/2\, they do not have 
that problem, other than you pay tax on it because that is how 
the fund works. If you are under 59\1/2\, then there is a 
penalty.
    Chairman Johnson. OK. So, again, somebody in that situation 
that was working, that had to pay that back, if they had to 
pull out--they may be paying a penalty in that.
    Mr. Koskinen. Right.
    Chairman Johnson. What about the timing of paying the 
subsidy anyway?
    Mr. Koskinen. As I have said, you can actually go online, 
and if you qualify--and in a case like this, you probably 
would--you can do an online installment agreement with us that 
would allow you to spread those payments over time. And you can 
do that online, or you can call us after the filing season, and 
hopefully you will be able to get through a little quicker. And 
you can arrange that. So you do not have to immediately take 
draconian steps to pay everything on time if you have 
legitimate concerns. And it sounds like in this particular 
case, an online installment agreement--or an installment 
agreement, online or otherwise, would be an appropriate 
response.
    Chairman Johnson. Over what time period would that be 
installment?
    Mr. Koskinen. It depends on the situation, but it is 
usually over 3 to 5 years.
    Chairman Johnson. Do they pay interest on that as well?
    Mr. Koskinen. Yes, if you have not paid on time, then there 
is an interest charge, but there is no penalty charge.
    Chairman Johnson. OK. What is the interest payment on that?
    Mr. Koskinen. The interest rate goes at the government 
interest rate, which these days is, very low.
    Chairman Johnson. OK. That is all I have. Senator Carper.
    Mr. Koskinen. Not that I want to encourage people not to 
pay on time just because the interest rate is low.
    Chairman Johnson. I understand.
    Senator Carper. My dad always used to say to my sister and 
me, ``Just use some common sense.'' When we were little kids 
growing up, ``Just use some common sense.'' My mother used to 
say to us growing up, she always said, ``Treat other people the 
way you want to be treated, Golden Rule.''
    In your response to Senator Johnson's questions explaining 
how people can file online, go online and ask for an 
installment payment and pay no penalty but interest at the 
Government's cost of borrowing, which is very low, that seems 
to me to be using some common sense. So it seems to me at least 
at first blush to be treating people the way I would want to be 
treated. So good for you.
    When I had to walk out, I said to Senator Johnson, another 
Committee I serve on, Environment and Public Works (EPW), we 
focused on the Nuclear Regulatory Commission (NRC) today. My 
Subcommittee jurisdiction there has jurisdiction over the NRC, 
so I wanted to be there for that. So I am kind of in and out 
here. I walked in and you were responding to Senator James 
Lankford's questions, sort of like, What can we do, what do we 
need to do to be of assistance?
    I am a big believer in repetition, and I am going to ask 
you--this is important, and I just want to make sure we got 
this straight in terms of what we can be doing on this side of 
the dais to enable you and your folks to do a better job, a 
more cost-effective job. I just want to have you hit it again.
    Mr. Koskinen. This was in the context of what can we do 
with what thus far has been an intractable problem of improper 
payments in the earned income tax credit area.
    Senator Carper. You may have answered this question----
    Mr. Koskinen. But I am happy to repeat it again. The 
marketers say you have to make seven impressions before anybody 
hears you, so this will be two.
    Senator Carper. OK.
    Mr. Koskinen. We need to get W-2s earlier so we can match 
up front. It would help us in a lot of ways, not just EITC, but 
in the EITC area it particularly would be helpful. We need what 
is called ``correctable error authority'' when we can see there 
is an error, either on a given return or a set of returns, that 
we now have to go out and audit, and we just do not have the 
resources. We probably never would want to do it that way. If 
we can make the correction, send the correction notice to the 
taxpayer, they can always come back and say, ``Well, I really 
do have three kids instead of one,'' or, ``That other person 
who claimed the child, it is not my fault. I get credit for 
it.''
    The third point is that we need help, because over half the 
returns for EITC are by paid preparers, making sure there are 
some minimum qualifications for people who are filling out tax 
returns on behalf of someone else.
    And then those are three things that are in what is called 
``the green book'' that have been up on the Hill that weave out 
of that big telephone book, said these would be very important 
for EITC.
    Then I said the fourth thing would be the statute is very 
complicated in terms of trying to figure out who is in charge 
and where the children are and who gets credit for them, who 
had them for more than 6 months and what the relationships are. 
So I think a lot of tax preparers and low-income people are 
stymied by that complication, and so if somebody wanted to step 
back and say it is a great program, it has bipartisan support, 
it always has had, it has been reputed to be Ronald Reagan's 
favorite poverty program, if there were a way to make it easier 
for people to figure out, both beneficiaries and their 
preparers, exactly who gets the credit and when, that would be 
helpful.
    But the first three are things that could be done now that 
would immediately give us a significant opportunity to make a 
dent, a significant dent in the issue, and if we were given the 
tools, we should be held accountable for, in fact, making that 
improvement. It will not go to zero, but it is a situation 
where I think we cannot keep running it without beginning to 
make progress in limiting those improper payments.
    Senator Carper. Good. All right. Maybe one or two other 
quick ones. When you are sort of looking ahead and I do not 
know how long we will be fortunate that you will be our 
Commissioner at the IRS, but looking ahead into the future----
    Mr. Koskinen. I think I have another 2\1/2\ fun-filled 
years.
    Senator Carper. Well, that is good. I am tempted to ask you 
what gives you joy in your work? I ask this of a lot of people.
    Mr. Koskinen. That give me joy, two things. One is it is an 
important agency. It is critical to the function of the 
government. So, you do not get up on Monday morning having to 
worry about whether what you are doing is important.
    The second thing is I have said it--and I do not say it for 
morale purposes or otherwise; I believe it. It is a wonderful 
workforce. As I say, I have talked to 13,000 employees across 
the country, and they are dedicated to the mission. A lot of 
their time is spent trying to help taxpayers. I have said it 
may take me awhile to convince people that we are from the IRS 
and we are here to help you. But we really do spend a lot of 
time trying to get information out, trying to help people in 
installment agreements, wherever it is. If you are trying to be 
compliant and trying to figure out how to pay your taxes, we 
want to help you do that.
    And so it has been a remarkable experience dealing with 
employees. We have been under a lot of stress, a lot of 
pressure, a lot of attacks. And to go talk with them, I have 37 
cities I have been to. I have had lunch with 15 to 20 randomly 
selected employees in addition to the town halls. They are a 
remarkable group, and so it gives me great satisfaction to work 
with them, and it is a great honor for me to be the IRS 
Commissioner.
    Senator Carper. A couple years ago, I was listening to 
national public radio (NPR) on my way to the train station in 
the morning in Delaware, and they reported at the top of the 
news at 7 a.m., they said they had done an international 
survey. I guess some opinion research outfit had done an 
international survey and asked what is it that people most like 
about their jobs. And some people said they liked getting paid. 
Some people said that they liked having benefits--pension, 
health care, vacation time. Some people said they liked the 
folks they worked with. Some people said they liked the 
environment in which they worked.
    Most people said what they really liked about their work 
was the fact that what they were doing was important and they 
felt they were making progress. That was it. What most people 
said the thing they liked about their work is what they were 
doing was important and they felt they were making progress.
    And I find that we--God knows the work that you all are 
doing at the IRS is important. I think it was Oliver Wendell 
Holmes, what did he say? We need to have taxes in order to have 
a civilized society. We would have a less civilized society, 
that is for sure.
    But we are not allowing you to make the kind of progress 
that you ought to be able to make, and I think with your 
leadership and stewardship and, frankly, some good advice from 
GAO from time to time, and others, you are making progress. But 
you are not making the kind that you want to make and, frankly, 
that we want, the kind of wait times that we hear people are on 
the phones and people showing up at the offices and waiting and 
waiting, not having forms available because of us, because we 
change the tax laws so late in the game. We have a job to do 
here in concert with you so that the people that we serve can 
feel better about the job that you are doing, and you can as 
well.
    Thank you so much.
    Chairman Johnson. Thank you, Senator Carper.
    We always do give the witnesses a last chance at making a 
closing comment. If there is anything that was on your mind 
that you wanted to get off your chest here, we are happy to let 
you do that.
    Mr. Koskinen. I appreciate it. I think it has been a very 
important discussion about a very important subject matter. I 
think hopefully it has been helpful to the Members of the 
Committee. I think we are on television as well, so my hope is 
that people watching have a better idea about the Affordable 
Care Act, how it works, the efforts that we are making to try 
to make sure that it goes as smoothly as possible for people, 
the issues that I hope are helpful for the public to 
understand, those who are participating in the marketplaces, 
what they should pay attention to. And, again, when their 
circumstances change, they should get back to the marketplace 
to make sure that their reconciliation at the end of the year 
is totally painless, in fact, as it goes.
    But I do take Senator Carper's point that, yes, the IRS is 
important. People ask me why I have been at this now going on a 
year and a half, why I continue to seem to be energetic and 
enthusiastic about it. And I have said again if you spent 45 
years of your life doing turnarounds and dealing with agencies 
under stress, you have to be optimistic. You have to assume 
that it is going to get better; otherwise, it does grind you 
down a little. And so I am optimistic. I do think that there 
are people anxious to be supportive of us. I think we have a 
responsibility--I have tried to stress that--to spend taxpayer 
dollars carefully. We are given these monies from people who 
worked hard to provide them to us, and we have to make sure 
that we use the funds well. We have to make sure people 
understand when there are problems, my goal in life--it would 
be nice, as I said at my confirmation hearing, to have no 
problems and say that is our goal. But even with a shrunken 
workforce, it is 87,000 people. It is the world's most 
complicated Tax Code, and we deal with virtually every American 
and every American family.
    So our goal needs to be--and I think we should be held 
accountable for it--that when we have a problem, things do not 
go the way we expected, that we find it quickly, we fix it 
quickly, and we are transparent about it. And taxpayers need to 
be comfortable and confident we are spending their money 
wisely, we are going to treat all of them the same, we are 
going to treat them fairly. We are going to do, even with the 
limited resources, over a million audits this year. I do not 
want individuals thinking, ``I am getting audited because of 
something I said, somebody I contributed to.'' I want them to 
understand there is an issue in their return that caused us to 
look at it. And if somebody else had that issue, we would be 
looking at them as well, because I do think it's basically a 
system that depends upon voluntary compliance. We collect $3.1 
trillion a year, primarily because Americans are trying to pay 
the right amount and do the right thing.
    And so for that system to work, they have to have 
confidence in and be comfortable with the fact that tax 
administration is not a political enterprise. It is, in fact, 
designed to treat everybody fairly, to make sure that people 
pay their fair amount; if they have difficulty with it, that 
they can work with us to try to figure out how to deal with 
that. And if we can move in that direction, then we will be 
making progress in the most important way, which is to protect 
the voluntary tax compliance system of this country.
    Chairman Johnson. Mr. Commissioner, I appreciate that. The 
fact of the matter is the agency has lost credibility, and that 
credibility needs to be restored. I hope you do everything you 
can to restore that credibility. I appreciate your service, 
your thoughtful testimony, your forthright answers to our 
questions.
    This hearing record will remain open for 15 days until 
April 30 at 5 p.m. for the submission of statements and 
questions for the record. This hearing is adjourned.
    Mr. Koskinen. Thank you.
    [Whereupon, at 11:52 a.m., the Committee was adjourned.]

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