[Senate Hearing 115-825]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-825

                   IMPROVING TAX ADMINISTRATION TODAY

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

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON TAXATION AND IRS OVERSIGHT

                                 OF THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 26, 2018

                               __________

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]                                
                                     

            Printed for the use of the Committee on Finance

                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
40-584-PDF                  WASHINGTON : 2020                     
          
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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas                  MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming             BILL NELSON, Florida
JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia              SHERROD BROWN, Ohio
ROB PORTMAN, Ohio                    MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania      ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina            CLAIRE McCASKILL, Missouri
BILL CASSIDY, Louisiana              SHELDON WHITEHOUSE, Rhode Island

           Jeffrey Wrase, Staff Director and Chief Economist

              Joshua Sheinkman, Democratic Staff Director

                                 ______

               Subcommittee on Taxation and IRS Oversight

                      ROB PORTMAN, Ohio, Chairman

MIKE CRAPO, Idaho                    MARK R. WARNER, Virginia
PAT ROBERTS, Kansas                  THOMAS R. CARPER, Delaware
MICHAEL B. ENZI, Wyoming             BENJAMIN L. CARDIN, Maryland
JOHN CORNYN, Texas                   CLAIRE McCASKILL, Missouri
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         MICHAEL F. BENNET, Colorado
JOHNNY ISAKSON, Georgia              ROBERT P. CASEY, Jr., Pennsylvania
PATRICK J. TOOMEY, Pennsylvania      MARIA CANTWELL, Washington
TIM SCOTT, South Carolina            SHELDON WHITEHOUSE, Rhode Island

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Portman, Hon. Rob, a U.S. Senator from Ohio, chairman, 
  Subcommittee on Taxation and IRS Oversight, Committee on 
  Finance........................................................     1
Warner, Hon. Mark R., a U.S. Senator from Virginia...............     3

                               WITNESSES

Bruckner, Caroline, executive-in-residence, accounting and 
  taxation; and managing director, Kogod Tax Policy Center, Kogod 
  School of Business, American University, Washington, DC........     5
Kubey, Phyllis Jo, member, National Association of Enrolled 
  Agents and IRS Advisory Council, Washington, DC................     7
Olson, Nina E., National Taxpayer Advocate, Internal Revenue 
  Service, Washington, DC........................................     8
Sapp, John, Chair, IRS Electronic Tax Administration Advisory 
  Committee, Washington, DC......................................    10
Thompson, Rebecca, project director, Taxpayer Opportunity 
  Network, Prosperity Now, Washington, DC........................    11

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Bruckner, Caroline:
    Testimony....................................................     5
    Prepared statement...........................................    27
Kubey, Phyllis Jo:
    Testimony....................................................     7
    Prepared statement...........................................    32
Olson, Nina E.:
    Testimony....................................................     8
    Prepared statement...........................................    37
Portman, Hon. Rob:
    Opening statement............................................     1
    Prepared statement...........................................    49
Sapp, John:
    Testimony....................................................    10
    Prepared statement...........................................    50
Thompson, Rebecca:
    Testimony....................................................    11
    Prepared statement...........................................    54
Warner, Hon. Mark R.:
    Opening statement............................................     3
    Prepared statement...........................................    56

                             Communications

Blum, Jeffrey M..................................................    59
Center for Fiscal Equity.........................................    65
Lacy, David H....................................................    66

                                 (iii)

 
                   IMPROVING TAX ADMINISTRATION TODAY

                              ----------                              


                        THURSDAY, JULY 26, 2018

                               U.S. Senate,
        Subcommittee on Taxation and IRS Oversight,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:32 
a.m., in room SD-562, Dirksen Senate Office Building, Hon. Rob 
Portman (chairman of the subcommittee) presiding.
    Present: Senators Grassley, Thune, Isakson, Cantwell, 
Carper, Cardin, Warner, and Whitehouse.
    Also present: Republican staff: Robert Cusmano, Tax Counsel 
for subcommittee chairman Portman. Democratic staff: Jonathan 
Goldman, Senior Tax Counsel for Ranking Member Warner.

  OPENING STATEMENT OF HON. ROB PORTMAN, A U.S. SENATOR FROM 
  OHIO, CHAIRMAN, SUBCOMMITTEE ON TAXATION AND IRS OVERSIGHT, 
                      COMMITTEE ON FINANCE

    Senator Portman. Thank you all for being here. We are 
delighted to have the opportunity to talk about IRS reform 
today. And I know that my ranking member, Senator Warner, has 
another engagement before long. So we are going to try to go 
through this quickly. And when it comes time for questions, I 
am going to defer to him so he gets to ask questions first.
    Just to start, this is a really important topic to me, to 
Senator Warner, to Senator Cardin, and other members--Senator 
Whitehouse. We know tax policy is important, and we have a 
historic new tax legislation the IRS is trying to implement.
    But perennially, we have these taxpayer service issues and 
tax administration issues that are going to arise. So this 
hearing is an opportunity to examine current issues related to 
tax administration.
    Of particular focus--the gavel is being hit right now. Is 
that loud enough? [Laughter.] Particular focus on customer 
service and information technology, interaction with 
practitioners--we have some practitioners here--low-income 
taxpayers, and tax administration issues related to workers in 
the high-tech economy we are now in, the gig economy.
    Senator Hatch and Ranking Member Wyden gave us an 
opportunity to hold this hearing. I appreciate that. And again, 
Ranking Member Warner, I appreciate your being here today.
    This is not just important, it is also timely. This week 
marks 20 years since the last time we went through any major 
reform at the IRS. And it is time to do it again.
    During that time, there was a clear need for IRS reform. 
IRS calls were being unanswered by the thousands--sound 
familiar? Calls that were being answered were often incorrect. 
The agency had spent $3 billion on IT systems that were not 
working.
    The bottom line: the American public had lost faith in the 
institution, and we created this commission. I was honored to 
co-chair that with then-Senator Bob Kerrey. We published a 
confidential report that became the basis for that legislation 
20 years ago.
    Senator Cardin, by the way, was an original author of that 
legislation with me, along with Senator Hatch and Ranking 
Member Wyden. So there are a lot of members on the committee 
now who were very involved in that.
    Unfortunately in the years since, after some sustained 
improvement, we have now gotten to the point where we are back 
to some of these very same issues again. And once again, the 
agency tasked with helping Americans carry out one of their 
most basic duties is failing to serve the taxpayers in an 
effective manner.
    So it is an opportunity now to reboot again. Congress, I 
think, has an interest in doing this. I know Senator Wyden and 
Chairman Hatch have been involved already in putting forward 
solutions to some of the things that the IRS is struggling 
with. And I support those. And I support what the House has 
done.
    But we think there is more to do as well. This is why today 
I introduce with Senator Cardin the Protecting Taxpayers Act. 
It is bipartisan legislation to make the IRS more responsive 
and accountable to taxpayers. We will talk about that a little 
today. Its goals are to revitalize the organizational structure 
on the management side to increase taxpayer protections, to 
improve small business and retirement plan tax administration, 
better serve low-
income tax payers, overhaul the IRS appeals process, and 
strengthen the IRS IT infrastructure.
    All of this is critical to the agency, but I would like to 
get feedback from you all on a couple of things. First, we 
completely rethink one of the key provisions of the 1998 reform 
bill, which was the IRS Oversight Board. And when we originally 
thought of the idea of this board back in 1998, our intent was 
to create sort of a board of directors for the IRS that would 
help guide the direction and the long-term strategy of the 
agency, provide private-sector expertise, along with 
experience.
    Every administration since then really has not supported 
the Oversight Board, including the current one. As a result, it 
has fallen by the wayside. In fact, the Board suspended 
operations a couple of years ago, and there is, technically, 
only one member left out of nine. So we want to get this board 
functioning again, but functioning the way it was originally 
intended. I think it has a lot to offer in turning the agency 
around, particularly in areas like customer service, IT 
modernization, budgeting, and so on.
    So that is one thing I want to get your input on. Also, the 
IRS appeals process--you recall in the 1998 reform bill, we 
created more than 50 new taxpayer rights, including the right 
to an independent appeal, and then 3 years later took steps 
toward codifying some of those in the Taxpayer Bill of Rights, 
including independent appeal.
    But in recent years, these independent appeals have 
declined as more cases are being sent to Tax Court, amounting 
to a 70-percent increase since 2000. So that is not what was 
intended, I do not believe. And further, the IRS continues to 
issue guidance and procedures that make it harder for all 
taxpayers to access this appeals process. So we need to talk 
about that today.
    Overall, I think it is clear--and I am sure we will hear as 
much from the witnesses today--that Congress needs to build on 
the progress we made way back in 1998 and engage in this new 
set of reforms to the IRS. I am interested in hearing from my 
colleagues today on it, and of course the witnesses here before 
us. I thank you for being here.
    I now would like to hear from the ranking member.
    [The prepared statement of Senator Portman appears in the 
appendix.]

           OPENING STATEMENT OF HON. MARK R. WARNER, 
                  A U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Mr. Chairman. And I want to 
thank you for your long-term interest in this subject. I know 
you and Senator Cardin have been leaders. I think if we--the 
witnesses and we on the panel--would look around, I think we 
all qualify as tax nerds if we are in this room at this moment 
in time. Senator Thune has always been viewed as that kind of 
nerd, we know.
    But then the notion of tax administration--it does not 
sound necessarily exciting, but in many ways, this is the front 
line of how Americans intersect with the Federal Government. 
And the effectiveness of that intersection, the customer 
service components, I think, are really important.
    Let's face it. Let's acknowledge no one loves paying taxes, 
but if we can make that payment of taxes more effective, more 
user-friendly, more fair, I think a process that we all have to 
take on as obligations as citizens will at least become less 
painful. And again, I want to commend the chairman and Senator 
Cardin for having a long, long history in this field.
    The two topics that I hope that we can also address are--
over the last few years, I have spent a lot of time looking at 
the changing nature of work. I think we are moving into an 
environment where your classic W-2 full-time employment, where 
folks go work for the same firm for 35 years, is a thing of the 
past. Part of that is driven by economic circumstance, part of 
that is driven by, frankly, choice amongst many millennials.
    We have seen the emergence of a number of new platforms, 
the so called ``gig economy.'' How do we monitor that? How do 
we understand and make a tax system that does not impede 
individuals who are trying to become more entrepreneurial and 
actually utilize these services, utilize these platforms? How 
do we make their tax administration a smoother and easier 
process?
    I believe as well that people on a going forward basis may 
not have a single income stream, but multiple income streams. 
They may be an IT consultant starting their own business, 
driving Uber, and renting out their apartment on Airbnb. 
Frankly, the tax administration burden in this kind of new 
economy is enormously challenging.
    I have called for two studies, one from the GAO, one from 
the Treasury Department, to try to look at the size of this 
workforce. I frankly believe that the recent BLS study that 
indicated that there was, frankly, not much growth in this 
field--I will accept that data. I do not think it was fully 
complete enough, because I just think--I have seen estimates 
from government and non-
government sources that literally show close to a third of the 
American workforce at this point is at least receiving some of 
their income from contingent work.
    So how we think about tax administration, how we think 
about even the whole concept of a social contract, I would 
argue that means we need to move to a portable benefit system. 
If we are going to move to a portable benefit system, we have 
to have flexibility on the tax administration side as well.
    The other item that I think is an on-going challenge is 
technology updates. We have all seen the IRS, I think, make 
good faith efforts. Sometimes those good faith efforts have 
ended up with perhaps more negative publicity than upgrades. 
Something is wrong in our overall Federal Government when we 
spend $88 billion a year on IT services, and $75 billion of 
that $88 billion is spent on patches and upgrades of legacy 
systems.
    My hope is, as well, we can get into the question of how we 
could create a technology-enabled modern tax system. And if the 
Congress has to bite the bullet and say we really need to junk 
some of our legacy systems and fully upgrade, I think we ought 
to have that kind of discussion.
    Again I want to thank the chairman for hosting this, and 
again, I am proud to call myself now part of the tax 
administrative nerd caucus as well. Thank you.
    Senator Portman. You have always been a charter member of 
that caucus, whether you knew it or not. [Laughter.]
    [The prepared statement of Senator Warner appears in the 
appendix.]
    Senator Portman. And your points are well-taken. And it 
just creates more of a challenge for the IRS. How do we deal 
with--we talked about the gig economy, but also the economy 
where people are moving around so frequently and have much less 
likelihood of a single corporate entity that can provide that 
tax conduit for the IRS.
    With this, let us hear from our witnesses. We are going to 
get right into it.
    Ms. Caroline Bruckner is here. She is managing director of 
the Kogod Tax Policy Center at American University.
    Ms. Phyllis Jo Kubey is here. She is a member of the 
National Association of Enrolled Agents and the IRS Advisory 
Council.
    Ms. Nina Olson, as many of you know, is the National 
Taxpayer Advocate at the Internal Revenue Service.
    Mr. John Sapp is the current Chair of the Electronic Tax 
Administration Advisory Committee advising the IRS.
    And Ms. Rebecca Thompson is the project director of the 
Taxpayer Opportunity Network within the organization Prosperity 
Now.
    Thank you all for agreeing to testify. We are looking 
forward to it. In the interest of time, we would ask that you 
keep your comments to 5 minutes. And you can submit your 
written comments in their entirety for the record.
    Ms. Bruckner, let us start with you.

         STATEMENT OF CAROLINE BRUCKNER, EXECUTIVE-IN-
  RESIDENCE, ACCOUNTING AND TAXATION; AND MANAGING DIRECTOR, 
  KOGOD TAX POLICY CENTER, KOGOD SCHOOL OF BUSINESS, AMERICAN 
                   UNIVERSITY, WASHINGTON, DC

    Ms. Bruckner. Good morning, and thank you for the 
opportunity to testify today.
    My name is Caroline Bruckner. I am a tax professor on the 
faculty at American University's Kogod School of Business. I am 
also the managing director of the Kogod Tax Policy Center, 
where we focus our research exclusively on tax and compliance 
issues specific to small businesses and entrepreneurs.
    Since 2015, we have focused on those small business owners 
who are renting rooms, providing ride-sharing services, running 
errands, and selling goods and services via business 
transactions coordinated online and through apps by companies 
such as Airbnb, Etsy, Uber, Lyft, Rover, and others.
    In May 2016, we published our initial research findings in 
a report titled, ``Shortchanged: The Tax Compliance Challenges 
of Small Business Operators Driving the On-Demand Platform 
Economy.''
    A number of our research findings are particularly relevant 
to today's discussion and are based on a survey we did of the 
membership of the National Association of the Self-Employed, a 
population of experienced self-employed taxpayers. We wanted to 
gauge whether or not they understood what their tax compliance 
obligations would be, particularly those who were working in 
the on-
demand economy.
    Our results were dismal, to say the least. One-third of 
respondents working for a platform did not know whether or not 
they were required to file quarterly estimated payments with 
the IRS with respect to their platform income. Thirty-six 
percent did not understand what kind of records were needed for 
tax purposes for business income and expenses generated from 
working with a share economy partner. Forty-three percent were 
unaware as to what they would owe in taxes and did not set 
aside any kind of money. And almost 70 percent of our survey 
respondents received no tax guidance from the platforms they 
worked with.
    Most notably for today's hearing, and for tax 
administration purposes, more than 60 percent of the sharing 
economy operators we surveyed did not receive any Form 1099 on 
their platform income. And that means that the IRS did not 
either.
    This is because under current law, the form that is used 
for reporting electronic payments requires that a taxpayer have 
more than 200 transactions and payments exceeding $20,000 in 
order to receive a Form 1099 filing form. However, the reality 
is that most folks in the sharing economy earn substantially 
less and they use platforms as a way to earn secondary income.
    They cycle in and out of the sharing economy, and on 
average per month earn between $533 or $314 a month. This is 
typically a source of secondary income and is not their primary 
source of income. As a result, the reporting loophole that 
exists between a 1099 miscellaneous $600 threshold and a 1099-K 
$20,000 threshold guarantees that taxpayers working for these 
platforms are more likely to misreport their income because 
they are not getting any 1099.
    In fact, IRS taxpayer data released last year confirmed the 
ultimate impact of our research findings that in 2015 the 
number of filers penalized for underpayment of estimated taxes 
rose nearly 40 percent from 2010 to 2015, up to 10 million 
taxpayers. This rise in underpayments corresponds to the rise 
in the sharing economy over the same period.
    However, since we released our groundbreaking findings in 
``Shortchanged,'' there have been a number of changes that have 
been made in response. In August 2016, the IRS launched the 
Sharing Economy Tax Center on IRS.gov, and the National 
Taxpayer Advocate has elevated the lack of tax guidance for 
these taxpayers as one of the Nation's most serious problems 
facing taxpayers. And some industry platforms, unprompted and 
even though not required to, have begun issuing 1099-Ks at $600 
thresholds. In addition, the House Appropriations Committee 
followed recommendations from my team and included language in 
the most recent financial services bill mandating the IRS 
consider this problem and report back to Congress.
    However, there is more work that needs to be done. Congress 
needs to consider immediately aligning the 1099 miscellaneous 
and the 1099-K reporting thresholds for service providers and 
sellers earning income from these platforms. By aligning these 
thresholds--the 1099 miscellaneous threshold has not been 
updated since it was first instituted in 1954--you are 
guaranteeing a higher rate of tax compliance. It is just that 
simple.
    The States have already started to experiment with this 
last year, and in Massachusetts, our informal conversations 
with 1099 preparers have said that reporting has catapulted 
over 100 percent in just this most recent tax filing period.
    Congress should also update the quarterly estimated payment 
due dates for the second and third quarter filing deadlines to 
make those required after the quarter's end, not in the middle 
of the second and third quarter so taxpayers do not have to 
guesstimate when their taxes are due.
    Finally, the National Taxpayer Advocate has an excellent 
suggestion that the IRS develop a publication that online 
platforms can provide to platform service providers and sellers 
as part of the onboarding process. These are all common-sense 
changes that will impact the 2.5 million Americans working for 
these platforms every month.
    And in addition, it is a very real problem that JCT has 
quantified to be at least a $3.6-billion problem.
    Thank you, and I am happy to answer any questions that you 
have.
    Senator Portman. Thank you, Ms. Bruckner.
    [The prepared statement of Ms. Bruckner appears in the 
appendix.]
    Senator Portman. Ms. Kubey?

STATEMENT OF PHYLLIS JO KUBEY, MEMBER, NATIONAL ASSOCIATION OF 
    ENROLLED AGENTS AND IRS ADVISORY COUNCIL, WASHINGTON, DC

    Ms. Kubey. Good morning. Thank you, Chairman Portman, 
Ranking Member Warner, and Senator Cardin, for this opportunity 
to present the tax professional's perspective on improving tax 
administration and enabling the Internal Revenue Service to 
fulfill its mission effectively.
    I speak on behalf of the National Association of Enrolled 
Agents. EAs are tax experts licensed by the Department of 
Treasury. I might say we are also tax nerds. We are partners 
who work closely with IRS personnel at all levels of the tax 
administration system.
    In the past decade, we have observed a decline in the level 
of IRS service. Superior customer service--and tax 
practitioners are customers too--will improve all IRS 
functions.
    Our written testimony proposes major reforms for oversight, 
governance, budget, workforce, taxpayer service, technology, 
and IRS's relationship with tax professionals. An integrated 
approach will bring real measurable results.
    IRS needs direction and resources to recruit high-level 
executives and staff. IRS must attract, train, and retain staff 
to administer the tax law while providing an outstanding 
customer experience. We suggest: (1) grant IRS a reformed, 
streamlined, critical pay hiring authority stipulating the 
areas of expertise covered by the program; and (2) create and 
fund a dedicated training division within the IRS that 
streamlines the education process and ensures the tax law and 
administrative policies are taught and supported consistently. 
As part of this centralized division, research state-of-the-art 
tax administration techniques at the State, local, and 
international levels and incorporate what works into IRS 
training and practice.
    IRS training focusing on early, fast, and fair resolution 
of tax disputes will ease the burden for taxpayers and for the 
tax professionals who serve them. Enforcement will not suffer, 
but will be enhanced by an IRS equipped to serve the public. No 
one is well-served by delayed or protracted tax compliance. 
When taxpayers have a compliance issue, they deserve to 
discover and resolve it quickly without the hardship of 
additional penalties and interest.
    We offer several proposed changes in our written testimony, 
including many offered by the National Taxpayer Advocate.
    The elephant in the room, of course, is IRS technology. We 
live in a world where everything is possible on the smartphone. 
When we submit authorizations for our clients, we revert to a 
world of inked signatures and fax machines. Taxpayers expect 
electronic solutions and the ability to work with us and the 
IRS remotely and securely. Our ETAAC colleagues, in their 
recent 2018 report, present extensively on secure technology 
solutions.
    We propose to facilitate earlier and more efficient dispute 
resolution by: (1) requiring IRS to provide guidance on which 
private-
sector electronic signature options are acceptable for forms 
2848 and 8821; and (2) fast-tracking creating tax practitioner 
online accounts with secure and robust communication capability 
in both directions.
    Correspondence audit should not entail mailing or faxing 
large quantities of materials, delayed resolutions, and 
potential increased penalty and interests. Electronic 
communication will serve the public, the practitioners, and the 
Service.
    Tax preparers have, over the last years, taken on an 
adjunct compliance officer role. Various and increasing due 
diligence requirements are intrusive and frequently 
unreasonable. In our profession, time and risk are money 
typically passed to the taxpayer.
    These changes will help us help the Service: (1) provide 
statutory authority to establish minimum standards for 
unenrolled return preparers. Standards should include a one-
time competency exam, require tax compliance background checks, 
setting and monitoring continuing education requirements, and 
compliance with strict ethical standards. And (2) create a 
dedicated executive level practitioner services unit that 
centralizes and modernizes practitioner service and leverages 
our reach.
    Once again, I thank you for this opportunity, and I look 
forward to your questions.
    [The prepared statement of Ms. Kubey appears in the 
appendix.]
    Senator Portman. Ms. Olson?

    STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER ADVOCATE, 
            INTERNAL REVENUE SERVICE, WASHINGTON, DC

    Ms. Olson. Chairman Portman, Ranking Member Warner, and 
members of the subcommittee, thank you for your interests in 
examining the operations of the Internal Revenue Service and 
for inviting me today to discuss improving the agency.
    As you know, the IRS Restructuring and Reform Act of 1998 
was signed into law 20 years ago this week. At the time, I was 
director of a low-income taxpayer clinic in Richmond, VA, and I 
was invited to testify about the experiences of low-income 
taxpayers at Senate and House hearings.
    RRA98 brought about many significant taxpayer protections. 
Nonetheless, the world of tax administration looks very 
different today than at the time RRA98 was passed. The IRS 
desperately needs congressional support and direction to help 
it do a better job of fulfilling its vital mission. In my 
written statement, I discuss the core challenges that I believe 
Congress and the IRS should focus on to improve tax 
administration. I will quickly highlight the following points.
    (1) IRS oversight--RRA98 contained two provisions that I 
believe were helpful to tax administration and have effectively 
lapsed: one, the IRS Oversight Board; and second, joint 
congressional IRS oversight hearings. I encourage you to 
strengthen the board's appointment process and permanently 
reinstate the joint hearings.
    (2) IT challenges--the IRS's struggles with information 
technology systems were significant in 1998, and they have only 
grown worse.
    The IRS reportedly has the two oldest databases in the 
Federal Government, dating to the 1960s, on which it stores 
taxpayer data. It has more than 60 case management systems that 
all house different kinds of data, and those systems generally 
cannot talk to each other. There is no one system or repository 
of data that contains a 360-degree view of the taxpayer's 
activity and engagement with the tax system, so often, the left 
hand does not know what the right hand is doing.
    One recurring problem is that the IRS continually receives 
work that requires it to make significant IT updates in the 
short-term and limits its ability to pursue its long-term 
modernization efforts. I believe the IRS needs a separate 
stream of funding dedicated to long-term improvements, 
particularly involving its IT systems.
    (3) Funding--as the IRS's workload increased from fiscal 
year 2010 to 2018, its appropriated budget has been reduced by 
9 percent in straight dollar terms and by 20 percent after 
adjusting for inflation. Because of these reductions, the IRS 
does not have enough employees to answer the phones, to conduct 
outreach and education, or to provide basic taxpayer service.
    The compliance enforcement side of the house has been cut 
by even more. The IRS needs adequate funding to do its job 
effectively.
    (4) Performance measures--there is an old adage that you 
get what you measure. During the 2018 filing season, the IRS's 
benchmark level of service was reported to be 80 percent, but 
that measure only reflected the minority of calls directed to 
employees. It ignores the majority of calls to its automated 
response system which the IRS routes taxpayers to without 
giving taxpayers a choice to speak to a live assister. Overall, 
IRS employees answered only 29 percent of the telephone calls 
it received.
    (5) Taxpayer service--private industry and experts say the 
number one driver of customer satisfaction is the first contact 
resolution rate. Yet the IRS does not measure this rate 
consistently or across every service channel, and it ignores 
significant data showing taxpayers prefer multiple channels for 
different types of interactions.
    (6) Use of big data and automation--the IRS regularly uses 
technology and big data to identify fraud and noncompliance, 
but it fails to use technology to help taxpayers get to the 
right answer or prevent or minimize harm to taxpayers. The IRS 
could use the data it has in-house, for example, to identify 
taxpayers who are at risk of economic hardship and therefore 
are highly unlikely to be able to pay their basic living 
expenses if the IRS collects their back tax debts. This 
approach could also be applied when selecting cases for 
referrals to private debt collectors.
    (7) Local presence--research has shown personal contacts 
produce better response resolution and agreement rates than 
less personal contacts, and also result in better-educated 
taxpayers. Yet 12 States do not have appeals or settlement 
officers within their borders, and 14 States do not have 
employees to conduct outreach and education to small business 
and self-employed taxpayers. Of the 362 taxpayer assistance 
centers, 25 are not staffed and 84 have only 1 employee.
    Moreover, a trained and professional workforce is 
paramount. And the IRS spent only $489 per employee on training 
in fiscal year 2017, a level that is about one-third of 
spending 8 years ago.
    Thank you for inviting me to participate today. And I would 
be happy to answer any questions you may have.
    [The prepared statement of Ms. Olson appears in the 
appendix.]
    Senator Portman. Mr. Sapp?

       STATEMENT OF JOHN SAPP, CHAIR, IRS ELECTRONIC TAX 
       ADMINISTRATION ADVISORY COMMITTEE, WASHINGTON, DC

    Mr. Sapp. Chairman Portman, Ranking Member Warner, other 
members of the subcommittee, good afternoon. Thank you for 
inviting me to testify at this hearing on ``Improving Tax 
Administration Today.''
    My name is John Sapp. I am pleased to represent ETAAC, of 
which I am just finishing my tenure as chair. As you know, 
ETAAC was created by Congress in 1998. We have a diverse 
membership of individuals from the State departments of 
revenue, private industry, tax preparers, payroll companies, 
and consumer groups such as VITA. We hope to provide to the IRS 
a diverse perspective on electronic tax administration and its 
impact on taxpayers.
    While we were initially focused on achieving acceptance of 
electronic filing of tax returns and the impact that that would 
have, ETAAC's charter recently was expanded to include a focus 
on the issue of identity theft, tax refund fraud, and 
information security, entailing making recommendations on 
improving the efforts of the Security Summit. The Security 
Summit has been a tremendous success story of the IRS, where 
they have led a collaborative effort between the States and the 
private sector to fight ID theft and tax refund fraud, and to 
deal with security issues.
    As we evaluated electronic tax administration, some high-
level issues have become evident. First, the need to supplement 
traditional IRS service delivery channels, phone or in-person, 
is obvious. Electronic services online, but increasingly 
mobile, are expected by both individuals and businesses. But 
everyone also expects to be able to talk or interact with a 
real person when that is necessary.
    Second, electronic services operate in a high-threat 
environment. The fight against those bad actors will never end. 
So, as we close one door on security, criminals look to find 
another.
    Third, in order to be adopted, electronic services must be 
secure, easy to use, and integrated--we believe--into their 
existing work flows. A good example of this is electronic 
filing, which has been integrated into tax software solutions 
and also leveraged by taxpayers and tax professionals.
    Another example of this would be if a taxpayer chooses to 
file their tax return using an enrolled agent, for example, 
integrating information and features into that channel, 
especially about the electronic filing of their tax return. 
That has worked very well for taxpayers.
    And number four, electronic services--we thought about four 
principles for the taxpayer-facing systems. The first principle 
would be that electronic services must be secure. And as such, 
the IRS should have the authority to set and enforce minimum 
security requirements for the tax system.
    In our 2018 report, we identified potential gaps in the 
application of the FTC safeguards rule. It is the most 
prevalent security standard for the tax system. It was unclear, 
actually, if the IRS has the authority to set or enforce those 
minimum standards for taxpayers, particularly because of the 
Loving case and others which specify limitations on the IRS's 
ability to regulate tax preparers.
    Second, electronic services must be accessible or useable 
for taxpayers and tax professionals. So certain segments of the 
population today--as I am sure you know--may not be able to 
validate themselves digitally using the IRS's secure access 
channel because they do not have a credit card, or the right 
home mortgage, or an inability to complete their cell phone 
validation. Those inefficiencies create a very cumbersome 
process for taxpayers.
    ETAAC's report also encouraged the IRS to consider options 
to expand in-person identity-proofing opportunities. The IRS 
may be able to leverage existing physical locations for this 
purpose. And I am speaking to authenticating that taxpayers are 
who they say they are before they interact with the IRS.
    They could leverage government agencies with a larger 
physical presence such as the Social Security Administration, 
or a more dramatic idea that we thought of was to utilize 
authorized tax professionals through a trusted third-party 
methodology similar to the current Certified Acceptance Agent 
program which is used to validate taxpayers in need of an ITIN, 
and those who do not have a Social Security number but still 
have a tax filing obligation.
    An obstacle to this interaction may be, as others have 
mentioned, the filing of powers of attorney on behalf of 
taxpayers, which now is a manual process and should be 
electronic. Solving the signature on the 2848 and other forms 
is a key component of that.
    Third, we also support issuance of an identity protection 
PIN for all taxpayers who would ask for it, and the account 
lock and unlock features. Our third silo that we think is very 
important in electronic services is, taxpayers should be able 
to control their taxpayer account and access to that account.
    And finally, we recommend the IRS take a collaborative 
approach to develop the online and mobile services. The 
Security Summit and electronic filing successes are great 
examples of the benefits of that collaborative approach, where 
ID theft cases have been reduced and adoption of electronic 
filing has now become the norm.
    Thank you again for the opportunity to provide my thoughts. 
And I would say I would like to answer any questions, but I 
will be available to answer any questions. [Laughter.]
    [The prepared statement of Mr. Sapp appears in the 
appendix.]
    Senator Portman. Ms. Thompson?

   STATEMENT OF REBECCA THOMPSON, PROJECT DIRECTOR, TAXPAYER 
      OPPORTUNITY NETWORK, PROSPERITY NOW, WASHINGTON, DC

    Ms. Thompson. Chairman Portman, Ranking Member Warner, and 
members of the subcommittee, thank you for the opportunity to 
testify before you today on improving tax administration. It is 
a great privilege and honor to speak with you about the 
Volunteer Income Tax Assistance or VITA program. I am the 
project director of Prosperity Now's Taxpayer Opportunity 
Network. And in my role, I lead a national network of more than 
2,500 stakeholders, including VITA program managers; site 
coordinators; volunteers; community, corporate, and 
philanthropic partners; and others. Our network serves as a 
convening body for them, providing a way for them to connect to 
one another. We provide tools, resources, information, and 
capacity building support to strengthen VITA programs, ensure 
quality return preparation, and help to extend the reach of the 
VITA program to more low-income Americans.
    However, the views I express today are reflective of my own 
personal experiences as both a VITA volunteer and a program 
manager. I am proud to stand among the ranks of the 55,000 tax 
nerds who volunteer and give our time to help low-income 
Americans.
    For the last 2 years, I have served as a VITA volunteer co-
site coordinator with the Northern Virginia CASH Campaign in 
Prince William County. Every Saturday morning throughout the 
tax season, I rise from my bed--a little bit earlier than I 
would like to--and make my way down to the Prince William 
County Ferlazzo Building, joining alongside 10 to 12 other 
volunteers at my site, 1,200 volunteers across Virginia, and 
55,000 VITA volunteers nationwide, to help low-income, hard-
working Americans meet their civic obligation by filing a tax 
return.
    I remember the first return I filed, and the first person I 
helped at the Ferlazzo Building. He was a single father raising 
three children. He had been unemployed for part of the year and 
had about three W-2s showing that he was trying to piece 
together an income to support his family.
    He had gone to a paid preparer and gotten an estimate of 
$382 to prepare his return. It was a simple return. It only 
took me about 30 minutes to complete. He was so grateful for 
the help that I provided for him and the almost $400 that I had 
saved him.
    The 24 VITA coalitions across the State of Virginia operate 
at 121 sites, serving over 33,000 customers last year. We 
gave--as volunteers--more than 60,000 hours in training and tax 
preparation. And we brought back almost $35 million in Federal 
refunds to our State free of charge.
    Virginia is special, but it is not unique. The same thing 
happens in Ohio, and in Delaware, and in Rhode Island, and in 
Maryland every year by thousands of volunteers who are giving 
their time.
    In addition to preparing and filing returns, many VITA 
sites connect the families that we serve to public benefits, 
financial education, and other financial capability services 
like financial coaching and credit building, providing strength 
and support to a family's financial future. As volunteers, we 
endure rigorous training that can sometimes go as long as 24 
classroom hours. We pass a certification test every year so 
that we are well-equipped to translate what can be a daunting 
and complex tax code for our clients into a meaningful 
representation of their lives. We follow the IRS-prescribed 
intake interview and quality review process for every return, 
which has consistently yielded unparalleled results with 
accuracy rates above 90 percent for the last several years, and 
93 percent for this filing season.
    But for all of the great work that we do and all the people 
whom we serve, two things remain lacking. First, after nearly 
50 years in operation, the VITA program has never formally been 
authorized by Congress. Formal congressional authorization will 
put the VITA program on sure footing, demonstrating that you 
recognize the value we bring to the American people we serve, 
and acknowledging that we should keep up the good work. Second, 
the VITA program lacks adequate funding. Since its beginning in 
2008, VITA grant funding has grown from $8 million to $12 
million to $15 million, and I understand it may be slated for 
$20 million this year.
    As I go about my daily routine, everywhere I look, I see 
potential VITA clients. They help me get to work on the 
commuter train. They drive the Metro. They are in the grocery 
store helping me make purchases for my family every week. When 
I went on vacation, they were in the hotels. They were in the 
airports, all around me, helping me to achieve my goals.
    Some of them draw Social Security and still work, like the 
cafeteria worker I helped who works at the cafeteria at my 
son's school who used her refund to sustain her household over 
the summer, because she does not work then. There are millions 
like her and others whom we help every year.
    The low-income, elderly, disabled, rural, underserved, 
limited English-speaking populations could benefit from our 
services, but we are at capacity and lack current sustainable 
funding. By making the VITA program permanent with $30 million 
in funding, it is the least thing--I think--that we can do for 
all of them.
    Thank you, Chairman Portman and Ranking Member Warner, for 
providing me with this opportunity, and I am happy to answer 
any questions you have at this time.
    Senator Portman. Thank you, Ms. Thompson.
    [The prepared statement of Ms. Thompson appears in the 
appendix.]
    Senator Portman. As you may know, in the legislation we 
introduced today, we actually authorized VITA for the first 
time.
    Senator Warner has another commitment, so I am going to ask 
him to start on the questioning. I will postpone mine. And 
again, I am happy at so many colleagues who came. We come and 
go in this place because we all have different hearings, so do 
not take offense.
    Senator Warner, I would like you to start with the 
questioning.
    Senator Warner. Mr. Chairman, thank you for that courtesy. 
I really do appreciate it. I want to try to get in three 
questions. So I would ask for relatively rapid responses.
    Ms. Bruckner, I want to start with you. As we have looked 
at the gig economy, as we have looked at these new on-demand 
type services, in the past there has been a sense that 
companies' platforms have been unwilling to provide any 
benefits, perhaps even tax planning benefits, because of the 
concern about 1099 versus W-2 and labor classification issues.
    Have you found in your research that that concern about, 
perhaps, sliding from independent contractor into traditional 
employee has restrained the companies and platforms from 
helping their workers get their tax planning assistance?
    Ms. Bruckner. Anecdotally, I found that to be true. But 
after we released ``Shortchanged,'' I had an opportunity to 
talk to several different platforms, Lyft, in particular, and 
really convinced them and chatted with them about how the 1099-
K filing rules really did a disservice to their service 
providers. And they took my comments, my research, and 
internally reviewed it and then made an executive decision that 
they were going to provide 1099-Ks at the $600 threshold, 
rather than the $20,000 threshold because it was the right 
thing to do, to give taxpayers the forms that they need.
    Senator Warner. Have you seen the same take-up rate from 
Uber, Airbnb, TaskRabbit, any of the other platforms?
    Ms. Bruckner. I have actually had informal conversations at 
several industry conference events that I speak at and what 
have you. And it would be--I think the general consensus is, it 
is not required by law. They say they are consistent with the 
law, and they are absolutely right. They are acting completely 
consistently with the law. It is the law that needs to change 
in order to get these taxpayers the tax forms they need.
    Senator Warner. Well, I would look forward to working with 
you on changing that. But I also--as somebody who has spent the 
last couple of years digging in pretty deep into this area--
would welcome the opportunity to work with you to see if we 
could force more of the platforms, or urge more of the 
platforms to participate, even before we get to the whole 
question of how we create a new social contract around the 
portable benefit system.
    So I commend your work and look forward to working with you 
a little more.
    Ms. Thompson, Ms. Olson--I know, Ms. Olson, you have also 
done some of this VITA work in Virginia. And, Ms. Thompson, I 
appreciate the 121 different sites in Virginia that you are 
doing. And I saw there was a number, 60,000 hours.
    Is there an ability--and I applaud Senator Portman's 
legislation that actually authorizes VITA, long overdue. As a 
budget note as well as tax note, is there an ability to--I am 
going to give you a formula that for every hour of work, or for 
every individual helped, we increase tax compliance by ``Y.'' 
Is there a formula that you can almost break down to an 
individual or an hourly basis, either of you?
    Ms. Olson. I do not think I have seen any IRS research on 
that, but I just made a note about that, to take a look at that 
myself in my own organization.
    If I might make a point about the VITAs, I think going to 
the sharing economy, few VITAs are able to do Schedule C 
preparation, simple Schedule C preparation. And so, 
particularly, if you have people who are workers, you know with 
W-2s, but then they have small Schedule Cs, that becomes 
important.
    And so the legislation authorizing VITA should clearly say 
that one of the tasks that they can do is simple Schedule Cs 
within that income level, or Schedule Fs for that matter. There 
are many small farmers who are just doing family homestead 
things.
    Senator Warner. And, Ms. Thompson, do we get that Schedule 
C and Schedule F training at this point within the VITA 
program?
    Ms. Thompson. There is currently limited training for 
Schedule Cs for VITA programs to be able to provide some 
limited services for Schedule Cs. But there is additional work 
that is needed.
    With regard to your first question, I do not have an 
estimate. Like Ms. Olson stated, that is something that we have 
not looked into. But the number that I do have is, for every 
Federal dollar that is invested in the VITA program, it costs 
about $14.74 per tax return for the Federal Government.
    Senator Warner. I guess what I would hope is, under Senator 
Portman's and Senator Cardin's leadership, if there was a way 
that we could get that down to, say, for every Federal dollar 
spent, Federal tax compliance goes up--if we spend ``X,'' it 
goes up ``Y''--that would be, I think, a helpful argument to 
convince our other colleagues.
    Mr. Sapp, in the last couple of seconds I have--I would 
love to see the day where we thought the IRS was ahead of the 
game on its technology updates. I feel like we are always 
chasing.
    One of the concerns I have--again, just from the banking 
provision--is, when we have enterprises like Equifax and others 
where we do not have a customer relationship, yet they have the 
ability to look at all of our personal information, that 
increases the ability for tax fraud if there are violations 
there. Have you thought about what kind of liability regime or 
other incentives we ought to put in place for those enterprises 
that have access to our personal financial information?
    That will be my last question. I appreciate the courtesy 
from the chairman.
    Mr. Sapp. Senator, I have not actually considered the 
liability aspects of that. Although I will say that it is a 
liability for the government, in general, whenever a tax refund 
is misappropriated and sent to a criminal or to an 
inappropriate party.
    One of the advantages that the IRS has is, they do 
diversify the entry points to include the in-person and online 
authentication. But one of the challenges with authentication, 
obviously, is, we have a very diverse population.
    As long as the United States has as diverse a population as 
we have, the ways that they want to interact with the IRS are 
going to be diverse. So if you take a third party, such as an 
Equifax, how an individual may choose to interact with an 
Equifax, they can choose to go to a different credit reporting 
agency. The way I report to my bank, I can choose to go to a 
different bank.
    I cannot choose to go to a different IRS. So the challenge 
with that in the electronic authentication is that it has to be 
secure, but it also has to be diverse.
    Senator Warner. The comment I would make is, I am not sure 
you get to choose your credit report.
    Mr. Sapp. No, you do not.
    Senator Warner. That is not a relationship we can choose.
    Again, I thank the chairman for the courtesy.
    Senator Portman. Thank you.
    Let me make a couple comments and ask a question. Then we 
will move on to our others.
    Again, I appreciate all my colleagues who came today, and 
they all have other places to be.
    Great testimony. And, Ms. Olson and Ms. Kubey, in your oral 
testimony and in your written testimony, you both talk about 
the Oversight Board. As I said earlier, I want to get some 
input on that today.
    So if we could start with, maybe, Ms. Kubey. In your 
written testimony, you recommend a lot of changes designed to 
revitalize the IRS Oversight Board, as it is called now. We 
call it the Management Board in the legislation Senator Cardin 
and I put forward today to make that distinction, because there 
is a lot of oversight that might be viewed as overlapping.
    You mentioned the Board should have the power to both 
review and approve all operational plans. The Board currently 
only has approval power over long-term strategic plans, as you 
know.
    In our legislation, we sought to address this limited 
approval power by being more explicit in the type of plans that 
they would be permitted to approve, including the annual 
performance report, which I think is really important in the 
plan that is submitted as part of the President's budget 
request.
    Ms. Kubey, what do you think the value is of giving the 
Board more direct approval power over a wider range of 
operational and strategic plans?
    And then, Ms. Olson, really the same question to you. You 
were there at the outset as we tried to establish what the 
priorities were for the Oversight Board.
    But, Ms. Kubey, you could respond to that. What is the 
value of giving the Board more direct approval power over this 
wider array of operational and strategic plans?
    Ms. Kubey. Well, I echo what you say, that the IRS has 
plenty of oversight. And I applaud the change of language to a 
management function.
    I see the alignment of the higher-level management 
function, the operations, and, if you will, rewards for 
successful outcomes to be highly correlated. And I do not think 
you would want to have oversight or management functions 
without having the power to also monitor operational functions, 
because you could conceivably have one point of view from the 
top. And then if, operationally, the Service is going off and 
doing something else, you would never have that level of 
implementation that you want.
    And then the other end of that would be, assuming that we 
do have sound management, good operational function, and we 
have high-level executives who are in charge of making those 
successful outcomes, that they would then be rewarded and the 
Board would have that opportunity.
    Senator Portman. I saw in your written testimony you 
suggested that the Board be able to approve bonuses, as an 
example, to high-level executives----
    Ms. Kubey. Correct.
    Senator Portman [continuing]. To align those performance 
measures with the Board's responsibilities.
    Ms. Olson?
    Ms. Olson. As you referenced, I have been subject to the 
oversight of the Board as the Office of the National Taxpayer 
Advocate. And I found the Board in 2001 to be composed of very 
engaged individuals with a variety of experiences.
    So there was a professor from a law school who was very 
interested in training and didactic methods and produced the 
best report that I have seen on IRS training in the 17 years I 
have been the National Taxpayer Advocate.
    There was a representative of small businesses from rural 
Iowa with agriculture. And he was a very strong advocate of 
what was the IRS doing about small businesses. And you had 
people skilled in technology. You had this really good mix of 
talent.
    The battle came with, I believe, the IRS leadership. And 
Treasury did not support the Board and viewed it as intrusive. 
And that battle really came to a head when the Board--a few 
years in--tried to weigh in on IRS performance measures. And I 
think that is vital for the Board, if it is a management board 
with experience and expertise from outside the IRS, to have a 
voice in those measures and even in approval of those measures.
    And the IRS really fought that. And that became really the 
part of the demise, in my opinion, of the Board. So as I look 
forward to what it should do--I think looking at performance 
measures, holding the senior leadership accountable to 
delivering on those measures, but also, are we measuring the 
right thing and comparing it to private-sector measures, et 
cetera?
    That is vital for the Board.
    Senator Portman. Well, I think those are very helpful 
points. And you are right.
    Initially we talked about expertise, and that is why we had 
those individuals included, everything from service providers 
to technology to small business people. You mentioned some of 
the really dedicated people who were on it.
    And then we also wanted experience, just because the IRS 
sometimes lives in its own bubble, as many Federal agencies and 
departments might. And so to have that experience to be able to 
come in and help the IRS be able to do its job better, 
particularly in the light of the fast-changing economy we have 
now, as Ms. Bruckner has talked about.
    And the final one which was very important was continuity. 
Accountability, but also continuity, because every Deputy 
Secretary, every new IRS Commissioner, sometimes a Secretary 
comes in with a big new reform plan, and sometimes--you 
mentioned--the right hand does not know what the left hand is 
doing. Sometimes we do not have that experience and continuity, 
and that is where we get staggered terms.
    So I am not telling you something that you do not know, Ms. 
Olson, but maybe trying to reiterate that this is an important 
opportunity for us, I think, with reform to look at the 
Oversight Board--why it is not working, how it could work 
better--and to provide what I think is still needed, which is 
all of those things: critiques, accountability, the experience, 
and the continuity.
    So we will get into this deeper. Our legislation does not 
go quite as far as some of the suggestions you are making, but 
it does revitalize the Board.
    By the way, I had a conversation with the Deputy Secretary 
nominee as recently as this morning on this, in a public 
hearing, and also obviously, we have talked about this a lot 
with the IRS Commissioner nominee.
    With that, I will turn to Senator Cardin.
    Senator Cardin. Well thank you, Mr. Chairman.
    I want to thank all of our witnesses, not just for your 
testimony here today, but for your help in trying to help us 
improve the administration of the Internal Revenue Code.
    I think I want to thank Senator Portman, for 20 years-plus, 
inviting me to join him on his crusade to reform IRS, inviting 
me to join the tax nerd caucus. I thank you for that.
    It has been a challenge, and it is interesting because--Ms. 
Olson, we have talked about this--one of the chief problems is 
resources. It is hard to get consistent attention by Congress 
to give the Internal Revenue Service the resources they need.
    Historically, it has been the Ways and Means Committee and 
the Senate Finance Committee that have taken up that cause with 
the appropriators and OMB to make sure that these funds are 
available. Now I know this budget year is a little bit better. 
That is because of a new tax law, not so much of a found 
religion for giving the IRS the type of resources that they 
need. So I think part of it is to make sure we have the 
resources.
    I think the chairman and ranking member bringing up the 
challenges that we have today with the changing of our 
economy--I think Senator Warner's point there is absolutely on 
target. We have also the challenges of technology and how we 
use technology. That is a constant change, and the IRS has 
never caught up. As many of you pointed out, they are trying to 
deal with current problems rather than dealing with the 
underlining capacity to use technology.
    Then I would add a third thing. And that is, Congress 
changed the law. I am saying whether it is good, bad, or 
indifferent, when you change the law, it is going to add a 
challenge to the IRS. They are going to have to deal with that 
as they are dealing with all of these other issues.
    So I invite you to--your testimonies cover a lot of the 
points that are included in Senator Hatch's and Wyden's 
legislation, in legislation that I have joined Senator Portman 
on, and in the bills that have come over to us from the House. 
But I invite you to be more granular. Please take a look at 
these provisions and give us the input beyond just today's 
hearing.
    I want to talk, first, about training. Thank you for 
mentioning that. We do try to help with more permanent 
commitment by IRS to training the personnel to deal with these 
challenges. But let me ask all of you a question on two points 
that are in the Portman-Cardin bill that there are different 
views on. So I would like to get your thoughts.
    One is to reinstate the authority of the IRS to regulate 
paid providers, and the other is to deal with private debt 
collection. Our legislation takes a similar approach to what 
the House did in limiting the private debt collectors--not 
using private debt collectors for those who are of modest 
income.
    If you would care to comment about either one of those two 
provisions, because, as I said, there have been some different 
views in Congress on these points.
    Ms. Olson, do you want to start?
    Ms. Olson. Well, as you know, we recommended back in 2002 
to create some kind of regulatory minimum competency regime 
around the unenrolled return preparer. I had been one for 16 
years, so I knew what I was talking about.
    I really think that that is vital to the future of the IRS. 
We are running so much through the Internal Revenue Code in 
terms of refundable credits, and they are very complicated 
provisions. So we have unsophisticated taxpayers going to 
preparers who do not have any kind of training, have no 
accountability, will never lose a license, et cetera.
    So establishing some minimum competency standards for them 
and requiring them to come into the IRS and declare themselves 
is vitally important for identity theft, for refund fraud, for 
accuracy of returns, et cetera.
    On private debt collection, my focus has been that Congress 
has already spoken about how it wants the IRS to treat 
taxpayers in the collection context, by saying that if you are 
levying on someone with an economic hardship, you have to stop 
levying on that person. An economic hardship is defined as not 
being able to pay your basic living expenses.
    Congress has mandated that the IRS create guidelines for 
Offers in Compromise. That came into our area in 1998, and 
those guidelines are based on basic living expenses. So what I 
have said to the IRS is, try to proactively screen out these 
taxpayers, not just in private debt collection, but in all your 
activities, based on all of this data we have in-house, but 
certainly in private debt collectors. They should not even go 
over there.
    Senator Cardin. Ms. Thompson, I was just impressed by the 
training that you have to go through in the VITA program and 
thinking about those who are subjected to that $400 fee. And 
there is really no ability of the IRS today to regulate, 
although you are very much subject to that training.
    Ms. Thompson. Absolutely.
    Our VITA volunteers go through extensive training. There is 
an annual certification. We have two opportunities to take the 
certification test and pass it. After that, we suggest other 
volunteer opportunities for them. And like I mentioned, they 
are volunteers.
    What I will say is, when I go to get my nails done, my 
technician has a license. When I take my children to get their 
hair cut, their barber has a license. That is an interaction 
between myself and an individual.
    But yet paid preparers--and I can tell you that we, as VITA 
volunteers, overwhelmingly spend a lot of time and energy 
amending returns and correcting the mistakes and errors of paid 
preparers. And particularly low-income families are the ones 
that are subjected to those errors.
    So we spend a lot of time correcting the mistakes and 
helping people to come into compliance for preparers that are 
not even regulated, even though, for something as simple as a 
barber or a nail tech, you are.
    Senator Cardin. Thank you. I appreciate it.
    Thank you, Mr. Chairman.
    Senator Portman. Senator Whitehouse?
    Senator Whitehouse. Let me first thank Ms. Thompson for--
you make a terrific advocate, just to begin with. And the 
program is so important. I cannot tell you how many families in 
Rhode Island depend on VITA and depend on the Earned Income Tax 
Credit. The whole State's economy is lifted when those returns 
come in. So I just want to appreciate you.
    My question goes, however, more to the end of the income 
spectrum that you do not represent. Primarily, I think I am 
probably asking Ms. Bruckner, and Ms. Kubey, and Ms. Olson.
    What I am interested in is, if you look at, for instance, 
the corporate income tax, generally you see corporate income 
tax revenues declining steadily as a proportion of our national 
Federal tax revenues. When I was young, it was about--steadily 
about 30 percent of Federal tax revenues. Now it is down around 
10 percent.
    So, as a share of everybody's contribution to funding our 
government, corporations seem to have managed to evade a lot of 
their responsibility, and now only provide 10 percent of our 
revenues.
    Relatedly, perhaps, the IRS publishes information on its 
highest income earners. The highest tranche of income that they 
report on is the top .001 percent, which amounts to a total of 
1,400 individuals who earn, on average--across the 1,400 tax 
returns--$152 million in a year.
    Most people do not dream of getting $152 million if they 
win the lottery. These are people who earn it in a year. And 
yet, when you look at what the IRS reports about their 
contribution to revenues, they are paying a 24-percent tax 
rate.
    When you go back to the normal people and look at who pays 
a 24-percent tax rate, you get to people who are earning 
$78,000 a year, so a nurse, an occupational therapist, people 
like that.
    My concern is how much the, essentially, free-riding of big 
corporations--many of them will pay no taxes at all. And the 
relative free-riding of these super-high-income taxpayers is a 
function of the IRS's capability to deal with them.
    Obviously, they have the ability as very-high high-income, 
very wealthy interests, to come to Congress and get favorable 
tax treatment passed legislatively. And you cannot blame the 
IRS for that. We are to blame for that.
    But to the extent that these people have, or these 
organizations have, enormous clout to manipulate the IRS, to 
apply political pressure to the IRS, to simply outgun the IRS, 
I am interested in the extent to which you think that that 
latter problem is a factor in the relatively low contributions 
of these very-high-income entities. I would be happy to take 
that as a question for the record and let you just write 
something into us, so you have a chance to reflect on it, and 
get your thoughts.
    One particular sub-aspect of that is the question of false 
statements. There is a weird wrinkle in IRS false statements in 
which the Department of Justice will not prosecute a plain 
vanilla false statement case that relates to tax returns unless 
the IRS has made a referral, which gives the IRS a chokehold 
over those false statements.
    I am looking separately into how often the IRS actually 
makes those referrals. I believe with respect to 501(c)(4)s, 
which are a particularly powerful form of corporation on the 
political side, the referral number is exactly zero, despite 
evident discrepancies between what the 501(c)(4)s report to the 
IRS and what they report to, for instance, the Federal Election 
Commission.
    So that would be a specific place in which I would be 
interested in your thoughts and whether the IRS as an 
institution has been cowed, or disabled, or outgunned in its 
enforcement efforts and what effect that would have on our 
overall revenues were that not the case.
    So again, those are kind of big questions. And I know that 
my time is expired, but if you would get back to me with a 
response for the record, that would be very helpful.
    And I will let Mr. Sapp and Ms. Thompson be excused from 
that, because I do not think your taxpayers have that problem, 
Ms. Thompson. And I do not see this as an electronic or a 
technical thing, Mr. Sapp.
    So, thank you very much, Mr. Chairman.
    Senator Portman. Thank you, Senator Whitehouse.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman. Thanks for 
holding this hearing.
    I wanted to ask Ms. Thompson about how we continue to do 
simplification. And the Volunteer Income Tax Assistance, VITA, 
and Tax Counseling for Elderly, the TCE, are grants to local 
communities. So that works really well.
    I think there are lots of people in our State who have used 
that, focusing on underserved communities, rural communities 
where they may not be able to get larger assistance. So during 
the--I think it was the 2004 tax season, they helped prepare 
3.2 million returns. So that is a lot of returns and very 
helpful.
    I wanted to say, though, that I feel like the forms for, 
particularly these areas where people are looking for education 
credits and the Earned Income Tax Credit, Child Tax Credit, 
American Opportunity Tax Credit, all of those things are good 
for simplicity purposes. Well, let us just say, they should be 
more simplified.
    My colleagues, Senators Brown and Heller, have a bipartisan 
amendment to increase funding for programs which would help 
support more simplification on the tax forms. Do you think that 
is a good idea?
    Ms. Thompson. The simplification of the tax forms?
    Senator Cantwell. Information to make it easier on these 
deductions.
    Ms. Thompson. Absolutely. And thank you for your question, 
Senator Cantwell.
    We have tremendous partners across the country. In 
particular, I am thinking of partners in Seattle, WA--United 
Way of King County is one of our largest partners.
    One of the things that taxpayers get when they come to VITA 
sites is education.
    Referring back to your question earlier, Senator Cardin, 
our volunteers go through extensive training and certification 
to be able to deliver education. Sometimes it comes in the 
forms of financial education. But at the end of every return, 
there is a quality review process where the taxpayer actually 
gets an education about how their life translated into that tax 
return this year.
    Of course, if the forms are simplified and the process is a 
little bit simpler, yes, it makes it easier for everyone--
notwithstanding the 2017 complexity and the prior year 
complexities, and whatever the complexity looks like in the 
coming years with the restructuring of the IRS and the tax 
forms for 2018 and beyond.
    Our volunteers stand ready. We are the tax nerds. And we 
gladly give our time and stand ready to learn and undergo the 
training that is necessary. I think it is important that they 
have the training and that information is available timely so 
that we can get that information, so whatever it is, we are 
able to communicate that to the low-income, the elderly, 
disabled, rural, and underserved communities as we have done 
for almost the last 50 years and that we are able to continue 
to do so.
    Senator Cantwell. Well, we like nerds where I come from.
    But I do think we need to continue to communicate and 
amplify, think of ways to just generally make the public aware 
of those deductions. So that is, I think, the key point.
    But thank you for those grants to those communities, 
because we think they are very, very helpful to them.
    Thank you, Mr. Chairman.
    Mr. Sapp. Senator, if I could--could I just comment on 
that?
    Senator Cantwell. Yes, go ahead.
    Mr. Sapp. Because one of the challenges--and I think my 
colleague from NAEA brought it up before--is that paid 
preparers' experience is, they have a due diligence checklist 
they have to go through with that taxpayer. And a lot of times 
that can seem antagonistic to the taxpayer and discourage them 
from claiming some of these refundable credits.
    So one of the recommendations, in general, is that the IRS 
clarify what those due diligence requirements are for the paid 
preparers. And that would include the VITA folks, as they have 
to go through some of those due diligence--for example, what is 
the documentation requirement for a paid preparer to meet those 
requirements?
    It needs to be simplified and educated, both on the paid 
preparer side and on the consumer side.
    Ms. Olson. And if I might add, my office has made 
legislative recommendations about how to reform the Earned 
Income Tax Credit and other family status provisions, because 
frankly, the IRS struggles with making an incredibly complex 
law simple and understandable. And any time you deal with 
family--families are not simple or understandable.
    And so we have tried to look at provisions from around the 
world, as well as IRS data, to come up with ways that you could 
come up with a few more safe harbors so you would not 
necessarily have to go through intrusive inquiries. That would 
require legislation, but I think there are ways to make it a 
little bit better without increasing errors and things like 
that.
    Senator Cantwell. I would like to see those 
recommendations.
    Ms. Kubey. If I may just add one thing, Senator Cantwell.
    Preparers--we have all sorts of varying practices. Many of 
us have walk-in practices. Some of us are taking clients by 
appointment. So it is sort of all over the map.
    Often, we are put in the position with these new due 
diligence requirements where we are asking questions of clients 
that we have known from before their children were born, about 
their children, simply so that we can check all the boxes and 
say that we have asked the questions that we are required to 
ask.
    I do agree with what Mr. Sapp said. It is tremendously 
burdensome, and it creates a little bit of anxiety with the 
taxpayers who are coming to us for help. So I know it is a 
tricky thing, but if there were some way of balancing the 
requirement for knowing our taxpayers with some kind of nod to 
people who have known their clients for 20 years or more, it 
would be helpful, and I think it would aid efficient tax 
administration.
    Senator Cantwell. Well, definitely believe that, on this 
end of the tax code, helping people understand and qualify for 
these things so that they can make the right decisions is very 
important.
    Thank you, Mr. Chairman.
    Senator Portman. Thank you.
    Good question. And with regard to the forms and 
simplification, so much of that does not require legislation. 
It requires the IRS focusing more on simplification. And I 
think the Taxpayer Advocate, obviously, has made some 
recommendations along those lines.
    But again, looking to the Board and customer service, which 
is one of the top priorities, that would seem to me a natural 
thing that a real Management Board would look at and say, how 
do we simplify and ensure taxpayers understand this across the 
board, which I think is always helpful. And Congress has not 
made it simpler, as Senator Cardin said, because there is now a 
transition going on for things like closely held corporations 
trying to figure out how those new tax revisions work, and 
those regulations are coming up. So there is an opportunity as 
well.
    On electronic filing, let me just make a point. We have 
talked about a lot of negative aspects of taxpayer service, 
including your extraordinary comments this morning, Ms. Olson, 
about the number of phone calls that actually get through. You 
said really it is only 29 percent of calls received that are 
answered by an individual--29 percent.
    One place where we have made great progress since Senator 
Cardin came up with this brilliant idea 20 years ago--I will 
give him credit because he was complaining about having been 
dragged into this process, which he was.
    But seriously, electronic filing has really been 
successful. I remember at the time, our goal was 80 percent. We 
got to 80 percent by 2007, probably. And I think we are close 
to 90 percent now, electronic filing.
    That is a huge success because, not only is it helpful to 
the taxpayer, it is obviously helpful to the system because we 
found that, when it was done manually, there were so many 
errors that it ended up with downstream cost to the taxpayer 
and to the system. And that is far less likely to happen with 
electronic filing. So that is a good thing.
    Mr. Sapp, you talked earlier about some of the difficulties 
of managing that balance between e-services providing taxpayer 
ease of access, but also security and authentication in 
particular.
    Recent reports show that only 30 percent of taxpayers who 
have tried to set up an online account at the IRS website were 
successful in doing so because of the tough authentication 
procedure. So I am not sure how that balance is going when only 
30 percent of folks are able to set up that online account.
    So how can the IRS strike that right balance between 
customer service and taxpayer protection through security and 
authentication? And in what ways would the IRS incorporate 
comments and individual ideas more effectively from 
stakeholders? How can we get them to work more with the outside 
stakeholders who are very engaged in electronic means of 
communicating, either with the IRS or otherwise? How do you 
feel about adopting uniform standards on the use of private-
sector electronic signature options, as an example? Would that 
help this problem?
    Mr. Sapp. We at ETAAC have evaluated several different 
options for how the IRS could authenticate people, because that 
is the big challenge. How do you authenticate someone 
electronically, as I mentioned before, with a diverse 
population in the United States, with differing access to 
Internet, or differing access to phones? It is a very difficult 
solution to provide.
    So 30 percent may not be a bad number for that particular 
type of authentication. However, we need to get to 100 percent 
of taxpayers controlling that account and having access to it. 
So I agree with you that the IRS, 100 percent, has to solve 
that issue.
    One of the things that I would consider is the electronic 
filing program, the way the IRS has taken that collaborative 
approach, where they brought in stakeholders from the private 
sector to help be that front end for the taxpayer. So one of 
the things that we discussed, and I mentioned it in my 
testimony, was trying to leverage--for those folks who may not 
be able to authenticate through standard channels (and not 
everyone today can authenticate at a particular bank or a 
particular vendor relationship they might have), they may need 
to do it in person.
    So we did recommend that they consider leveraging tax 
preparers and consider having those tax preparers go through a 
vetting process so that they could become trained in how to 
authenticate a taxpayer, and then allow that taxpayer to 
leverage that authentication to access their secure services 
similar to what happens today with that certified Acceptance 
Agent.
    And that in-person--when over half the taxpayers in the 
United States today are choosing to pay a preparer--that in-
person appointment could allow them to authenticate with their 
tax preparer and then have access to their services that way.
    But again, one of the side lights of that is, the IRS 
should have the ability to regulate preparers to ensure that 
that interaction is secure with their paid preparer.
    Ms. Olson. Senator Portman, I have traveled around the 
world meeting with other tax administrations, looking at their 
online accounts. In the United Kingdom, one way to sign into 
your taxpayer account is that you are directed to Amazon or 
your bank, somewhere else where you already have an online 
account, and you sign on through them, and that message is sent 
back to HMRC, that you are who you say you are, through their 
verification process. That seems to work very well, and they 
have a much higher ability to get their taxpayers into 
accounts.
    Australia has put into effect voice recognition. And it is 
in its infancy, but I think that is very important. That is 
very interesting.
    GAO just published a report in June that looked at 
different authentication methods. And some of those methods are 
discussed there.
    The other thing that I have seen--and I just raised this 
with senior leadership of the IRS--is they have the same level 
of security if you are trying to get into an account to pull 
information out as they do sending information in. So taxpayers 
who just want to send an email with a picture of a document 
that is necessary in exam, have to be able to, in a pilot, sign 
into an online account and go through this high authentication, 
even though they are not pulling any information or accessing 
their particular account.
    And I have tried to say to the IRS, why don't we think 
about another level for people just sending us information, 
rather than that they get into our systems?
    Senator Portman. Good points.
    I am going to ask Senator Cardin if he has some closing 
comments or questions, because I know he has another 
commitment.
    Senator Cardin. Thank you, Mr. Chairman.
    Again, I thank all of the witnesses. I think I will ask 
this for the record.
    If you could let us know--I am also ranking member on Small 
Business. I find that IRS questions are now becoming one of the 
top questions being asked by small businesses.
    In your prepared statements and in your testimony, you have 
mentioned issues that would help small businesses. I would hope 
you would identify for me, perhaps the top one, two, or three 
changes you think in administration that would be the most 
valuable for the small business community. If you could put a 
priority on the small business community on those 
recommendations, I would appreciate it.
    Thank you again for your testimony.
    Senator Portman. Thank you.
    And again, as Senator Cardin is leaving, I thank him for 
joining me in this effort, but really for 20 years of being 
part of this enterprise of figuring out how to make taxpayers 
and the IRS work better together. It is something that most 
members of Congress do not spend a lot of time on, and yet it 
is incredibly important to people we represent.
    I have so many more questions for you all. But I guess I 
would like to end with this. We do have a new legislative 
initiative out there now.
    Among other things, Mr. Sapp, it has these uniform 
standards on the use of private-sector electronic signature 
options. We want to hear from you on these things to the extent 
we did not get to those questions today.
    So if I could ask you, as a favor, to take a close look at 
the legislation. Many of you at this table, maybe all of you, 
gave us input already into the legislation. That is one reason 
I think it is a pretty good bill, but there are things we heard 
today that would, I think, improve it further.
    And in the case of Ms. Kubey, particularly, some ideas on 
the Oversight Board, the Management Board as we are calling 
it--it would be a little different and take it to even more of 
a management function with accountability, with performance 
measures, and so on.
    And with regard to what people might see as a number of 
different efforts, let me just say again, what the House did 
and what the committee did back in 2016, which has been 
reintroduced, essentially, in the last couple of weeks, I think 
is entirely complementary with what we are talking about. So 
these are not competing proposals. Instead, I think these are 
additive.
    And at the end of the day, it may not be as ambitious a 
project as it was 20 years ago, but frankly it is time, once 
again, to look at this broad range of issues in the context of 
a new economy, as Ms. Bruckner has said and Mr. Sapp has said, 
in terms of the reality of how people interact, and the reality 
of how people use platforms. And sometimes, increasingly, the 
platform is them as independent contractors or sole 
proprietors.
    So we have a number of challenges in front of us. We want 
to get something done. We are hopeful that we can work with the 
House and the Senate and have a product by the end of this 
year. That is urgent by congressional standards. Getting 
something done that quickly is not easy.
    So we really appreciate your coming today, and your 
continued interaction with us. Robert is here. I know Beth is 
here, and others of us who have been working on this. So please 
interact with our staff and with us, and let us be sure that we 
can get this across the finish line before the end of the year 
and improve the experience all of our taxpayers have and ensure 
that the IRS is viewed, again--I said earlier, people had lost 
faith in the IRS 20 years ago. Many people have lost faith 
again. And we need to get back to a point where people have 
more faith and trust in government, in particularly in the 
agency that collects our taxes.
    Thank you all for being here.
    [Whereupon, at 11:53 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


   Prepared Statement of Caroline Bruckner, Executive-in-Residence, 
   Accounting and Taxation; and Managing Director, Kogod Tax Policy 
         Center, Kogod School of Business, American University
    Subcommittee Chair Portman, Ranking Member Warner, members of the 
U.S. Senate Committee on Finance Subcommittee on Taxation and IRS 
Oversight (the ``Committee''), and staff, thank you for the opportunity 
to testify today. My name is Caroline Bruckner, and I am a tax 
professor on the faculty at American University's Kogod School of 
Business. I also serve as the managing director of the Kogod Tax Policy 
Center (KTPC), which conducts non-partisan policy research on tax and 
compliance issues specific to small businesses and entrepreneurs. We 
develop and analyze solutions to tax-related problems faced by small 
businesses.

    Prior to joining AU's faculty, I served on the staff of the U.S. 
Senate Committee on Small Business and Entrepreneurship, from 2009-
2014, ultimately as Chief Counsel. Before public service, I worked in 
private practice in Washington, DC as a tax attorney with both Paul 
Hastings and PwC's Washington National Tax Services.

    Since March 2015, I've directed the KTPC's efforts towards 
developing research on the tax and compliance issues impacting 
America's latest iteration of self-
employed small business owners who are renting rooms, providing ride-
sharing services, running errands, and selling goods to consumers in 
business transactions coordinated online and through app-based 
platforms developed by companies such as Airbnb, Etsy, Uber, Lyft, 
TaskRabbit, Instacart, and others (i.e., the ``sharing economy'' or the 
``on-demand platform economy'').\1\
---------------------------------------------------------------------------
    \1\ Kogod Tax Center, letter to U.S. Senate Committee on Finance 
Bipartisan Business Tax Working Group (April 15, 2015), available at 
https://www.finance.senate.gov/legislation/details/business-tax-
working-group-submissions.

    In May 2016, we released groundbreaking research in a report titled 
``Shortchanged: The Tax Compliance Challenges of Small Business 
Operators Driving the On-Demand Platform Economy.'' Our research 
included--for the first time--survey data from a range of on-demand 
platform service providers and sellers that quantified the reality that 
under current tax rules, most of these taxpayers are not likely to 
receive any Form 1099 regarding the income they earn through these 
platforms.\2\ One major consequence of this is that millions of these 
small businesses are working and earning income in ways that are not 
readily identifiable by existing government research or publicly 
available taxpayer filing data.\3\
---------------------------------------------------------------------------
    \2\ Caroline Bruckner, ``Shortchanged: The Tax Compliance 
Challenges of Small Business Operators Driving the On-Demand Platform 
Economy,'' American University Kogod Tax Policy Center (May 2016), 
available at https://www.american.edu/kogod/research/upload/
shortchanged.pdf.
    \3\ See, e.g., letter from the U.S. Department of the Treasury to 
Senator Mark Warner, Tax Analysts (October 27, 2015), Doc. 2015-25376. 
However, there are some official measures of independent contractors 
and alternative contingent work. See, e.g., the June 2018 U.S. Bureau 
of Labor Statistics (BLS) release of its 2017 measure of the 
alternative contingent workforce, available at https://www.bls.gov/
news.release/conemp.nr0.htm. BLS is scheduled to release 2017 survey 
data specific to the gig economy on September 30, 2018.

    Our research concluded that this growing problem demands Congress's 
attention to more fully consider how to fairly and efficiently 
administer the U.S. tax code with respect to these small business 
taxpayers, who typically are required to report this income on a 
Schedule C or Schedule E and are not subject to withholding on these 
earnings.\4\ A number of findings we review in ``Shortchanged'' are 
particularly relevant to today's discussion, including:\5\
---------------------------------------------------------------------------
    \4\ See Annette Nellen, Caroline Bruckner, and Jennifer Brown, 
``Taxes and the Growing Gig Workforce: What to Know'', Journal of 
Taxation, Vol. 128 No. 6 (June 2018) (summarizing the tax rules 
specific to on-demand platform economy service providers and sellers). 
A primary reason for why policymakers, tax and labor experts, and the 
online platform companies have been slow to tackle the simmering tax 
and compliance issues underlying this evolving marketplace is the 
looming question of whether workers who provide services for customers 
via online platforms are really misclassified employees. Those issues 
are currently being litigated in courts in a number of jurisdictions 
across the country. Our view is that because the research to date 
consistently shows that millions of taxpayers actively participate in 
the on-demand platform economy as small business owners, addressing the 
existing tax compliance challenges these taxpayers face is warranted, 
notwithstanding the outcome of a specific misclassification case 
applicable to a single online platform company.
    \5\ In ``Shortchanged,'' we adopted the on-demand platform economy 
criteria used in the first major study to track actual income earned 
using financial transaction data from platforms that: (1) directly 
connect service providers and sellers with consumers; (2) process 
payment electronically; (3) allow service providers and sellers to 
provide goods or services at their discretion; and (4) customers pay 
for a singular task or good. Bruckner, supra at n. 2 at 4.

        1.  Size of the on-demand platform economy: At least 2.5 
        million Americans are earning income via on-demand platforms 
        every month (this translates to approximately 4.2 percent of 
        adults or more than 10 million from 2012-2015);\6\ and
---------------------------------------------------------------------------
    \6\ Diana Farrell and Fiona Greig, Paychecks, Paydays, and the On-
demand Platform Economy: Big Data on Income Volatility, JP Morgan Chase 
Institute (February 2016), https://www.
jpmorganchase.com/corporate/institute/document/jpmc-institute-
volatility-2-report.pdf. Other tax preparer industry experts we've 
consulted in our research have gone so far as to note that ``their own 
studies found that 34 percent of the U.S. workforce participates in the 
gig economy, with this number projected to grow to 43 percent by 
2020.'' Patrick Gillespie, ``Intuit: Gig Economy Is 34 percent of U.S. 
Workforce,'' CNN Money (May 24, 2017), available at https://
money.cnn.com/2017/05/24/news/economy/gig-economy-intuit/index.html.

        2.  Average income of on-demand economy small businesses: 
        Although people do cycle in and out of the on-demand platform 
        economy, during the months in which people are actively using 
        platforms to earn income, their earnings ``represented a 
        sizeable but still secondary source of income.'' Average 
        monthly income from active participation ranges from $533 to 
        $314.\7\ Other studies have found that an overwhelming 
        majority--85 percent--of gig workers make less than $500 per 
        month.\8\
---------------------------------------------------------------------------
    \7\ Farrell, supra n. 6.
    \8\ Abha Bhattarai, ``Side hustles are the new norm,'' The 
Washington Post (July 3, 2017), available at https://
www.washingtonpost.com/news/business/wp/2017/07/03/side-hustles-are-
the-new-norm-heres-how-much-they-really-pay/.

    In addition, as part of our research on the tax compliance 
challenges of these taxpayers, we initiated a survey of members of the 
National Association of the Self-Employed (NASE). Our survey was 
designed to gauge existing self-identified self-employed workers' 
participation in the on-demand economy (e.g., how many hours worked; 
how much income earned) as well as respondents' understanding of their 
tax filing obligations (e.g., whether respondents kept records for 
their expenses or received a Form 1099 from their on-demand platform 
company).\9\
---------------------------------------------------------------------------
    \9\ 2016 Kogod Survey of National Association of the Self-Employed 
Membership (April 2016) (unpublished raw survey data, National 
Association of the Self-Employed). Our intention in conducting the 
survey was not to prepare a statistically reliable estimate of the 
entire American population of the self-employed or freelancers or all 
workers in the on-demand platform economy. Instead, our objective was 
to assess whether tax compliance challenges exist--even among a group 
of taxpayers, who, by their own self-selection as members of NASE, are 
self-employed small business owners. During March 2016, NASE invited 
approximately 40,000 members to participate in the survey and received 
518 responses.

    Our survey results revealed that among respondents who had earned 
income working with an on-demand platform company in 2015, which was 
---------------------------------------------------------------------------
approximately 22 percent of all of our respondents:

          Approximately one-third did not know whether they were 
        required to file quarterly estimated payments with the IRS on 
        their on-demand platform income;

          36 percent did not understand what kind of records were 
        needed for tax purposes for business income and expenses 
        generated from working with a sharing economy partner;

          43 percent were unaware as to how much they would owe in 
        taxes and did not set aside money for taxes on that income; and

          Almost half did not know about any tax deductions, expenses, 
        or credits that could be claimed related to their on-demand 
        platform income.

    The population we surveyed can be generally considered experienced, 
self-
employed taxpayers when viewed in terms of their NASE membership, and 
yet their responses indicate a significant lack of understanding and 
information available regarding self-employed tax filing obligations in 
addition to undue tax compliance burdens for reporting income earned in 
the on-demand platform economy.

    Moreover, almost 70 percent of survey respondents received no tax 
guidance from the platform they worked with, and most notably for tax 
administration purposes, more than 60 percent of the sharing economy 
operators we surveyed did not receive any Form 1099 on their platform 
income, and that means the IRS didn't either.

    Our survey findings are consistent with current law reporting 
requirements. In general, a Form 1099-MISC is required on amounts paid 
by nonemployers to service providers and sellers on amounts of $600, 
but, if a payment is made via a credit card or debit card, nonemployers 
are instructed to use a Form 1099-K.\10\ However, in cases where a Form 
1099-K is required, a taxpayer must have more than 200 transactions and 
payments exceeding $20,000 before the Form 1099-K reporting rules are 
triggered. As a result of the 200 transaction/$20,000 income thresholds 
for Form 1099-K filings, the majority of small business on-demand 
platform operators are not guaranteed to receive a Form 1099-K because, 
on average, they earn substantially less than $20,000 per year.\11\
---------------------------------------------------------------------------
    \10\ Bruckner, supra n. 2.
    \11\ Id. at 7.

    The failure of Congress to require Form 1099 be provided to these 
small business taxpayers by the platforms they contract with to sell 
goods and services has significant consequences for taxpayers and the 
IRS. Taxpayers are more likely to misreport their income and face audit 
and penalty exposure. According to the IRS's own research, in 
circumstances where there is no withholding or information reporting, 
the IRS has documented a 63-percent net misreporting rate.\12\
---------------------------------------------------------------------------
    \12\ Internal Revenue Service, ``Tax Gap Estimates for Tax Years 
2008-2010'' (May 2016), available at https://www.irs.gov/pub/newsroom/
tax%20gap%20estimates%20for%202008%20through
%202010.pdf.

    In fact, IRS taxpayer data released last year confirmed the 
ultimate impact of our research findings: for 2015, the number of 
filers penalized for underpaying estimated taxes rose nearly 40 percent 
between 2010 and 2015--to 10 million from 7.2 million.\13\ At the same 
time, the government, too, is being shortchanged of the tax revenue its 
owed. In terms of budget consequences, the most recent analysis from 
GAO of the $458 billion net tax gap finds that underreporting of 
business income by sole proprietors ``accounted for the largest share 
of individual income tax underreporting.''\14\
---------------------------------------------------------------------------
    \13\ Laura Saunders, ``Number of Americans Caught Underpaying Their 
Taxes Surges 40 percent,'' The Wall Street Journal (August 11, 2017), 
available at https://www.wsj.com/articles/the-numberof-americans-
caught-underpayingsometaxes-surges-40-1502443801. In addition, we 
consulted tax form preparer industry stakeholders in connection with 
preparing this testimony who informed us, on a confidential basis, that 
fewer forms are being reported (reduced by 35 percent from 2016 to 
2017) despite growth in the space and that the drop in 1099-Ks 
correlates to fewer taxpayers reporting sharing economy income.
    \14\ U.S. Government Accountability Office, ``Tax Gap--IRS Needs 
Specific Goals and Strategies for Improving Compliance,'' report to 
Committee on Finance, U.S. Senate, GAO-18-39 (October 2018), available 
at https://www.gao.gov/products/GAO-18-39.

    However, in response to the release of ``Shortchanged,'' 
significant work has been done by both the IRS and industry 
stakeholders to help sharing economy operators navigate the complexity 
---------------------------------------------------------------------------
of the tax code. For example:

        1.  In August 2016, the IRS launched the Sharing Economy Tax 
        Center on IRS.gov ``to help taxpayers involved in the sharing 
        economy quickly locate the resources they need to help them 
        meet their tax obligations;''\15\
---------------------------------------------------------------------------
    \15\ Press release, IRS, ``IRS Launches New Resource Center on 
IRS.gov, Provides Tips for Emerging Business Area'' (August 22, 2016), 
available at https://www.irs.gov/businesses/small-businesses-self-
employed/sharing-economy-tax-center.

        2.  The National Taxpayer Advocate elevated the lack of tax 
        guidance for sharing economy workers as one of the Nation's 
        most serious problems facing taxpayers on the basis of our 
        survey of NASE members in her most recent annual report to 
        Congress;\16\ and
---------------------------------------------------------------------------
    \16\ Taxpayer Advocate Service, 2017 Annual Report to Congress--
Volume 1 (December 2017), available at https://
taxpayeradvocate.irs.gov/Media/Default/Documents/2017-ARC/ARC17_
Volume1_MSP_14_SharingEconomy.pdf.

        3.  Some industry platforms began issuing Form 1099-Ks to 
        sharing economy operators even though not required to under 
        current law.\17\
---------------------------------------------------------------------------
    \17\ See, e.g., Lyft, ``Tax Information for U.S. Drivers,'' 
available at https://help.lyft.com/hc/en-us/articles/115012926967-Tax-
information-for-US-drivers.

    But there is more work to be done. Congress can't rely on the 
goodwill of industry stakeholders who are not required by law to 
provide 1099s or tax guidance to these taxpayers. To facilitate tax 
administration, compliance and aid these smallest of small business 
owners, Congress needs to take additional action.
      1. align the form 1099-misc and 1099-k reporting thresholds
    Congress should move forward with modernizing the information 
reporting regime by lowering the filing threshold for Form 1099-K to 
$1,500 to ensure at the very least taxpayers have the forms they need 
to file their taxes and claim any deductions or credits they may be 
entitled to in order to lower their tax liability. At the same time, 
Congress should update the Form 1099-MISC threshold by raising it from 
$600 to $1,500 to provide some relief for small businesses who are 
subject to the Form 1099-MISC filing rules. Keep in mind, the Form 
1099-MISC filing thresholds have not been fundamentally reviewed or 
updated since at least 1954.\18\ Adjusted for inflation, $600 in 1954 
would be more than $5,000 in today's dollars.\19\
---------------------------------------------------------------------------
    \18\ See Pub. L. 83-591, which was enacted on August 16, 1954 and 
which created IRC Section 6041 with the original $600 threshold.
    \19\ H.R. 3717 takes the approach of aligning the Form 1099 
threshold filing requirements at $1,500, among other tax changes 
targeted to small business. Other bills, notably, S. 1549, would align 
the thresholds at $1,000. S. 1549 goes further and includes other 
provisions on misclassification and provides for voluntary withholding 
agreements to be instituted between platforms and their service 
providers and sellers. The Joint Committee on Taxation (JCT) provided a 
score for S. 1549 and estimated that aligning the information reporting 
thresholds raises approximately $3.6 billion over a 10-year budget 
window. JCT, ``Estimated Revenue Effects of the Chairman's Mark of the 
Tax Cuts and Jobs Act,'' scheduled for markup by the Committee on 
Finance on November 13, 2017 (JCX-52-17) (November 9, 2017), available 
at https://www.jct.gov/publications.html?func=startdown&id=5033. S. 
1549 is laudable because it is an important marker for a larger overdue 
policy review of our current withholding regime, which Congress needs 
to comprehensively review and reform.

    By creating a uniform reporting standard for filing for Form 1099-
MISC and Form 1099-K, Congress is likely to enhance compliance by both 
taxpayers and reporting entities because more taxpayers will receive 
Form 1099s, which is abundantly supported by the existing research on 
tax compliance and information reporting, and will benefit other self-
employed small business owners operating outside the sharing economy, 
but who primarily are paid via credit card transactions. Some States 
have already moved forward with this approach and aligned the 1099-K 
and 1099-MISC reporting thresholds at the current 1099-MISC level of 
$600 with positive results.\20\
---------------------------------------------------------------------------
    \20\ In 2017 both Vermont and Massachusetts began to require 
information reporting for income earned by small business on-demand 
platform operators and paid electronically at the current 1099-MISC 
threshold of $600. According to the industry experts we consulted in 
preparing this testimony, the lower reporting threshold in 
Massachusetts ``catapulted reporting by over 100 percent.''

            2. update quarterly estimated payment due dates
    Under current tax rules, when self-employed taxpayers are expected 
to owe at least $1,000 in taxes and aren't subject to withholding, 
advance payments of estimated tax are due to the IRS throughout the 
year in the form of quarterly estimated payments.\21\ It just doesn't 
take that much income to trip over these filing requirements. Our 
survey found that more than one-third of respondents did not know 
whether they were required to file quarterly estimated payments on the 
income they earned working with a platform.\22\
---------------------------------------------------------------------------
    \21\ Form 1040, Estimated Tax for Individuals, Internal Revenue 
Service (July 23, 2018), https://www.irs.gov/forms-pubs/about-form-
1040-es.
    \22\ ``The Sharing Economy: A Tax Experience for New Entrepreneurs 
Part I,'' hearing before the House Committee on Small Business, 113th 
Congress (2016) (statement of Caroline Bruckner, managing director, 
Kogod Tax Policy Center), available at https://smallbusiness.house.gov/
uploadedfiles/5-24-16_bruckner_testimony_.pdf.

    As the National Taxpayer Advocate has repeatedly recommended, 
anything that can be done ``to help taxpayers make their estimated tax 
payments more easily and lessen the burden of saving to make such 
payments is likely to increase compliance.''\23\ In order to facilitate 
tax compliance and ease taxpayer burden, Congress should update the 
filing deadlines for second and third quarter installment payments set 
forth in IRC section 6654(c) to be due two weeks after a quarter's end, 
rather than in the middle of a quarter as is required under current 
law.
---------------------------------------------------------------------------
    \23\ ``The Sharing Economy: A Tax Experience for New Entrepreneurs 
Part II,'' hearing before the House Committee on Small Business, 113th 
Congress (2016) (statement of Nina Olson, IRS National Taxpayer 
Advocate), available at https://smallbusiness.house.gov/uploadedfiles/
national_taxpayer_advocate_testimony-5-26-2016_hearing.pdf.

    The bipartisan small business tax bill proposed by the House Small 
Business Committee (H.R. 3717) in this Congress does just that and 
modernizes the existing filing deadlines to reflect business reality of 
the second and third quarters' end. As a result, this change is likely 
to increase compliance because under current law ``taxpayers must 
remember oddly spaced payment dates . . . [that] do not consistently 
coincide with calendar quarters, making difficult to calculate net 
income and confusing to taxpayers.''\24\ By simply changing existing 
due dates to fall after a quarter's end, Congress can ease the 
burdensome process of estimating income for purposes of remitting 
quarterly estimated payments because taxpayers will know how much they 
earned the preceding quarter rather than requiring taxpayers to make 
their best guess.
---------------------------------------------------------------------------
    \24\ Id.
---------------------------------------------------------------------------
   3. require the irs to develop and publish guidance for on-demand 
 platforms to provide service providers and sellers as part of the on-
                            boarding process
    Our survey data of experienced self-employed taxpayers operating in 
the sharing economy found that there is a significant knowledge gap 
between what taxpayers understand their tax obligations to be, if any, 
and what they actually are. From talking to industry stakeholders, we 
know that many platforms are hesitant to provide tax information to 
their service providers and sellers due to ongoing concerns and 
litigation over misclassification issues. To address the knowledge gap, 
the National Taxpayer Advocate has recommended the IRS develop a 
checklist for first-time, self-employed on-demand economy workers and 
sellers. We couldn't agree more. Time and again we have heard from IRS 
lawyers and tax preparers that most folks want to do the right thing, 
but are unfamiliar with the requirements of quarterly estimated 
payments. By the time taxpayers learn that they have failed to file 
quarterly estimated payments on this income, many just walk away and 
fail to file altogether. By developing accessible content that 
platforms can distribute to service providers and sellers as part of 
the onboarding process, the IRS can make immediate progress in 
addressing the knowledge gap even experienced, self-employed small 
business owners have. This is particularly important for 2018 as many 
on-demand small business owners will benefit from changes included in 
2017's tax reform bill.
                               conclusion
    Current tax administration rules are shortchanging the small 
business taxpayers powering the on-demand platform economy--who in most 
instances don't earn enough income to warrant receiving tax reporting 
forms from the online platforms they work with to file the taxes they 
owe and claim any offsets or deductions they are entitled to to lower 
their tax bills as well as credit their Social Security accounts for 
amounts earned.\25\
---------------------------------------------------------------------------
    \25\ See Bruckner, supra n. 2. See also, Caroline Bruckner, Jen 
Brown, and Thomas Hungerford, Failure to Contribute: The Consequences 
of Non- and Underpayment of Self-Employment Taxes of On-Demand Workers 
on Social Security, American University Kogod Tax Policy Center 
(forthcoming October 2018) (draft on file with witness).

    Taken together with our additional research, our findings suggest 
that, at best, many small business owners are shortchanged when filing 
their taxes on their platform income; at worst, they fail to report it 
altogether. Moreover, a significant percentage of these taxpayers could 
face potential audit and penalty exposure for failure to comply with 
filing rules that are triggered by relatively low amounts of earned 
income. Congress has the tools at its disposal to make significant 
progress in remedying this growing problem. Thank you for the 
opportunity to share our research with you today and I welcome your 
---------------------------------------------------------------------------
questions regarding the foregoing testimony.

                                 ______
                                 
       Prepared Statement of Phyllis Jo Kubey, Member, National 
        Association of Enrolled Agents and IRS Advisory Council

                    Internal Revenue Service Reform

     Recommendations of the National Association of Enrolled Agents

                               July 2018

        The IRS mission is to ``provide America's taxpayers top quality 
        service by helping them understand and meet their tax 
        responsibilities and applying the law with integrity and 
        fairness to all.''\1\
---------------------------------------------------------------------------
    \1\ https://www.irs.gov/about-irs/the-agency-its-mission-and-
statutory-authority.

    The National Association of Enrolled Agents (NAEA) represents the 
interests of over 55,000 enrolled agents (EAs) nationwide. EAs are tax 
experts, licensed by the Department of Treasury. They must pass a 
series of federally administered exams covering broad swaths of the 
Internal Revenue Code. Additionally, EAs are subject to background 
---------------------------------------------------------------------------
checks and ongoing continuing education/ethics requirements.

    The Internal Revenue Service, for better or worse, touches more 
U.S. citizens than any other Federal department or agency. It is the 
face of the Federal Government for most citizens. Increasingly, EAs, 
who are the front-line representatives of taxpayers at every level of 
the tax administrative system, are expressing the view that the quality 
of taxpayer and practitioner service within IRS has deteriorated to an 
unacceptable level over the last decade.

    The data available to the public backs up our members' assessment. 
For instance, while the IRS answered 87 percent of taxpayer calls in 
2004, in 2016 the agency answered only 53 percent. The erosion in 
service between 2004 and 2016 is more alarming when we consider the 
following: the number of taxpayer calls the IRS received increased from 
71 million to 104 million, yet the number of calls telephone assistors 
actually answered declined from 36 million to 26 million.

    NAEA takes an expansive view of taxpayer service, which we submit 
encompasses nearly all of the agency's external-facing functions. As a 
result, pre-filing issues (e.g., tax ID numbers, withholding and 
estimated tax payments, forms and instructions, walk-in service, access 
to prior year tax information); filing issues (e.g., electronic filing, 
math error adjustments, ID theft); and post-filing issues (e.g., 
compliance notices, audits--both office and correspondence--and 
collections) are included. Too often, policymakers and IRS create a 
false choice between providing service and assuring compliance. From a 
taxpayer's perspective, any interaction with the IRS is essentially 
compelled.

    Policymakers often refer to our tax system as one of voluntary 
compliance, yet we suggest the term is a misnomer; even ``voluntary 
self-assessment'' is a stretch. While many taxpayers file tax returns 
and respond to IRS inquiries because it's the right thing to do, our 
experience tells us taxpayers are more compelled by fear of the 
consequences. Because taxpayers are fearful, and the agency so 
powerful, IRS and Congress must ensure the agency remains relentlessly 
focused on service grounded in fairness, accuracy and timeliness at all 
points of the tax administration process.

    Reform needs to encourage IRS to develop a strategic mission shared 
by its many stakeholders--employees, congressional overseers, and tax 
professionals alike. To help sustain this shared mission, Congress must 
consider governance, management, personnel, and budget. Only in this 
comprehensive approach do we believe the agency can be successful in 
its mission, which is to provide top quality service.

    To that end, we recommend the following reforms.
            irs oversight, governance, and management reform
    The Report of the National Commission on Restructuring the IRS (the 
Commission) in 1997 highlighted an issue that once again plagues the 
agency: its inability to set and maintain consistent long-term 
strategy, develop and execute focused plans for improvement, and ensure 
its budget, staffing, and technology are aligned with organizational 
success.\2\ The Commission recommended comprehensive changes to IRS 
oversight and governance. Most have been set aside or ignored over the 
last 5 to 10 years. NAEA urges Congress to reassess these 
recommendations and make changes where necessary.
---------------------------------------------------------------------------
    \2\ The Report of the National Commission on Restructuring the 
Internal Revenue Service: Vision for a New IRS, page 1.

          Reduce the IRS Oversight Board size to five private-sector 
        members--representing tax, legal, and business expertise. The 
        members would continue to be appointed by the President to 5-
        year terms as under current law and not be subject to Senate 
---------------------------------------------------------------------------
        approval.

          Increase the power of the board to review and approve all 
        operational plans of the agencies and any modifications to 
        those plans.

          Require the IRS Commissioner to certify annually to the 
        Board that the IRS DOES NOT use any enforcement or approval 
        criteria based on political, religious, or racial standards.

          Empower the Board to direct TIGTA to investigate systemic 
        issues involving customer service, enforcement resources, and 
        modernization.

          Allow the Board to award top executives bonuses based on 
        specific success criteria established by the Board in 
        consultation with Congress.
                            workforce reform
    An organization's culture produces its results. The wrong culture 
produces the wrong results, the right culture produces the right 
results. The power of an organization's culture is pervasive.

    The agency needs to have a dialog centered on its values and its 
approach to providing service to the public. We believe the IRS's 
adopted Taxpayer Bill of Rights is an excellent starting point. We also 
believe clear and consistent training is an essential element in moving 
the IRS towards a service orientation.

          Focus on culture and leadership: Create and fund a dedicated 
        training division within the IRS to increase competency and 
        create the appropriate culture.

              Streamline the IRS education process, 
        ensuring that tax law and administrative policies be taught 
        consistently throughout the country while guaranteeing that 
        experienced personnel will not have to be taken offline to 
        train new employees.

              Research state-of-the-art tax administration 
        techniques at the State, local, and international levels and 
        incorporate these approaches into education materials and the 
        Internal Revenue Manual.

              Focus IRS training on early and fair 
        resolution of tax disputes.

          Provide the agency executive level flexibility: grant the 
        IRS a reformed Streamlined Critical Pay Hiring Authority, 
        stipulating the areas of expertise covered by the program.
                           irs budget reform
    The agency is handicapped by budgeting that is not only 
insufficient to meet its large and growing portfolio, but also 
inefficiently structured. The IRS for years has met the constraints of 
a shrinking real budget through attrition, yet shrinking through 
attrition is, to put it kindly, a suboptimal management technique. The 
Service has not controlled of much of its staffing for years and 
presently faces demographics that should concern all.\3\
---------------------------------------------------------------------------
    \3\ In 2016, then-Commissioner John Koskinen stated at his annual 
National Press Club speech (https://www.irs.gov/newsroom/commissioner-
koskinens-speech-to-the-national-press-club-march
-24-2016), ``We expect more than 40 percent of the IRS workforce will 
be able to retire by 2019.'' At the other end of the age spectrum, IRS 
had about 200 employees who were 25 or younger.

          Re-establish an annual joint congressional hearing, charged 
        with providing a detailed congressional statement on levels of 
        service and compliance, as well as oversight of strategic and 
        business plans, taxpayer service and compliance, technology and 
---------------------------------------------------------------------------
        modernization, and filing season.

          Authorize the Joint Committee on Taxation, in cooperation 
        with the Congressional Budget Office, to provide an annual 
        report on the Joint Hearing issues and estimates on the funding 
        necessary to carry out these priorities.

          Make IRS user fees appealable to GAO. The agency must be 
        able to provide clear, detailed costing estimates to those who 
        are charged user fees and must not charge user fees for 
        services that largely improve the organization's own 
        operations.

          Provide funding necessary to meet mutually agreed upon 
        levels of service and compliance, or in the alternative, 
        explain to the American people why these funding levels were 
        not provided. Special funding attention should be provided to 
        timeliness and efficiency, for instance:

              Require an IRS decision within 30 days of a 
        taxpayer response to an IRS notice or letter.

              Provide compliance staff greater authority to 
        settle cases early (IRS should also evaluate settlements based 
        on a singular focus on early and fair resolution of disputes).

          Provide appropriate staffing at the points of significant 
        taxpayer contact (such as all call centers and TAC counters) 
        and training at all levels.

              Charge the IRS with exploring technology 
        options (e.g., video-conferencing) to improve communications.

              Provide adequate funding when increasing the 
        agency's workload (e.g., to implement the recent Tax Cuts and 
        Jobs Act).

                u  Taxpayers will need IRS guidance quickly.

                u  Front-line employees will need to be retrained in 
        all aspects of the legislation.
               taxpayer service/dispute resolution reform
    Both tax administrators and taxpayers are ill-served by delayed or 
protracted compliance activity. Taxpayers who are unable to address 
promptly positions taken on returns run the risk of compiling penalties 
on similar positions taken on subsequent returns. Further, taxpayers 
who enter the collection stream late are harder pressed to pay full 
balances due and the payments often cause greater hardship. IRS 
Taxpayer Advocate Service is at the forefront of problem resolution 
within the IRS.

          Provide collection staff wider discretion to reach early 
        agreements on payment plans and training to resolve quickly 
        cases deviating slightly from the financial standards to 
        facilitate payments by taxpayers.

          Require IRS to reevaluate the National Standards for 
        Collection Information Statements, either by adjusting the 
        allowable living expenses for regional or local cost of living 
        variations, or by returning to use of a dollar range, based on 
        gross monthly income.\4\
---------------------------------------------------------------------------
    \4\ As was the case prior to a 2007 IRS decision to apply a single 
dollar amount for food, clothing, and other items, based on family size 
alone.

          Increase the authority of and set higher standards for 
---------------------------------------------------------------------------
        appeals personnel.

              While we welcome and applaud IRS for a recent 
        addition of video conferencing as a substitute for some in-
        person appeals hearings, we suggest additional provisions be 
        implemented.

              The knowledge, experience, and authority of 
        the appeals personnel should meet a higher standard than the 
        campus appeals technical employees, who may have very little 
        authority and may not grasp the intricacies of cases assigned 
        to them.

          Incorporate a number of taxpayer rights changes from the 
        National Taxpayer Advocate's 2017 Purple Book \5\ 
        recommendations, including:
---------------------------------------------------------------------------
    \5\ The Purple Book, https://taxpayeradvocate.irs.gov/reports/2017-
annual-report-to-congress/NTA-Purple-Book, is a summary of 50 
legislative recommendations she believes will strengthen taxpayer 
rights and improve tax administration. Each of these proposals is 
outlined at length within this document.

              Authorize IRS to work with financial 
---------------------------------------------------------------------------
        institutions to reverse misdirected deposits.

              Revise the ``Mailbox Rule'' to apply to 
        electronically submitted documents and payments in the same 
        manner as it applies to mailed submissions.

              Amend IRC Sec. 6654(c)(2) to adjust estimated 
        tax payment deadlines to occur quarterly.

              Harmonize reporting requirements for 
        taxpayers subject to both FBAR and FATCA by eliminating 
        duplication and excluding accounts a U.S. person maintains in 
        the country where (s)he is a bona fide resident.

              Codify the rule that taxpayers can request 
        equitable relief under IRC Sec. 6015(f) any time before 
        expiration of the period of limitations on collection.

              Authorize IRS to release levies that cause 
        economic hardship for business taxpayers.

              Extend the time limit for taxpayers to sue 
        for damages for improper collection actions.

              Require IRS to waive user fees for taxpayers 
        who enter into low-cost installment agreements and evaluate 
        potential revenue/compliance costs of future user fee 
        increases.

              Hold taxpayers harmless when IRS returns 
        funds levied from a retirement plan or account.

              Continue to limit IRS's use of ``math error 
        authority'' to clear-cut categories specified by statute.

              Clarify that taxpayers may raise innocent 
        spouse relief as a defense in collection proceedings.

              Require taxpayer consent for IRS counsel/
        compliance staff to attend appeals conferences.

          Ensure compliance staff clearly understand that bypassing an 
        active POA is a taxpayer rights violation.

              Congress should reemphasize and reaffirm the 
        consequences of violations of 26 U.S.C. Sec. 7525, to ensure 
        that IRS personnel shall not ignore valid powers of attorney by 
        directly contacting taxpayers by telephone or at their 
        residences or places of business.

          Require IRS exam and collection personnel to offer 
        alternative dispute resolution options.

              IRS's expansion of Fast Track Settlement 
        earlier this year is a step in the right direction, bringing 
        the opportunity for small business and individual taxpayers to 
        resolve unique examination issues through appeals, allowing for 
        consistency with large and mid-sized businesses.

              We recommend IRS expand alternative dispute 
        resolutions options to all taxpayers and that exam and 
        collection staff be required to offer these options at the 
        appropriate time.
                              future state
    We commend IRS for looking at formulating strategies to meet 
taxpayers' needs in the future. Technology and preferences are changing 
rapidly--and the significant perils of identity theft and fraud are, 
unfortunately, keeping pace. On the one hand, the agency needs support 
and encouragement as well as resources, while on the other hand agency 
leaders must remain mindful of taxpayer rights and resist the 
temptation of one-size-fits-all solutions.

    Ultimately, the success of any future vision will be judged by 
whether it protects the right to a fair and just tax system. Part of 
any future State must include access to secure online communication for 
both taxpayers and taxpayers' representatives. To facilitate earlier 
and more efficient dispute resolutions:

          Congress should require the IRS to provide guidance on which 
        widely used private-sector electronic signature options will be 
        acceptable for Forms 2848 and 8821 used by Circular 230 
        practitioners.

          The IRS should debut tax practitioner online accounts that 
        include a robust and secure means of communicating with IRS 
        employees. Correspondence audits cannot rely upon taxpayers or 
        their representatives putting stacks of supporting 
        documentation into the mail. Individual online accounts should 
        display a Publication 1 \6\ equivalent when taxpayers use 
        account payment options.
---------------------------------------------------------------------------
    \6\ Publication 1, ``Your Rights as a Taxpayer,'' https://
www.irs.gov/pub/irs-pdf/p1.pdf, explains to a taxpayer his/her rights 
and the processes for examination, appeal, collection, and refunds.
---------------------------------------------------------------------------
                          practitioner reforms
    A focus on taxpayer rights is essential to any effort to reform the 
IRS's culture. The right to representation is one of those rights and 
we have several recommendations--that would help both tax 
administrators and taxpayers--to strengthen that right.

    In 2017, taxpayers filed 132 million returns electronically and IRS 
categorized 79 million of those as paid preparer returns.\7\ As of 
March 1, 2018, 728,000 individuals held current PTINs.\8\ IRS's website 
is inarguably one of the most trafficked Federal websites. Yet tax 
professionals--including some 300,000 enrolled practitioners--lack even 
an entry point on IRS's landing page, far from an organization 
dedicated to the proposition that the professional preparer community 
is part of the solution if the goal is a well-run, efficient IRS. The 
Service is making efforts, to be sure, yet is missing significant 
opportunities to assure taxpayers that their preparers are at least 
minimally competent, and to leverage the tax professional community, 
well under a million souls who file 60 percent of all electronically 
filed returns.
---------------------------------------------------------------------------
    \7\ See IRS website: 2017 Filing Season Statistics, https://
www.irs.gov/newsroom/filing-season-statistics-for-week-ending-december-
29-2017, cumulative statistics comparing December 30, 2016 and December 
29, 2017.
    \8\ See IRS website: Number of Individuals With Current Preparer 
Tax Identification Numbers (PTINs) for 2018, https://www.irs.gov/tax-
professionals/return-preparer-office-federal-tax-return-preparer-
statistics.

          The IRS should create a dedicated, executive-level 
        practitioner services unit that would centralize and modernize 
        its approach to all practitioners. All administration and 
        oversight of third-party stakeholders (e.g., Circular 230 
        practitioners; unenrolled preparers; tax software providers; e-
        filing; payroll providers) would be consolidated under the new 
---------------------------------------------------------------------------
        executive.

          The Office of Professional Responsibility should be 
        empowered to issue cease-and-desist letters to any person or 
        corporation improperly using the EA credential, or using it in 
        a fashion that could reasonably be construed confusing, and 
        granted authority to enforce the letter through the Federal 
        courts.

          Congress should provide IRS with the authority to establish 
        minimum standards for unenrolled tax preparers.\9\ Congress 
        should override Loving \10\ and all subsequent cases relying on 
        its holdings and provide specific authority for the IRS to 
        require all non-credentialed paid tax preparers to meet minimum 
        standards. Such standards should include passing a one-time 
        competency exam administered under the auspices of the 
        Department of Treasury, requiring tax compliance background 
        checks, setting continuing education requirements, and 
        requiring compliance with strict ethical standards.
---------------------------------------------------------------------------
    \9\ The Purple Book, op. cit. at recommendation 6.
    \10\ Loving v. IRS, 742 F.3rd 1013 (D.C. Cir. 2014), https://
www.cadc.uscourts.gov/internet/opinions.nsf/
B63C3129A4FE761985257C7C00539949/$file/13-5061-1479431.pdf.

          Congress should clarify that CPAs, EAs and lawyers regulated 
        under 31 U.S.C. Sec. 330 who prepare a return may provide a 
        statement verifying any element of the return, such as adjusted 
        gross income, for purposes of qualifying for any Federal 
---------------------------------------------------------------------------
        program or benefit.

          IRS should provide practitioners with a robust practitioner 
        priority hotline (or hotlines) with higher-skilled employees 
        who have the experience and training to understand and address 
        more complex technical and procedural issues.

          Under the practitioner services unit, the IRS should assign 
        customer service representatives (also known as a single point 
        of contact) to each geographic area to address unusual or 
        complex issues that practitioners were unable to resolve 
        through the priority hotlines.
                               conclusion
    In the 20 years since Congress last tackled IRS reform, the 
environment has changed significantly. Identity theft has become a 
cottage industry, electronic commerce has become ubiquitous, and the 
Internet has changed all the rules--and altered all expectations. Yet 
what hasn't changed is the basics. Taxpayers still have the right to 
quality service, the right to challenge the IRS's position and be 
heard, the right to finality, the right to appeal, and the right to 
representation, to name a few.

    The time to address our Nation's tax administration system is now. 
The reform should encompass Oversight, Governance, Management, 
Workforce, Budget, Taxpayer Service, Dispute Resolution, Future State, 
Practitioners, and be grounded in taxpayer rights.

    We look forward to working with Congress to reform the Internal 
Revenue Service. Our staff and members stand ready to assist in 
considering these important proposals.

                                 ______
                                 
                 Prepared Statement of Nina E. Olson, 
          National Taxpayer Advocate, Internal Revenue Service
    Chairman Portman, Ranking Member Warner, and members of the 
subcommittee:

    Thank you for your interest in examining the operations of the 
Internal Revenue Service and for inviting me to provide my perspective 
on the areas of tax administration that I believe require particular 
focus and improvement.\1\
---------------------------------------------------------------------------
    \1\ The views expressed herein are solely those of the National 
Taxpayer Advocate. The National Taxpayer Advocate is appointed by the 
Secretary of the Treasury and reports to the Commissioner of Internal 
Revenue. However, the National Taxpayer Advocate presents an 
independent taxpayer perspective that does not necessarily reflect the 
position of the IRS, the Treasury Department, or the Office of 
Management and Budget. Congressional testimony requested from the 
National Taxpayer Advocate is not submitted to the IRS, the Treasury 
Department, or the Office of Management and Budget for prior approval. 
However, we have provided courtesy copies of this statement to both the 
IRS and the Treasury Department.

    As you know, the IRS Restructuring and Reform Act of 1998 was 
signed into law 20 years ago this month.\2\ I want to note at the 
outset that I am particularly grateful for the interest Senators 
Portman and Cardin have shown in tax administration for at least the 
past 20 years. Senator Portman became a leading congressional expert in 
IRS operations when he co-chaired the National Commission on 
Restructuring the Internal Revenue Service in 1996 and 1997,\3\ and 
Senators Portman and Cardin were the House co-sponsors of the Internal 
Revenue Service Restructuring and Reform Act of 1998 (RRA 98),\4\ which 
largely implemented the recommendations of the National Commission.
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    \2\ Pub. L. No. 105-206, 112 Stat. 685 (1998).
    \3\ National Commission on Restructuring the Internal Revenue 
Service, A Vision for a New IRS (June 25, 1997).
    \4\ Then-Congressmen Portman and Cardin co-sponsored the Internal 
Revenue Service Restructuring and Reform Act of 1997, H.R. 2292, 105th 
Cong. (1997), which was subsequently rolled into H.R. 2676, 105th Cong. 
(1997), and became RRA 98.

    At the time, I was the director of a low-income taxpayer clinic in 
Richmond, VA, and I was invited to testify about the experiences of 
low-income taxpayers at Senate and House hearings.\5\ I met Senator 
Portman at that time, and both then and as the National Taxpayer 
Advocate, I have had the privilege of working with both Senator Portman 
and Senator Cardin on tax administration issues over the years. With 
the many changes that have taken place in tax administration, I am 
delighted that you are again working together to try to improve the tax 
administration system and protect taxpayer rights. I am also grateful 
for the interest of Senator Warner in tax administration issues, 
particularly regarding workers in the gig economy, an area about which 
I have a great deal of concern.\6\
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    \5\ IRS Restructuring: Hearings on H.R. 2676 Before the Senate 
Committee on Finance, 105th Cong. 124-126 (1998) (statement of Nina E. 
Olson, executive director, Community Tax Law Project); Taxpayer Rights: 
Hearing on H.R. 2676 Before the House Subcommittee on Oversight of the 
House Committee on Ways and Means, 105th Cong. 145-154 (1997) 
(statement of Nina E. Olson, executive director, Community Tax Law 
Project).
    \6\ National Taxpayer Advocate 2017 Annual Report to Congress 165-
171 (most serious problem: Sharing Economy: Participants in the Sharing 
Economy Lack Adequate Guidance From the IRS); The Sharing Economy: A 
Taxing Experience for New Entrepreneurs: Hearing Before the House 
Committee on Small Business, 114th Cong. (2016) (written statement of 
Nina E. Olson, National Taxpayer Advocate).

    RRA 98 brought about many significant taxpayer protections, 
including strengthening the Office of the Taxpayer Advocate,\7\ 
establishing a matching grant program to fund low-income taxpayer 
clinics,\8\ expanding relief from joint and several liability (commonly 
known as ``innocent spouse'' relief),\9\ expanding the availability of 
offers in compromise,\10\ and creating collection due process 
hearings.\11\ Notwithstanding these important advances, due to the 
changes in technology and the changes in the Internal Revenue Code that 
have taken place over the past 2 decades, the world of tax 
administration looks very different today than at the time RRA 98 was 
passed. The IRS desperately needs congressional support and direction 
to help it do a better job of fulfilling its vital mission.
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    \7\ RRA 98 Sec. 1102; Internal Revenue Code (IRC) Sec. 7803(c); IRC 
Sec. 7811.
    \8\ RRA 98 Sec. 3601; IRC Sec. 7526. At the time RRA 98 was 
enacted, there were 14 LITCs in existence, all but one affiliated with 
law or business schools. IR-1999-63, IRS Encourages Growth of Low-
Income Taxpayer Clinics With $1.5 Million in Grants (July 14, 1999). 
Twenty years later, for the 2018 grant cycle, there are 134 LITCs 
throughout the Nation. Forty-three are affiliated with academic 
institutions, 53 are legal aid programs affiliated with the Legal 
Services Corporation, and 38 are other nonprofit organizations. IRS 
Publication 4134, Low-Income Taxpayer Clinic List and IRS Publication 
5066, LITC Program Report. For 2018, Congress has appropriated $12 
million for matching grants. Consolidated Appropriations Act, 2018, 
Pub. L. No. 115-141 (2018). This provision of RRA 98 alone has brought 
meaning to the rights to retain representation and to a fair and just 
tax system by providing representation before the IRS to taxpayers who 
otherwise could not afford such help.
    \9\ RRA 98 Sec. 3201; IRC Sec. 6015.
    \10\ RRA 98 Sec. 3462; IRC Sec. 7122.
    \11\ RRA 98 Sec. 3401; IRC Sec. Sec. 6320 and 6330.

    In that vein, the enactment of the provisions of the Taxpayer Bill 
of Rights in 2015 was a significant step in the right direction.\12\ 
While there is ongoing debate about whether this provision establishes 
enforceable taxpayer rights, there is no doubt that it sets out clearly 
the rights Congress expects the IRS to adhere to and respect in its 
dealings with taxpayers.
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    \12\ Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 
containing Division Q, Sec. 401 (2015) (codified at IRC 
Sec. 7803(a)(3)).

    Similarly, the Taxpayer First Act, passed by the House on an 
extraordinary 414-0 vote in April, contains certain provisions that 
would significantly benefit taxpayers.\13\ The most important may well 
turn out to be the requirement that the IRS develop and submit to 
Congress a comprehensive Taxpayer Service strategy within 1 year and 
certain requirements to improve information technology.\14\
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    \13\ Taxpayer First Act, H.R. 5444, 115th Cong. (2018).
    \14\ Id. at Sec. 11201 and Sec. Sec. 18001-18403.

    Similarly, a Senate version of the Taxpayer Protection Act, 
introduced last week by Chairman Hatch and Ranking Member Wyden, would 
require the IRS to report to the tax-writing committees on proposed 
closures of IRS Taxpayer Assistance Centers at least 90 days in advance 
and would make other helpful changes.\15\
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    \15\ Taxpayer First Act, S. 3246, 115th Cong. Sec. 1004 (2018).

    In the balance of this statement, I will first describe some of the 
challenges the IRS and taxpayers are facing, and I will then identify 
core areas that I believe warrant attention to improve IRS operations.
                 a. the irs is struggling in key areas
    The IRS's struggles with information technology systems were 
significant in 1998, and they have only grown worse. The IRS reportedly 
has the two oldest databases in the Federal Government--dating to the 
1960s--on which it stores taxpayer data.\16\ It has more than 60 case 
management systems that all house different kinds of data, and those 
systems generally cannot ``talk'' to each other. The number of 
taxpayers filing returns continues to grow, and unfunded legislative 
mandates have forced the IRS to divert funds from its core functions. 
In particular, the IRS spent more than $1 billion to implement the 
Patient Protection and Affordable Care Act,\17\ and nearly $400 million 
to implement the Foreign Account Tax Compliance Act.\18\
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    \16\ Government Accountability Office (GAO), Information 
Technology: Federal Agencies Need to Address Aging Legacy Systems, GAO-
16-468 (2016).
    \17\ Government Accountability Office, IRS 2017 BUDGET: IRS Could 
Improve Presentation of Budget Data in Its Congressional Justification, 
GAO-16-695, at 14 (2016).
    \18\ Treasury Inspector General for Tax Administration, Despite 
Spending Nearly $380 Million, the Internal Revenue Service Is Still Not 
Prepared to Enforce Compliance With the Foreign Account Tax Compliance 
Act, Ref. No. 2018-30-040 (2018).

    Thus, while some of the IRS's struggles can be addressed by better 
management, much of the IRS's challenges are attributable to funding 
cuts. At the same time that the IRS's workload was increased between FY 
2010 and FY 2018, its appropriated budget has been reduced by 9 percent 
in straight dollar terms and by 20 percent after accounting for the 
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effects of inflation, as the following chart shows.


              FIGURE 1.1--IRS Budget in Nominal and Inflation-Adjusted Dollars, FYs 2010-2018 \19\
                                                  (in millions)
----------------------------------------------------------------------------------------------------------------
                                                                                                           %
  Type of                                                                                              Reduction
  Dollars     FY 2010   FY 2011   FY 2012   FY 2013   FY 2014   FY 2015   FY 2016   FY 2017   FY 2018  FYs 2010-
                                                                                                          2018
----------------------------------------------------------------------------------------------------------------
Nominal       $12,146   $12,122   $11,817   $11,199   $11,291   $10,945   $11,235   $11,235   $11,111        9%
----------------------------------------------------------------------------------------------------------------
Inflation-    $12,146   $11,865   $11,325   $10,580   $10,506   $10,119   $10,291   $10,092    $9,762       20%
Adjusted
----------------------------------------------------------------------------------------------------------------
\19\ IRS Chief Financial Officer. Fiscal year (FY) 2018 numbers do not include supplemental funding of $320
  million to implement the recent tax reform legislation.


    As a result, the IRS has lost funding and lost people across the 
board, as Figure 1.2 shows.


          FIGURE 1.2--Locations With Specified Employees in the Last Pay Period of the Fiscal Year \20\
----------------------------------------------------------------------------------------------------------------
                                                                                                            %
   Number of Locations, Employees, or                                                                     Change
                Visitors                    2011     2012     2013     2014     2015     2016     2017    Since
                                                                                                         FY 2011
----------------------------------------------------------------------------------------------------------------
Appeals Officers (AOs)                      1,129    1,058      958      881      795      739      744     -34%
----------------------------------------------------------------------------------------------------------------
Revenue Officers (ROs)                      4,402    4,035    3,703    3,441    3,191    3,072    2,898     -34%
----------------------------------------------------------------------------------------------------------------
Revenue Agents (RAs)                       11,849   11,160   10,413    9,688    9,009    8,789    8,138     -31%
----------------------------------------------------------------------------------------------------------------
Stakeholders Liaison Outreach Employees       137      123      119      110      105       98      105     -23%
----------------------------------------------------------------------------------------------------------------
Stakeholder Partnerships, Education, and      522      475      444      405      386      365      311     -40%
 Communication Outreach Employees (SPEC)
----------------------------------------------------------------------------------------------------------------
Taxpayer Assistance Centers (TACs)            401      401      398      382      378      376      371      -7%
----------------------------------------------------------------------------------------------------------------
TAC Service Reps                            1,639    1,515    1,484    1,520    1,423    1,267    1,140     -30%
----------------------------------------------------------------------------------------------------------------
Taxpayer Advocate Service, Case               996      945      919      862      784      726      683     -31%
 Advocates
----------------------------------------------------------------------------------------------------------------
\20\ For FYs 2011 through 2016, employee counts for Appeals Officers, Revenue Officers, Stakeholder Liaison
  Outreach, and Stakeholder Partnerships, Education, and Communication Outreach are from the IRS response to TAS
  fact check (December 16, 2016). Taxpayer Assistance Center (TAC) Office figures for FYs 2011-2014 from IRS
  response to TAS fact check (December 23, 2014). TAC Office figures for FY 2015 from Wage and Investment (W&I)
  analyst (December 13, 2016). TAC Office figures for FY 2016 from the IRS response to TAS fact check (December
  20, 2016). TAC Office figures for FY 2017 from the IRS response to TAS fact check (November 3, 2017). The
  remaining data is obtained from a TAS query of the IRS Human Resources Reporting Center, Position Report by
  Employee Listing for the ending pay period. TAC customer service representative and Revenue Agent figures are
  from the IRS Human Resources Reporting Center, Position Report by Employee Listing for the ending pay period
  for FY 2011 to 2017. TAC Service representatives are non-supervisory employees in the 501 job series. Revenue
  Agent counts exclude agents in Appeals and the Taxpayer Advocate Service. The Stakeholder Liaison Outreach
  employees were transferred to the Communication and Liaison (C&L) Office on April 2, 2017 so employee counts
  were not included. Figures for IRS Offices for FY 2011 to FY 2017 are from IRS Human Resources Reporting
  Center, Position Report by Employee Listing for the ending pay period for FY 2011 to 2017. The counts of TAS
  caseworkers are from the Integrated Financial System. IRS response to TAS information request (October 13,
  2017). In response to TAS's information request for the number of outreach employees assigned to each State,
  territory, and the District of Columbia in FY 2017, the IRS responded that Communication and Liaison (C&L) had
  105 employees assigned to outreach activities spread over 33 States and the District of Columbia. However, the
  IRS response to fact check stated that these numbers only account for Small Business/Self-PEmployed (SB/SE)
  Stakeholder Liaison (SL) employees. Therefore, we do not have details regarding any additional outreach
  employees.

    Because of these reductions, the IRS does not have enough employees 
to answer the phones, to conduct outreach and education, or to provide 
basic taxpayer service. The compliance and enforcement side of the 
house has been cut by even more. Thus, IRS telephone assistors answered 
only 29 percent of the telephone calls received on the Accounts 
Management lines during the recent filing season,\21\ the audit rate 
has dropped to the lowest level in memory (0.6 percent), and collection 
actions have declined as well.\22\ The IRS has even suppressed 
collection notices because it doesn't have the resources to handle the 
incoming telephone calls and correspondence prompted by those 
notices.\23\
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    \21\ IRS, JOC, Snapshot Reports: Enterprise Snapshot (week ending 
April 21, 2018).
    \22\ IRS, Fiscal Year 2017 Enforcement and Service Results 3, 8, 
https://www.irs.gov/pub/irs-news/
fy_2017_enforcement_and_services_results_final.pdf. See also National 
Taxpayer Advocate 2017 Annual Report to Congress 49-63 (most serious 
problem: Audit Rates: The IRS Is Conducting Significant Types and 
Amounts of Compliance Activities That It Does Not Deem to Be 
Traditional Audits, Thereby Underreporting the Extent of Its Compliance 
Activity and Return on Investment and Circumventing Taxpayer 
Protections).
    \23\ IRS, ACS Optimization/RAAS: ACS LT 16 Notice Redesign Test 
Pilot Report 3-4 (September 27, 2017).
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     b. irs performance measures are misleading and often fail to 
                       identify areas of weakness
    Like many businesses and agencies, the IRS has an extremely lengthy 
list of performance measures. It seems to measure almost everything. 
But its measures often are not accurate gauges of program performance. 
IRS measures tend to affirm that the agency is doing a great job, 
whereas other measures tell a very different story. Bad measures are 
not just problematic because they provide the public with a misleading 
picture. IRS operations are highly technical, and senior managers often 
rely on the multitude of measures they receive to make program 
decisions. If they don't understand the nuances of the measures, bad 
measures can lead to bad decisions.

    One example involves the IRS's measures of telephone service. In 
most years over the past decade, the IRS has received more than 100 
million telephone calls.\24\ That's a staggering number, and not 
surprisingly, discussions of the quality of taxpayer service often 
focus largely on how the IRS handles its phone calls.
---------------------------------------------------------------------------
    \24\ IRS JOC, Snapshot Reports: Enterprise Snapshot, IRS Enterprise 
Total (final week of each fiscal year (FY) for FY 2008 through FY 2017) 
(showing telephone call volumes exceeding 100 million in every year 
through FY 2016 and 95 million calls in FY 2017).

    During the 2018 the filing season, the IRS's benchmark ``level of 
service'' was reported to be 80 percent, which most observers 
understand to mean that the IRS answered 80 percent of its calls.\25\
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    \25\ IRS, JOC, Snapshot Reports: Enterprise Snapshot (week ending 
April 21, 2018).

    Not so. That benchmark measure is a very narrow one and does not 
reflect the taxpayer experience in two respects. First, the benchmark 
measure only reflects calls that are directed to the IRS's ``Account 
Management'' telephone lines. The IRS received 42.5 million calls 
during the filing season.\26\ Of those, 35.7 million came in on the 
``Accounts Management'' lines and 6.8 million came in on other 
telephone lines, such as the compliance lines.\27\ The benchmark 
measure does not tell us anything about how the other 6.8 million calls 
were handled.
---------------------------------------------------------------------------
    \26\ Id.
    \27\ Id.

    Second, callers to the Accounts Management telephone lines are 
greeted by a phone tree, and based on their responses, callers are 
directed either to an employee for live assistance or to an automated 
system. Depending on which buttons a caller pushes, the IRS decides 
whether to direct the caller to automated offerings. In other words, 
---------------------------------------------------------------------------
automation is not a deliberate caller-selected option.

    During the 2018 filing season, only 37 percent of taxpayer calls 
(about 13.0 million) were routed to employees, while 63 percent (about 
22.6 million calls) were directed to automation or reflected taxpayer 
hang-ups.\28\ Thus, the benchmark level of service reflects only the 
minority of calls directed to IRS employees--not the majority of calls 
directed to automation.
---------------------------------------------------------------------------
    \28\ Id.

    As a result, while the IRS is reporting a benchmark level of 
service of 80 percent, IRS employees answered only 10.4 million calls 
on the Accounts Management lines out of 35.7 million calls 
received.\29\ That's 29 percent. If we assume callers generally want to 
speak to an employee for live assistance, 29 percent is a more accurate 
reflection of the taxpayer experience than 80 percent. For IRS leaders 
trying to assess which programs need priority attention, this 
difference in results is huge.
---------------------------------------------------------------------------
    \29\ Id.

    Another example of a narrow and misleading measure involves 
customer satisfaction. The IRS conducts surveys to measure customer 
satisfaction with its toll-free telephone service. The survey results 
show the toll-free customer satisfaction rating is an impressive 90 
percent.\30\ But the IRS only surveys taxpayers who spoke with an IRS 
employee and whose call was completed. It does not survey the 71 
percent of taxpayers who called the IRS and didn't speak with a 
telephone assistor. Thus, this result also is misleading and also can 
lead to poor management decisions.
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    \30\ IRS, Fiscal Year 2017 Enforcement and Service Results, https:/
/www.irs.gov/pub/irs-news/
fy_2017_enforcement_and_services_results_final.pdf.

    For a reality check, compare the IRS's own relatively stellar 
customer service results with the evaluation of external organizations. 
The President's Management Agenda for 2018 states: ``Federal customers 
. . . deserve a customer experience that compares to--or exceeds--that 
of leading private sector organizations, yet most Federal services lag 
behind the private sector.''\31\ The Agenda identifies several Cross-
Agency Priority (CAP) Goals, including CAP Goal 1: Modernize IT to 
Increase Productivity and Security, and CAP Goal 4: Improving Customer 
Experience with Federal Services.\32\ The Agenda notes that ``the 2016 
American Consumer [sic] Satisfaction Index and the 2017 Forrester 
Federal Customer Experience Index show that, on average, Government 
services lag nine percentage points behind the private sector.''\33\
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    \31\ President's Management Agenda 7, https://www.performance.gov/
PMA/Presidents_Manage
ment_Agenda.pdf.
    \32\ Id. at 14 and 28.
    \33\ Id. at 28. The correct name of the index is the American 
``Customer'' Satisfaction Index.

    How do the American Customer Satisfaction Index (ACSI) and the 
Forrester Federal Customer Experience Index assess the IRS's customer 
---------------------------------------------------------------------------
service relative to other Federal agencies and the private sector?

    The American Customer Satisfaction Index ranks the Treasury 
Department 12 out of 13 Federal Departments and says the Treasury 
Department's score is effectively an IRS score because ``most citizens 
make use of Treasury services via the [IRS] tax-filing process.''\34\
---------------------------------------------------------------------------
    \34\ ACSI, Federal Government Report 2017, http://www.theacsi.org/
news-and-resources/customer-satisfaction-reports/reports-2017/acsi-
federal-government-report-2017 (last visited July 18, 2018).

    The Forrester Federal Customer Experience Index ranks private 
sector companies and Federal agencies based on a variety of factors 
that influence the customer experience on a scale from 0 to 100. The 
private-sector average score for Customer Experience (CX) is 69, the 
Federal average score is 59, and the IRS's score is 54 out of 100, 
which is considered ``very poor.''\35\ This places the IRS twelfth out 
of 15 rated agencies, behind the U.S. Postal Service, the Department of 
Veterans Affairs, the U.S. Citizenship and Immigration Services, and 
the Social Security Administration, among others.\36\ In fact, the 
IRS's Customer Experience score places it on par with airlines and 
Internet service providers.
---------------------------------------------------------------------------
    \35\ Rick Parrish and Margaret Rodriguez, Forrester, The U.S. 
Federal Customer Experience Index, 2018: How U.S. Federal Government 
Agencies Drive Mission Performance With the Quality of Their Experience 
8 (May 31, 2018).
    \36\ Id. at 5.

    There is an old adage that ``you get what you measure.'' The ACSI 
and Forrester measures are broad measures relied on by OMB, and they 
show significant weaknesses and opportunities for the IRS to improve. 
The IRS's narrower measures show the agency is performing well and 
seemingly does not have significant weaknesses in this area that need 
to be addressed. As this example illustrates, the IRS would benefit 
from studying and refining its performance measures to get a better 
---------------------------------------------------------------------------
handle on where it needs to focus its efforts.

        Recommendation: Direct the IRS to consult with Forrester 
        Research, ACSI, and the National Taxpayer Advocate about 
        effective customer service performance measures and to report 
        to the committee on its findings and the performance measures 
        it intends to use going forward.
          c. the irs needs to be strengthened in 11 core areas
    The following core areas require particular attention to improve 
IRS operations.
1. Taxpayer Services
    Private industry and experts say the #1 driver of customer 
satisfaction is the First Contact Resolution (FCR) rate.\37\ As we 
discuss in several of my reports to Congress, measures like telephone 
level of service (LOS) are secondary and can be manipulated to look 
favorable while not reflecting the customer's actual experience.\38\ 
Yet the IRS does not measure its FCR rate consistently or across every 
service channel. The IRS continues to ignore significant data showing 
taxpayers prefer multiple channels for different types of interactions.
---------------------------------------------------------------------------
    \37\ Jeff Rumburg and Eric Zbikowski, MetricNet, The Five Most 
Important KPIs for the Call Center 5 (February 20, 2013).
    \38\ National Taxpayer Advocate Fiscal Year 2019 Objectives Report 
to Congress 41-46 (area of focus: The IRS's Failure to Create an 
Omnichannel Service Environment Restricts Taxpayers' Ability to Get 
Assistance Using the Communication Channels That Best Meet Their Needs 
and Preferences; National Taxpayer Advocate 2017 Annual Report to 
Congress, vol. 1, 22-35 (most serious problem: Telephones: The IRS 
Needs to Modernize the Way It Serves Taxpayers Over the Telephone, 
Which Should Become an Essential Part of an Omnichannel Customer 
Service Environment); National Taxpayer Advocate 2017 Annual Report to 
Congress vol. 2, 229-244 (literature review: Improving Telephone 
Service Through Better Quality Measures).

    Notably, 41 million U.S. taxpayers do not have broadband access in 
their homes, with 14 million having no Internet access in their homes 
at all.\39\ Moreover, even sophisticated taxpayers and representatives 
want to speak with the IRS about tax matters. Thus, the way forward 
must include an omnichannel approach to customer service that focuses 
on FCR.\40\
---------------------------------------------------------------------------
    \39\ National Taxpayer Advocate 2017 Annual Report to Congress vol. 
2, 61-146 (research study: A Further Exploration of Taxpayers' Varying 
Abilities and Attitudes Toward IRS Options for Fulfilling Common 
Taxpayer Service Needs.)
    \40\ An omnichannel service environment allows taxpayers to contact 
the IRS through the channel of their choice and receive a consistently 
high quality of service. National Taxpayer Advocate 2017 Annual Report 
to Congress vol. 2, 230 (literature review: Improving Telephone Service 
Through Better Quality Measures.)

    Despite this widely accepted approach, the IRS's new FY 2018-2022 
Strategic Plan touts the savings of digital interactions and introduces 
a new measure that will determine its ``success'' at meeting Strategic 
Goal 1: Empower and Enable All Taxpayers to Meet Their Tax Obligations. 
Specifically, the Enterprise Self-Assistance Participation Rate 
``measures the percent of instances where a taxpayer uses one of the 
IRS's self-assistance service channels (i.e., automated calls, web 
services) versus needing support from an IRS employee (i.e., face-to-
face, over the phone, via paper correspondence).''\41\
---------------------------------------------------------------------------
    \41\ IRS, Strategic Plan Fiscal Year 2018-2022, at 12, https://
www.irs.gov/pub/irs-pdf/p3744.pdf.

    Thus, we have the IRS explicitly stating it will have achieved 
success if there is less personal interaction with its taxpayers! This 
measure, in fact, sets up self-assist in opposition to (i.e., 
``versus'') personal support--sending a clear message to employees and 
taxpayers alike that omnichannel service is neither a priority nor a 
---------------------------------------------------------------------------
strategic goal for the IRS--unlike in the private sector.

        Recommendation: Direct the IRS to appoint a Chief Customer 
        Experience Officer with cross-agency oversight of customer 
        service strategy, and direct the IRS to develop and submit to 
        Congress a comprehensive customer service strategy that 
        reflects an omnichannel approach, addresses taxpayer needs for 
        personal contact, and adopts First Contact Resolution as a 
        primary performance measure.
2. Online Services
    The IRS is far behind most Organization of Economic Cooperation and 
Development (OECD) countries \42\ (and many non-OECD countries) in 
developing an online account. Only about 30 percent of taxpayers who 
seek to create an online taxpayer account can do so because of 
stringent authentication requirements.\43\ The IRS is right to 
prioritize data security, but the agency must not neglect the 
importance of providing improved telephone and in-person services for 
all taxpayers, including the significant majority who do not have 
online accounts.
---------------------------------------------------------------------------
    \42\ See http://www.oecd.org for a list of member countries.
    \43\ See National Taxpayer Advocate Fiscal Year 2019 Objectives 
Report to Congress 10-35 (Review of the 2018 Filing Season) and IRS 
Response and National Taxpayer Advocate's Comments Regarding Most 
Serious Problems Identified in the 2017 Annual Report to Congress 
(Online Accounts: The IRS's Focus on Online Service Delivery Does Not 
Adequately Take Into Account the Widely Divergent Needs and Preferences 
of the U.S. Taxpayer Population), https://www.
taxpayeradvocate.irs.gov/Media/Default/Documents/2019-JRC/
JRC19_Volume2.pdf.

    The features of the online account, for those taxpayers able to 
create one, are, and will continue to be, limited because of profoundly 
archaic IRS IT architecture and the need to pull information from more 
than 60 different case management systems.\44\ Moreover, the tools that 
are being tested to email with taxpayers are clunky and burdensome. Of 
note, the IRS imposes the same stringent security requirements on 
taxpayers seeking to send the IRS information electronically as it 
imposes on taxpayers seeking to retrieve account information 
electronically.\45\ Thus, most taxpayers and representatives end up 
faxing or using U.S. mail or overnight delivery services to transmit 
documents--placing the IRS squarely in the 20th century. Finally, rules 
governing communication with the IRS, such as the ``mailbox rule'' of 
Internal Revenue Code (IRC) Sec. 7502, have not been updated for 21st-
century tax administration.\46\
---------------------------------------------------------------------------
    \44\ See IRS Legacy Information Technology Systems: Hearing Before 
the Subcommittee on Government Operations of the House Committee on 
Oversight and Government Reform, 114th Cong. (2016) (written statement 
of Terence Milholland, Chief Technology Officer, IRS) (noting there are 
more than 60 aging IRS case management systems), https://
oversight.house.gov/wp-content/ uploads/2016/05/2016-05-25-Milholland-
Testimony-IRS.pdf; TIGTA, Ref. No. 2016-20-094, Annual Assessment of 
the Internal Revenue Service Information Technology Program 22 
(September 2016) (noting the IRS maintains approximately 90 case 
management systems); email from Director, Enterprise Case Management 
(ECM) to all designated ECM Business Unit Point of Contacts, which 
included the TAS Executive Director, Business Modernization (March 11, 
2016) (listing 198 case management systems). IRS response to TAS fact 
check request (December 16, 2016). See also TIGTA, Ref. No. 2014-20-
071, ``Information Technology: Improvements Are Needed to Successfully 
Plan and Deliver the New Taxpayer Advocate Service Integrated System'' 
(September 2014); TIGTA, Ref. No. 2014-20-088, ``The Information 
Reporting and Document Matching Case Management System Could Not Be 
Deployed'' (September 2014) (both TIGTA reports note ``there are more 
than 200 case management applications in operation across the IRS 
enterprise'').
    \45\ At this writing, the pilot for testing Taxpayer Digital 
Communication is suspended because IT resources need to be redirected 
to tax reform implementation.
    \46\ See National Taxpayer Advocate Purple Book, Compilation of 
Legislative Recommendations to Strengthen Taxpayer Rights and Improve 
Tax Administration, 26-27 (December 2017) (Recommendation #12: Revise 
the ``Mailbox Rule'' to Apply to Electronically Submitted Documents and 
Payments in the Same Manner as It Applies to Mailed Submissions).

        Recommendation: Amend IRC Sec. 7502, the ``mailbox rule,'' to 
        reflect the use of digital communication; require the IRS to 
        develop an online strategy that enables taxpayers to submit 
        information to the IRS with a lower level of authentication; 
        and provide continued funding for the development of a user-
        friendly and secure bilateral email communication.
3. Enterprise Case Management
    As noted above, the IRS has more than 60 case management systems, 
all storing data and records pertaining to different aspects of a 
taxpayer's interactions with the IRS. There is no one system or 
repository of data that contains a 360-degree view of the taxpayer's 
activity and engagement with the tax system. As a result, the left hand 
often doesn't know what the right hand is doing. For example, telephone 
and other assistors cannot see what is happening in certain systems and 
so cannot assist taxpayers with related issues; they must send off a 
form to the appropriate area to take action, thereby ensuring that the 
First Contact Resolution rate for these issues is zero!

    The IRS is working on development of an ``Enterprise Case 
Management'' (ECM) system that promises to bring much of the most 
important taxpayer data and records into a critical few systems that 
then can be made available to employees, analysts, and researchers in a 
permission-based environment.\47\ Congress can help ensure the IRS 
keeps on the right track with the 360-degree taxpayer view design. 
Without this system, and the improvements to the underlying systems 
(see below), the IRS cannot provide a robust Online Account and must 
create manual processes or workarounds for new categories of work 
(e.g., ACA and FATCA).
---------------------------------------------------------------------------
    \47\ National Taxpayer Advocate Fiscal Year 2019 Objectives Report 
to Congress 47-51 (area of focus: The IRS's Enterprise Case Management 
Project Shows Promise, But to Achieve 21st-Century Tax Administration, 
the IRS Needs an Overarching Information Technology Strategy With 
Proper Multi-Year Funding).

    Moreover, the current structure creates rework for IRS employees 
and tremendous burden for taxpayers who must send and resend 
documentation that is stored on different systems and is not 
retrievable by the appropriate employees. Without ECM, a complete 
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virtual case file is not achievable.

        Recommendation: Direct the IRS to submit to Congress a 
        comprehensive plan describing the development of and funding 
        requirements for ECM, and subsequently provide funding based on 
        the IRS achieving milestones that demonstrate progress toward 
        specific goals and stages of implementation.
4. Underlying Information Technology (IT) Systems
    According to the Government Accountability Office, the IRS has the 
two oldest databases in the Federal Government--the Individual and 
Business Master Files.\48\ The age of IRS legacy systems causes patches 
and workarounds that create risks when trying to integrate with more 
current IT hardware and software (e.g., the April 17th stoppage of the 
filing and payment system).\49\
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    \48\ See Government Accountability Office (GAO), GAO-16-468, 
Information Technology: Federal Agencies Need to Address Aging Legacy 
Systems (May 2016) (discussing aging IT systems throughout the 
government and listing the IRS's Individual Master File (IMF) and 
Business Master File (BMF) as the two oldest investments or systems at 
56 years old each in 2016).
    \49\ See IR-2018-100 (April 17, 2018).

    It is not clear to what extent Customer Account Data Engine 2 
(CADE2) has improved the filing experience, much less reduced employee 
workarounds. Although CADE2 can post items daily, the underlying 
systems largely operate on a weekly cycle, leaving the IRS stuck in the 
1960s or 1970s with the speed of its returns processing. Again, the 
utility of modernized ECM and Online Accounts will be limited if the 
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IRS does not bring its underlying systems into the 21st century.

    One recurring problem is that the IRS continually receives work 
that requires it to make significant IT updates in the short term and 
detracts from its ability to pursue its longer-term modernization 
efforts. In recent years, as noted above, the IRS implemented two major 
new programs--the Patient Protection and Affordable Care Act and the 
Foreign Account Tax Compliance Act. To accomplish this, the IRS 
effectively placed a moratorium on all Information Technology (IT) 
projects that were not related to the filing season, the ACA, or 
FATCA.\50\ Only in the last year or so has the IRS begun to look 
forward with its systems planning and development. But because of the 
demands of tax reform and the need for the IRS to reprogram its systems 
to reflect the new Form 1040, it is expected there will be another 
moratorium on systems and programming revisions unrelated to tax 
reform/filing season system improvements.
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    \50\ FY 2016 Treasury Department Budget: Hearing Before the Senate 
Subcommittee on Financial Services and General Government of the Senate 
Committee on Appropriations, 114th Cong. (2015) (written statement of 
John Koskinen, Commissioner, Internal Revenue Service).

    That is no way to run a railroad. I recognize the appropriations 
process generally provides for 1-year funding, and the subject of 
multi-year funding is controversial. But a way must be found to provide 
the IRS with a separate stream of funding dedicated to long-term 
improvements, particularly involving its IT systems. Absent a dedicated 
stream of long-term funding, the IRS's IT saga is doomed to continue as 
the IRS falls further behind the rest of the world with respect to its 
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underlying systems and its customer-facing technology.

        Recommendation: Direct the IRS to submit a comprehensive 
        information technology strategic plan that lays out how it will 
        replace aged legacy systems, its funding requirements and 
        timetable for such replacement, and realistic milestones, so 
        that Congress can monitor progress toward stated goals; upon 
        receipt and review of said plan, provide IRS with multi-year 
        appropriated funds for this purpose, with each year's 
        appropriation contingent on the IRS achieving stated 
        milestones.
5. Automation, Artificial Intelligence, and Big Data
    The IRS regularly uses technology and big data to identify fraud 
and noncompliance, but it fails to use technology to help taxpayers get 
to the right answer or prevent or minimize harm to taxpayers. This is 
particularly true when the IRS devises tools and utilizes data or 
automation to identify compliance issues or automate workstreams.

    As I have discussed in a recent blog \51\ and in several reports to 
Congress,\52\ the IRS could use the data it has in-house to identify 
taxpayers who are at risk of economic hardship and therefore are highly 
unlikely to be able to pay their basic living expenses if the IRS 
collects their back-tax debts.\53\
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    \51\ Nina Olson, ``The National Taxpayer Advocate Responds to 
Private Debt Collectors' Contentions,'' NTA BLOG (July 18, 2018), 
https://taxpayeradvocate.irs.gov/news/nta-blog-the-national-taxpayer-
advocate-responds-to-private-debt-collectors-contentions?category=Tax 
News.
    \52\ For further discussion of the National Taxpayer Advocate's 
concerns about taxpayers entering into payment agreements they cannot 
afford, see National Taxpayer Fiscal Year 2019 Objectives Report 58-79 
(area of focus: The IRS's Private Debt Collection Program, Which Has 
Yet to Generate Net Revenues, Continues to Unnecessarily Burden 
Taxpayers Experiencing Economic Hardship and Produces Installment 
Agreements With High Default Rates); National Taxpayer Advocate 2017 
Annual Report to Congress 10-21 (most serious problem: Private Debt 
Collection: The IRS's Private Debt Collection Program Is Not Generating 
New Revenues, Appears to Have Been Implemented Inconsistently With the 
Law, and Burdens Taxpayers Experiencing Economic Hardship); National 
Taxpayer Advocate 2016 Annual Report to Congress 230-238 (most serious 
problem: Installment Agreements (IAs): The IRS Is Failing to Properly 
Evaluate Taxpayers' Living Expenses and Is Placing Taxpayers in IAs 
They Cannot Afford).
    \53\ IRC Sec. 6343(a); IRM 5.15.1, Financial Analysis Handbook 
(November 17, 2014).

    The right to a fair and just tax system requires the IRS to 
``consider facts and circumstances that might affect [a taxpayer's] 
underlying tax liabilities, ability to pay, or ability to provide 
information timely.''\54\ In the context of tax collection, Congress 
has enacted several statutes to ensure the IRS refrains from collecting 
tax when doing so will leave taxpayers unable to pay their basic living 
expenses. The law requires the IRS to release a levy when it determines 
the levy ``is creating an economic hardship due to the financial 
condition of the taxpayer.''\55\ Similarly, for purposes of determining 
the adequacy of an offer-in-compromise, the law requires the IRS to 
``develop and publish schedules of national and local allowances 
designed to provide that taxpayers entering into a compromise have an 
adequate means to provide for basic living expenses.''\56\ The IRS has 
developed and published these schedules of allowances, and they are 
known commonly as the Allowable Living Expense (ALE) standards.
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    \54\ See Taxpayer Bill of Rights (TBOR), 
www.TaxpayerAdvocate.irs.gov/taxpayer-rights. The rights contained in 
the TBOR are now listed in the IRC. See Consolidated Appropriations 
Act, 2016, Pub. L. No. 114-113, Division Q, Sec. 401 (2015) (codified 
at IRC Sec. 7803(a)(3)).
    \55\ IRC Sec. 6343(a)(1)(D).
    \56\ IRC Sec. 7122(d).

    The IRS could develop an algorithm that utilizes the ALE standards 
and taxpayers' income based on their most current returns or 
information reporting (IRP) data and other in-house data. Thus, it 
could automatically screen out from collection activities those 
taxpayers at risk of economic hardship, in accordance with 
congressional directive and IRS policy. Further, the IRS could use this 
algorithm to screen these taxpayers out of the group assigned to 
Private Collection Agencies (PCAs). IRS data show that after 1 year's 
operation, 43 percent of taxpayers who entered into installment 
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agreements with the PCAs had incomes below their ALEs.

    The IRS's continuing refusal to use data in this taxpayer-friendly 
approach constitutes a serious violation of the taxpayers' rights to 
privacy and to a fair and just tax system.\57\
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    \57\ The IRS also places a significant burden on taxpayers because 
it is not utilizing state-of-the-art techniques to design and adjust 
its fraud detection filters (consisting of rules and models) to 
minimize false detections. As a result, for calendar year 2017 (through 
September), the false detection rate was 62 percent for identity theft 
(IDT) fraud filters and 66 percent for non-IDT fraud filters. The IRS's 
failure to use state-of-the-art modelling and other techniques harms 
legitimate taxpayers and wastes IRS resources. National Taxpayer 
Advocate Fiscal Year 2019 Objectives Report to Congress 52-57 (area of 
focus: High False Detection Rates Associated With Fraud Detection and 
Identity Theft Filters Unnecessarily Burden Legitimate Taxpayers).

        Recommendation: Require the IRS to develop an algorithm that 
        applies Allowable Living Expense standards to screen out from 
        IRS and PCA collection programs taxpayers who are at risk of 
        economic hardship. Alternatively, apply 250 percent of the 
        Federal poverty level as a proxy for economic hardship.\58\
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    \58\ The Taxpayer First Act, passed by a vote of 414-0 by the House 
of Representatives in April 2018, would carve out taxpayers with 
incomes at or below 250 percent of the Federal poverty level from PCA 
assignment. Taxpayer First Act, H.R. 5444, 115th Cong. Sec. 305 (2018).
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6. Geographic Presence
    Activities like outreach and education, congressional and media 
relations, examinations, and collections in a country as large and 
diverse as ours require local knowledge and interaction.\59\ Yet 12 
States do not have Appeals or Settlement Officers within their borders, 
and 14 States do not have Stakeholder Liaison employees whose job is to 
conduct education and outreach to Small Business and Self-
Employed taxpayers.\60\
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    \59\ For a detailed discussion of this topic, see National Taxpayer 
Advocate 2017 Annual Report to Congress vol. 2, 245 (literature review: 
Fostering Taxpayer Engagement Through Geographic Presence).
    \60\ IRS response to TAS information request (October 13, 2017). 
The geographic outreach data provided in the IRS response to a TAS 
information request does not include in-person speeches given by IRS 
employees who are not dedicated outreach employees. IRS response to TAS 
fact check (November 20, 2017).

    Of the 362 Taxpayer Assistance Centers, 25 are not staffed and 84 
have only one employee.\61\ The number of field employees in exam, 
collection, appeals, and taxpayer service has shrunk significantly over 
the years, replaced by large centralized sites of employees who never 
look a taxpayer in the face. As TAS research studies have shown, 
personal contacts--while more costly initially--produce better 
response, resolution, and agreement rates than less personal contacts, 
and they also result in better educated taxpayers.\62\ The private 
sector, particularly the banking industry, acknowledges the importance 
of a local presence even as it continues to improve its digital 
experience. TAS Local Taxpayer Advocates are often the only ``face'' of 
the IRS in the community, and because we are an independent voice, we 
cannot adequately substitute for an IRS presence.
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    \61\ Email from Wage and Investment, June 25, 2018 (on file with 
TAS).
    \62\ See, e.g., National Taxpayer Advocate 2013 Annual Report to 
Congress vol. 2, 15 (research study: A Comparison of Revenue Officers 
and Automated Collection System in Addressing Similar Employment Tax 
Delinquencies).

        Recommendation: Direct the IRS to provide Congress with a plan, 
        including cost and return-on-investment estimates, to staff at 
        least one Appeals Officer and one Settlement Officer, one Small 
        Business outreach and education employee, and one congressional 
        liaison in each State, as well as provide adequate staffing for 
        existing and new TACs and a robust field examination and 
        collection presence.
7. Personnel
    Closely related to IT and geographic presence challenges is the 
State of the IRS workforce. The IRS can do more to attract the best and 
brightest job candidates, even for limited periods, in IT, Exam, 
Collection, and Appeals. It has not really changed its recruiting to 
address the fact that people move from one job to another and that a 
career in government is no longer viewed as a lifetime commitment. The 
IRS could make the case to young workers that spending some years in 
government service will provide them with skills and perspective that 
simply can't be found elsewhere and will be very useful for their 
futures.

    The IRS could also recruit people who are mid-career and are 
looking for a more stable work environment for a period of time. I 
believe people will work for the IRS if the jobs and work are presented 
in the right light. TAS has had no problem recruiting people from 
outside the IRS at all levels, and this ``fresh blood'' has 
reinvigorated many of our offices. These new recruits can bring energy 
and help current employees see their jobs in a new light.

        Recommendation: As part of the personnel plan recommended 
        above, direct the IRS to describe its efforts and plan to 
        recruit and maintain new hires from the private sector, 
        including mid-career professionals.
8. IRS Oversight
    RRA 98 contained two provisions that I believe were helpful to tax 
administration and have effectively lapsed: (i) the IRS Oversight Board 
and (ii) joint congressional IRS oversight hearings.

    RRA 98 created an Oversight Board to improve the management of the 
IRS.\63\ The intent was to establish a board of experienced managers, 
largely consisting of corporate executives from the private sector, to 
provide guidance at a high level on IRS strategic plans, operations, 
personnel, and budget. I began my service as the National Taxpayer 
Advocate in 2001, and at that time, the Oversight Board was fully 
staffed and active. I personally believed the Board added significant 
value. Over time, as you know, Board nominations and confirmations 
slowed and eventually came to a halt, requiring the Board to suspend 
its operations. I believe the Board should be reinvigorated. But I 
think the threshold challenge is creating a mechanism that ensures, or 
at least substantially increases the likelihood, that Board members 
will be replaced when their terms end.
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    \63\ See IRC Sec. 7802.

    RRA 98 also provided that congressional committees with IRS 
oversight responsibility would hold a joint annual hearing on IRS 
operations generally or on a particular aspect of IRS operations, such 
as customer service or IT. Participating committees were the Senate and 
House tax-writing, appropriations, and government oversight committees. 
I thought these hearings were very helpful for several reasons. From a 
congressional perspective, it ensured that committees with different 
IRS oversight responsibilities would work together, at least once a 
year, to explore IRS challenges and solutions. In that way, it provided 
an opportunity for the committees to discuss the challenges and 
potentially come to a common understanding about how to address them. 
From an IRS perspective, it gave the agency a chance, in a single 
hearing, to provide its perspective on its challenges and tell the 
committees of jurisdiction what they could do to help. And from a 
taxpayer perspective, I think customer service and taxpayer rights are 
best protected when the IRS and its congressional overseers are working 
together and reach common understandings. By its terms, this provision 
sunset after 5 years. I recommend these hearings be reinstated on a 
permanent basis.\64\
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    \64\ For a previous discussion of this recommendation, see National 
Taxpayer Advocate 2016 Annual Report to Congress 10.

        Recommendation: Reinvigorate the IRS Oversight Board by 
        developing a mechanism that ensures continuing appointments and 
        members with the necessary skillsets (e.g., backgrounds in 
        education, information technology, small business experience, 
        large business experience, individual taxpayer representation); 
        and reinstate the joint annual hearing on IRS operations on a 
        permanent basis.
9. Gig Economy Tax Compliance
    The growth of gig economy platforms has increased compliance 
challenges for taxpayers and the IRS alike. Gig economy workers are 
generally treated as independent contractors. As such, neither income 
taxes nor employment taxes are generally withheld from the payments 
they receive. Instead, they are expected to pay their taxes in four 
installments over the course of the year.\65\ However, many gig economy 
workers don't understand they are responsible for making tax payments.
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    \65\ We have recommended that Congress revise the due dates for 
estimated tax payments so they fall quarterly rather than at 3-month, 
2-month, 3-month, and 4-month intervals, as under current law. See 
National Taxpayer Advocate Purple Book, Compilation of Legislative 
Recommendations to Strengthen Taxpayer Rights and Improve Tax 
Administration 28 (Recommendation #13: Amend IRC Sec. 6654(c)(2) to 
Adjust Estimated Tax Payment Deadlines to Occur Quarterly).

    When they prepare their tax returns for the preceding calendar 
year, they sometimes realize for the first time that they must pay the 
full amount of tax due for the year--and they may face a penalty for 
failing to make estimated tax payments as well. Other gig economy 
workers know about the tax requirements, but they don't manage to save 
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and find themselves in the same position.

    The IRS, too, faces compliance challenges. When an employer pays 
wages to an employee, the employer is required to file a Form W-2 with 
the IRS. That puts the IRS and the taxpayer on notice that the IRS is 
aware of the income. Reporting compliance rates in the presence of 
withholding and information reporting are about 99 percent.\66\ In 
stark contrast, the income earned by independent contractors often is 
not reported to the IRS. IRS studies consistently show that taxpayers 
report less than 50 percent of the income they receive when there is no 
reporting mechanism and that this unreported income accounts for the 
single largest portion of the tax gap.\67\ To the extent that economic 
activity in the gig economy is expanding, more tax revenue is likely to 
go uncollected and an uneven playing field is arising, where gig 
economy workers are sometimes able to evade tax while persons 
classified as employees are paying their full fare and effectively 
subsidizing noncompliance.
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    \66\ See IRS, Tax Gap Estimates for Tax Years 2008-2010 (April 
2016), https://www.irs.gov/pub/newsroom/
tax%20gap%20estimates%20for%202008%20through%202010.pdf.
    \67\ Id.

    In my recent Annual Report to Congress, we identified many steps 
the IRS can take to assist participants in the gig economy comply with 
their tax obligations. While the IRS has taken steps to address some of 
these recommendations, it has declined to take others.\68\ Policymakers 
should assess this area with an eye toward simplifying the compliance 
challenges for both gig economy workers and the IRS. I note that a 
recent bill proposes to raise the Form 1099-MISC reporting threshold 
from $600 to $1,000, while lowering the Form 1099-K reporting threshold 
from $20,000 to $1,000.\69\ Legislation along these lines would help 
close the reporting gap and address horizontal equity concerns.
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    \68\ See National Taxpayer Advocate 2017 Annual Report to Congress 
165-171 (most serious problem: Sharing Economy: Participants in the 
Sharing Economy Lack Adequate Guidance From the IRS); National Taxpayer 
Advocate Fiscal Year 2019 Objectives Report to Congress, vol. 2, IRS 
Response and National Taxpayer Advocate's Comments Regarding Most 
Serious Problems Identified in the 2017 Annual Report to Congress 
(Sharing Economy: Participants in the Sharing Economy Lack Adequate 
Guidance From the IRS).
    \69\ NEW GIG Act of 2017, S. 1549, 115th Cong. Sec. 2(d)(3) (2017).

        Recommendation: Direct the IRS to develop a publication 
        specifically designed for members of the gig economy and an 
        online, user-friendly wizard that walks participants through 
        the various steps and tax requirements; and consider 
        legislation similar to S. 1549 to improve tax compliance.
10. Return Preparer Oversight
    At present, anyone may hold himself or herself out as a tax return 
preparer. No Federal competency standards exist. The GAO and TIGTA, 
among other organizations, have conducted several studies where their 
auditors have posed as taxpayers and had returns prepared by non-
credentialed preparers (i.e., preparers who are not attorneys, CPAs, or 
Enrolled Agents). The results have consistently been appalling. I have 
described the tax return preparation industry as something akin to the 
``Wild, Wild West.''\70\
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    \70\ For additional background on the GAO and TIGTA studies and the 
history of this issue, see National Taxpayer Advocate 2017 Purple Book, 
Compilation of Legislative Recommendations to Strengthen Taxpayer 
Rights and Improve Tax Administration 14-16 (Recommendation #6: 
Authorize the IRS to Establish Minimum Competency Standards for Federal 
Tax Return Preparers).

    The Finance Committee has twice approved bipartisan legislation 
authorizing preparer oversight under the leadership of Chairman 
Grassley and Ranking Member Baucus, and on one occasion, the full 
Senate approved the legislation by unanimous consent.\71\
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    \71\ See H.R. 1528 (incorporating S. 882), 108th Cong. Sec. 141 
(2004) (as approved by the Finance Committee and the full Senate); S. 
1321 (incorporating S. 832), 109th Cong. Sec. 203 (2006) (as approved 
by the Finance Committee).

    In 2009, the IRS Commissioner concluded that the IRS had the 
authority to establish minimum competency standards for tax return 
preparers without statutory authorization. As a result, the IRS 
initiated an extensive series of hearings and discussions with 
stakeholder groups to receive comments and develop a system within 
which all parties believed they could operate. The IRS began to 
implement the program in 2011, but it was terminated after a Federal 
court rejected the IRS's legal position, concluding the agency did not 
have the authority to impose preparer standards without statutory 
authorization.\72\
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    \72\ Loving v. IRS, 917 F. Supp. 2d 67 (D.D.C. 2013), aff'd, 742 
F.3d 1013 (D.C. Cir. 2014).

    In my view, the need for preparer standards is just as acute today 
as it was in 2004 and in 2011. Both as a consumer protection measure 
and to improve the accuracy of prepared tax returns, I have continued 
to recommend that Congress authorize the IRS to reinstate the same 
program that key parties agreed on, and the IRS was implementing, 
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before the court overturned it for lack of authority.

        Recommendation: Authorize the IRS to reinstate the program to 
        require Federal tax return preparers to register with the IRS 
        and meet minimum competency standards, including initial 
        testing and annual continuing professional education 
        requirements.
11. Employee Training
    A trained and professional workforce is paramount if the IRS is to 
administer the tax laws ``with integrity and fairness to all.''\73\ In 
light of congressional concern about the IRS's inappropriate use of 
training dollars, Congress and the Treasury Department imposed 
restraints and oversight procedures for training expenditures. The 
annual appropriations bills require the IRS to have a video editorial 
board that approves all videos produced,\74\ and the Treasury 
Department has set dollar limits for training expenditures that can be 
approved by the IRS Commissioner and heads of agency divisions ($49,999 
and $19,999, respectively).\75\
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    \73\ IRS, Mission Statement, https://www.irs.gov/about-irs/the-
agency-its-mission-and-statutory-authority (last visited July 18, 
2018).
    \74\ See, e.g., Consolidated Appropriations Act--2018, Pub. L. No. 
115-141 (2018).
    \75\ Treas. Dir. 12-70 (February 24, 2014).

    These procedures, in combination with reductions to the IRS budget, 
have resulted in a significant drop in training dollars expended per 
employee. For example, the IRS spent $1,450 per employee on training in 
FY 2009, compared to $489 per employee in FY 2017, a level that is 
about one-third of spending 8 years ago.\76\ Training dollars per 
employee in the Wage and Investment Operating Division were $87 per 
employee in FY 2017.\77\ Because of budget restrictions, business unit 
commissioners and heads of office have learned not to request or 
prioritize significant face-to-face training, which I believe is the 
most effective way to train employees with customer-facing duties.
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    \76\ See National Taxpayer Advocate 2017 Annual Report to Congress 
84-92 (most serious problem: Employee Training: Changes to and 
Reductions in Employee Training Hinder the IRS's Ability to Provide Top 
Quality Service to Taxpayers).
    \77\ Id. at 85.

    Instead, the IRS is making due with inadequate virtual training and 
is not utilizing the current technology and approaches available to 
universities and businesses that have mastered the art of distance 
learning. The IRS also underutilizes external tax professionals as 
trainers. Taxpayer representatives and academics would welcome the 
opportunity to interact with IRS technical, service, and compliance 
employees, and their participation would provide a balanced perspective 
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on tax compliance and taxpayer interaction.

    With a tax law as complex as the Internal Revenue Code and with 
human experiences as varied as they are, it is difficult in the best of 
times to apply the law accurately and fairly. But reductions in 
training at the levels experienced at the IRS are having significant 
impact on taxpayer trust and confidence in the tax system. In fact, the 
Forrester Customer Experience survey cited above found that only 13 
percent of IRS customers seek its expertise, which is less than half of 
the Federal agency average of 32 percent.\78\
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    \78\ Rick Parrish and Margaret Rodriguez, Forrester, The U.S. 
Federal Customer Experience Index, 2018: How U.S. Federal Government 
Agencies Drive Mission Performance With the Quality of Their Experience 
10-11 (May 31, 2018).

        Recommendation: Direct the IRS to appoint a Chief Training 
        Officer who has significant educational and training experience 
        in academia or the private sector and who will chair the 
        training review board and work with the heads of office to 
        develop a robust training plan, including face-to-face and 
        sophisticated distance learning approaches.
                             d. conclusion
    The IRS today faces significant challenges. Due in part to the 
combination of more work and reduced resources, it has fallen behind 
significantly on customer service and IT. The Forrester US Federal 
Customer Experience Index report found that only 24 percent of IRS 
customers say they speak well of the IRS and only 20 percent of 
customers say they trust the IRS.\79\ That is not a recipe for 
maintaining or increasing voluntary tax compliance. Because of the 
critical importance of the tax system, these are serious challenges 
that must be addressed.
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    \79\ Id. at 11.

    The good news is that I believe that, with congressional support, 
these challenges can be addressed. In this statement, I have tried to 
provide my perspective on the biggest challenges the IRS faces and 
offer recommendations to address them. I look forward to working with 
you to make the IRS the best agency it can be--an effective tax 
collector that operates efficiently while providing world-class 
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taxpayer service and respecting taxpayer rights.

                                 ______
                                 
                Prepared Statement of Hon. Rob Portman, 
                        a U.S. Senator From Ohio
    Good morning; this hearing will come to order. This morning we 
convene the Senate Finance Subcommittee on Taxation and IRS Oversight 
to discuss an important topic: ``Improving Tax Administration Today.'' 
This hearing presents a great opportunity to examine current issues 
related to tax administration at the IRS, with a particular focus on 
customer service, information technology, interaction with 
practitioners, low-income taxpayers, and tax administration issues 
related to workers in the gig economy and 1099 filings. Before we 
begin, I want to thank Chairman Hatch and Ranking Member Wyden for 
giving us the opportunity to hold this hearing and our subcommittee 
ranking member Senator Warner for being here with me today.

    Improving tax administration at the IRS is not only an important 
topic, but a timely one. This past weekend was the 20th anniversary of 
the passage of the IRS Restructuring and Reform Act of 1998, which is 
the last time Congress enacted a major overhaul of the agency. During 
the late 90s, there was a clear need for reform at the IRS. Calls with 
questions for the IRS went unanswered by the thousands, and the calls 
that were answered were often incorrect. The agency had also spent $3 
billion on IT systems that weren't working. Bottom line: the American 
public had lost faith in the agency.

    In response, Congress put together a commission that I had the 
honor of co-chairing with then-Senator Bob Kerrey. We published a 
comprehensive report that became the basis for the legislation 20 years 
ago. That legislation, which Senator Cardin, Chairman Hatch, and 
Ranking Member Wyden all took leadership roles on, led to a long period 
of substantial improvements at the IRS. Unfortunately, in recent years 
that period of sustained improvement has unraveled as the agency 
suffers from some of the same issues that plagued it in the mid-1990s. 
Once again, the agency tasked with helping Americans carry out one of 
their most basic duties is failing to serve taxpayers in an effective 
manner.

    Because of these issues, I believe there is an opportunity for this 
Congress to get the IRS back moving in the right direction. Congress 
should act to meaningfully reform the agency, and I applaud the efforts 
of Chairman Hatch and Ranking Member Wyden, as well as the House, for 
the solutions they've offered to advance IRS reform.

    I think there is much more to be done, however, which is why today 
I introduced with Senator Cardin the Protecting Taxpayers Act--
bipartisan legislation to make the IRS more responsive and accountable 
to taxpayers. This legislation aims to reform the agency through six 
key goals: (1) revitalize the IRS organizational structure and 
management; (2) increase taxpayer protections and modernize enforcement 
procedures; (3) improve small business and retirement plan tax 
administration; (4) better serve low-income taxpayers; (5) overhaul the 
IRS appeals process; and (6) strengthen the IRS IT infrastructure.

    I wanted to highlight a couple of provisions from this bill I feel 
will be critical to reforming the agency and that I'd love to get 
feedback on from our witnesses. First, our bill completely rethinks one 
of the key provisions of the 1998 reform bill--the IRS Oversight Board. 
When we originally thought of the idea of this board in 1998, our 
intent was to create a board of directors for the IRS that would help 
guide the direction of long-term strategy at the agency, provide 
private-sector experience and expertise, and hold senior management 
accountable. The Board started off pretty well, but then because of 
lack of support by really every administration, it has since fallen by 
the wayside. The Board suspended operations a couple of years ago, and 
there is technically only one member left out of nine. If we were able 
to get this board not just functioning again, but functioning in the 
way we originally intended, I think it has a lot to offer in turning 
the agency around in areas such as customer service, IT modernization, 
and budgeting effectively.

    I also wanted to mention the reforms we're making to the IRS 
appeals process. In the 1998 reform bill, we created more than 50 new 
taxpayer rights, including the right to an independent appeal of an IRS 
decision. Three years ago, we took those rights a step further by 
codifying 10 of them in a Taxpayer Bill of Rights, which included that 
right to an independent appeal. Yet in recent years, access to an 
independent appeals process has declined as more cases than ever are 
being sent to Tax Court, amounting to a 70-percent increase since 2000. 
Further, the IRS continues to issue new guidance and procedures to make 
it harder for all taxpayers to access the appeals process. The 
Protecting Taxpayers Act aims to reinforce this taxpayer right through 
an ambitious set of reforms, ensuring that we resolve as many tax 
controversies in an equitable manner.

    Overall, I think it's clear--and I'm sure we will hear as much from 
our witnesses today--that Congress needs to build on the progress we 
made in 1998 and engage in a new set of reforms at the IRS. I am 
interested to hear from my colleagues and the witnesses here about ways 
we can improve tax administration at the IRS, and I look forward to 
working with all of you as we work to make the IRS more responsive and 
accountable to the American taxpayer.

                                 ______
                                 
                Prepared Statement of John Sapp, Chair, 
          IRS Electronic Tax Administration Advisory Committee
    Chairman Portman, Ranking Member Warner, other members of the 
subcommittee, good afternoon.

    Thank you for inviting me to testify at this hearing on ``Improving 
Tax Administration Today.''

    My name is John Sapp, and I am just finishing my tenure as Chair of 
the IRS Electronic Tax Administration Advisory Committee (ETAAC).

    As you know, ETAAC was created by Congress in the IRS Restructuring 
and Reform Act of 1998. It has a diverse membership of individuals from 
the State departments of revenue, private industry, including the 
payroll community, and consumer groups. This diversity allows the IRS 
to receive a wide variety of perspectives on electronic tax 
administration and its impact on taxpayers.

    ETAAC's primary focus was initially on researching, analyzing, and 
advising the IRS on its electronic tax administration strategy and most 
specifically on achieving the goal of receiving at least 80 percent of 
major tax return types electronically. ETAAC is pleased to report that 
it estimates that IRS will achieve its 80-percent goal this filing 
season for all major return types.\1\ More recently, ETAAC's charter 
was expanded to include a focus on the urgent issue of Identity Theft 
Tax Refund Fraud (IDTTRF) and information security. This expanded focus 
reflects the ever-changing threat environment for electronic tax 
administration.
---------------------------------------------------------------------------
    \1\ ETAAC takes a broad view of ``major'' returns, including 
employment, corporate, partnership, fiduciary, and exempt organization 
returns. The IRS achieved 80 percent for the 1040 series of returns 
several years ago.

    This year, ETAAC's Annual Report to Congress continued to focus on 
the work of the IRS Security Summit--an unprecedented collaborative 
effort lead by IRS to engage State governments and private industry to 
work together to fight IDTTRF and protect American taxpayers. Although 
we can never declare final victory over the criminal elements attacking 
our tax system, the Security Summit has made significant progress in 
the fight. That progress has been enabled by strong IRS leadership, the 
support of both the States and private industry and a collaborative 
---------------------------------------------------------------------------
mindset of all participants.

    I am pleased to represent ETAAC today to provide a perspective on 
tax administration. After providing some brief context, I will offer my 
thoughts on the following four principles concerning IRS electronic tax 
administration illustrated with specific recommendations made by ETAAC 
in its 2017 and 2018 Reports to Congress:

          Security.
          Accessibility.
          Taxpayer control.
          Collaborative development.

  electronic tax administration operates in a challenging environment
    Initially, I would like to set context regarding some challenges 
facing electronic tax administration.

    First, the need to supplement traditional IRS service delivery 
channels (phone, in person, etc.) is obvious. Electronic services--
online but increasingly mobile--are an essential element in enhancing 
IRS's overall service channels. Both consumers and businesses expect to 
be able to conduct much of their business electronically, but they also 
expect to be able to talk with someone when necessary.

    Second, electronic services operate in a high threat environment. 
The subcommittee is well aware of the cybersecurity threats facing our 
Nation. Cyber-
criminals are well-funded and very capable. They continue to target our 
tax system to obtain tax refunds fueled by the theft of personal 
information from a variety of government and private sources, most of 
which are external to our tax system. This fight will never end--as we 
close one door, the criminals look to find another. We need to raise 
our cybersecurity game across the board.

    Third, like all consumers, taxpayers have high expectations for 
electronic services. They expect them to be secure, easy to use and 
integrated into their existing workflows. In ETAAC members' experience, 
the adoption rate for isolated or stove-piped solutions is not high--
integrated solutions have higher adoption rates over time. A good 
example of this is electronic filing, which has been integrated into 
the tax software solutions used by taxpayers and tax professionals.

    However, some taxpayer expectations are in tension with one 
another. For example, secure solutions necessarily require effective 
identity proofing and authentication--potential users must be able to 
prove they are who they say they are to gain access to ``their'' 
sensitive personal information. Traditional digital identity proofing 
solutions are typically somewhat tedious multi-step processes. As a 
result, security can be in tension with ease of use and accessibility--
a particularly challenging balance to achieve.

    Of course, ease of use and accessibility are elements of the 
overall customer service experience. Taxpayers who find electronic 
services difficult to use, or who are unable to access such services, 
understandably will revert to call IRS assistors or visit IRS offices 
to meet their needs.
                 principles for taxpayer-facing systems
    With this context, I will summarize some specific ETAAC 
recommendations supporting the key principles for electronic tax 
administration mentioned above--security, accessibility, taxpayer 
control and collaborative development.
                   electronic services must be secure
    Security is a prerequisite for any electronic solution to be 
adopted, and standards are a foundational element for any secure 
system. In its 2018 Report, ETAAC identified potential gaps in the 
security standards covering our individual and business income tax 
systems. Specifically, the most prevalent security standard currently 
covering ``tax preparers'' is limited to those serving consumers--I'm 
referring to the FTC Safeguards Rule, which was implemented pursuant to 
the Gramm-Leach-Bliley Act (GLB).

    Additionally, it is unclear whether the IRS has the authority to 
set or enforce minimum security standards for tax preparers, 
particularly because of the Loving and other cases which specify 
limitations on IRS' ability to ``regulate'' tax preparers.

    ETAAC believes our tax system requires a high-level security 
standard, such as the one articulated in the FTC Safeguards Rule. 
Further, we believe IRS should have the authority to set and enforce 
security requirements for our tax system.
                 electronic services must be accessible
    As I mentioned above, IRS's ability to remotely identity proof and 
authenticate taxpayers in a secure and reliable manner is a key enabler 
for electronic services. These are the processes by which the IRS 
collects, validates, and verifies information about a taxpayer to 
ensure the applicant is who they claim to be to a stated level of 
assurance. Digital identity management presents a technical challenge 
because it involves proofing and authenticating individuals over an 
open network, which presents opportunities for impersonation and 
attacks leading to fraudulent claims of a subject's digital identity.

    The IRS has several online services with different levels of 
assurance. Some services provide access to less sensitive information 
such as refund status whereas others require the highest level of 
assurance because of the sensitivity of the information, e.g., Get 
Transcript Online, Get an IP PIN, IRS e-Services and the taxpayer 
online tax account.

    The IRS's current remote identity proofing solution is the Secure 
Access identity management platform. Generally, Secure Access requires 
the taxpayer to successfully complete a process of validating their 
identity using personal information, an email address, third party 
public information and a cell phone. The IRS has constantly evolved its 
current Secure Access identity proofing platform, but it still has its 
limitations. For example, certain segments of the population may not be 
able to validate themselves digitally using Secure Access because of an 
insufficient public record or an inability to complete cell phone 
validation. While there may be alternative authentication methods 
provided by the IRS, the inefficiencies they create are cumbersome.

    In our experience, the IRS is taking a deliberate, studied approach 
to identifying and pursuing solutions to this challenge. It is looking 
for ways to both protect taxpayer data and, simultaneously, enable more 
taxpayers to identity proof remotely. It is also considering solutions 
under development in both the governmental and private sectors. Of 
course, digital identity management is a broader challenge for all of 
government, not just the IRS.

    ETAAC has made two recommendations in this area.

    First, the IRS should continue to collaborate with key stakeholders 
to help IRS identify, test and implement new identity proofing and 
authentication solutions. This innovation effort should be done in a 
way that manages risks, but stakeholders should not expect zero 
defects. Innovation necessarily involves a mix of successes and 
failures. Small pilots can help to manage these risks.

    Second, remote identity proofing solutions have inherent 
limitations and challenges. We have already mentioned the difficulty of 
navigating Secure Access to gain access to and use online solutions. 
For that reason, ETAAC's 2018 Report encouraged IRS to consider options 
to expand in-person identity proofing opportunities. The IRS may be 
able to leverage its existing physical locations for this purpose, or 
those of other government agencies with a larger and more diverse 
physical presence such as the Social Security Administration.

    Additionally, our Report offered another option for the IRS to 
consider--the creation of a ``Trusted Third Party'' program to expand 
the availability of in-person taxpayer identity proofing. To illustrate 
this approach, we referenced IRS's previously created Certified 
Acceptance Agent (CAA) Program to improve access to Individual Taxpayer 
Identification Numbers (ITINs). A CAA is a person or an entity 
(business or organization) who, pursuant to a written agreement with 
the IRS, is authorized to assist individuals who do not qualify for a 
Social Security Number but still need a Taxpayer Identification Number 
(TIN) to file their taxes. The CAA facilitates the application process 
by reviewing the necessary documents, authenticating the identity when 
possible and forwarding the completed forms to the IRS. Applicants to 
become a CAA must complete a rigorous application process, including 
submitting an application and finger print cards, as well as completing 
mandatory training.

    Adapting the Certified Acceptance Agent (CAA) Program model to this 
need may also correspond with taxpayer expectations. Most taxpayers 
expect their tax professionals or tax service providers (whether paid 
practitioners, software providers or volunteers in the VITA, TCE or 
LITC programs) to assist them in engaging with or accessing information 
from the IRS. Since these third parties are already reviewing physical 
identification documents in connection with tax preparation or may have 
other avenues for confirming identity not readily available to the IRS, 
they represent a possible opportunity to help identity proof taxpayers. 
ETAAC believes this option is worthy of consideration, likely starting 
with a small pilot program to test the concept.

    An obstacle to this interaction may be the filing of Powers of 
Attorney on behalf of taxpayers by their tax preparer or 
representative. ETAAC has recommended (as have others) that the IRS 
enable the secure online submission of Powers of Attorney (Form 2848), 
which currently must be mailed or faxed.

    Accessibility and ease of use are likewise considerations for IRS 
electronic services used by tax professionals. Difficulty in using or 
accessing tax professional services will again, potentially drive them 
to traditional IRS customer service channels, most particularly 
telephone assistors or tax professional hotlines.
           electronic services must be under taxpayer control
    Taxpayers must be ``in control'' of their services. For example, 
our 2018 Report mentions the benefits of taxpayers having the ability 
to provide access to their account information to their chosen tax 
service providers, whether tax professionals or software. However, 
taxpayers must always have the ability to control any such permissions 
whether at the time of any initial grant or on an ongoing basis. 
Additionally, any third parties that might be granted such access must 
meet some important thresholds such as completing background checks and 
meeting information security requirements.

    On a related note, ETAAC made two recommendations in 2018 
associated with taxpayer control. First, we recommended (as have other 
advisory committees) that the IRS continue to evaluate the concept of 
``account lock and unlock'' feature as described in our Report. Second, 
we support the idea of expanding eligibility for the Identity 
Protection Personal Information Number (IP PIN) to all taxpayers, which 
others have supported including the National Taxpayer Advocate.
        electronic services should be collaboratively developed
    The development of electronic services that consumers will actually 
use is not as easy as it might seem. As pointed out in our 2018 Report, 
consumers will often ``tell'' you that they will use some proposed 
service that seems beneficial. In fact, that is often not the case.

    Instead, as it attempts to develop electronic solutions, it is 
essential that IRS take advantage of the insights available from a 
variety of sources and stakeholders including taxpayers, States, tax 
technology providers, tax professionals, VITA providers and others. 
Additionally, product research is essential, but not sufficient. We 
believe the IRS should continue to test ``minimum viable services'' to 
see how taxpayers and tax professionals will actually use any online 
services, not just how they say they will use them.

    For that reason, ETAAC recommended that IRS take a collaborative 
approach to developing online and mobile services. The Security Summit 
is a great example of the benefits of a collaborative approach.
                               conclusion
    In conclusion, IRS has been an engaged, collaborative and 
constructive partner in support of ETAAC's work with the Security 
Summit. ETAAC believes the improvement of tax administration can 
benefit from a collaborative effort.

    Moreover, as we pursue initiatives to improve electronic tax 
administration, ETAAC encourages all of us to remember the guiding 
principles of:

          Security.
          Accessibility.
          Taxpayer control.
          Collaborative development.

    Thank you again for the opportunity to provide my thoughts today. I 
am ready to answer any questions to the best of my ability.

                                 ______
                                 
       Prepared Statement of Rebecca Thompson, Project Director, 
              Taxpayer Opportunity Network, Prosperity Now
    Chairman Portman, Ranking Member Warner, and members of the 
subcommittee, thank you for the opportunity to testify before you on 
``Improving Tax Administration Today.'' It is a privilege and an honor 
to speak with you about the Volunteer Income Tax Assistance (VITA) 
program. For nearly half a century, the IRS has enlisted the support of 
community partners leveraging the strength, skill, and good will of 
tens of thousands of volunteers to provide free tax preparation and 
filing for low-income Americans during the annual tax filing season. 
VITA volunteers come from all walks of life and endure a rigorous 
training and certification process to help low-income, elderly, 
disabled, and limited English-speaking tax filers fulfill their civic 
obligation by filing an accurate tax return, claim Federal and State 
credits for which they are eligible, and access other financial 
capability building services to strengthen their family's household 
financial well-being at tax time.

    In my role as the project director of the Taxpayer Opportunity 
Network, I lead a national network of more than 2,500 stakeholders, 
including VITA volunteer program managers, site coordinators, 
volunteers, community, corporate and philanthropic partners, and 
others. Our Network serves as a convening body for VITA practitioners 
and stakeholders, providing a way for them to connect with one another, 
developing and distributing tools, resources, information and providing 

capacity-building support to strengthen VITA programs, ensure quality 
return preparation, and help to extend the reach of the VITA program to 
more low-income Americans.

    For the last 8 years, I have spent nearly every Saturday, and many 
a weekday from January through April, in a VITA site. I have always 
enjoyed working in VITA sites, either through my prior roles as a VITA 
program manager, there to ensure that things run smoothly, or as a 
volunteer, using a unique skill set that I've acquired to help average, 
everyday Virginians.

    For the last 2 years, since transitioning to my current role at 
Prosperity Now, and moving to Northern Virginia, I have had the 
pleasure of serving as a VITA volunteer co-site coordinator and quality 
reviewer with the Northern Virginia CASH Campaign, at the Employment 
Resource Center at the Prince William County A.J. Ferlazzo Building in 
Woodbridge, VA. Every Saturday morning throughout the filing season, I 
rise from my bed, much earlier that I would like to, and make my way 
down to the Ferlazzo building, joining about 10-12 other volunteers at 
my site, over 1,200 volunteers in Virginia, and 55,000 volunteers 
nationwide, to help low-income, hard-working Americans meet their civic 
obligation by filing a tax return.

    Our site is a small one, only open on Saturdays, serving just over 
300 households. On average, our clients earned close to $25,000 last 
year. That's not a lot, especially for a family living in Northern 
Virginia, and I often wonder how they make it. I'm fortunate, that as I 
take the time to review their tax return with them, we can chat, and I 
learn how they make it through, and share any information and resources 
I can to help them until I see them next year. I can vividly remember 
the first return I prepared at the Ferlazzo Building tax site. He was a 
single father, raising three young children. He had been unemployed for 
part of the year, and in addition to his unemployment statement, he had 
about three W-2s, where he was trying to piece together enough income 
to support his family. He had gone to a paid preparer to have his 
return prepared, but when he was quoted an estimate of $382 for his 
preparation and filing, he decided to look for an alternative, and he 
found us. The return wasn't complex, it only took me about 30 minutes 
to do, but it saved him almost $400 and he was very grateful for the 
assistance.

    This year, 315 volunteers at 15 sites in the Northern Virginia CASH 
Campaign served 4,300 households, with an average Adjusted Gross Income 
of just over $25,000. I always knew that northern Virginia was one of 
the most affluent regions in the country. Volunteering in a VITA site 
has helped me see the other side of the coin.

    During the 2018 filing season, 24 VITA coalitions operating 121 
VITA sites across the Commonwealth of Virginia (central Virginia, 
Tidewater, northern Virginia, Piedmont, and western Virginia) helped 
over 33,500 individuals and families file their tax return for free. 
Together we gave more than 60,000 volunteer hours in training and tax 
preparation in Virginia, bringing back almost $35 million in Federal 
refunds, including just under $12 million in EITC refunds, and saving 
Virginians over $6 million in tax preparation fees.

    Nationally, more than 4,000 VITA sites helped 1.4 million 
households by preparing and filing their tax return for free. In 
addition to preparing and filing tax returns, many VITA sites connect 
the families we serve to public benefits, financial education and other 
financial capability services, such as financial coaching and credit 
building, providing strength and support to a family's financial 
future.

    At their core, VITA volunteers are gifted translators with big 
hearts. We endure a rigorous training regimen that can in some cases 
take as much as 24 hours, and pass a certification test annually, so 
that we are well-equipped to translate what can be a daunting and 
complex tax code for our clients, into a meaningful representation of 
the life of the people we serve. We do it through conversational 
interviewing, using IRS Form 13614-C as a guide, to ensure we deliver 
high quality, accurate returns for the low-income, underserved, 
elderly, rural, disabled, and limited English-speaking populations in 
communities across America. And at the end of each return, there is an 
extensive quality review process, that involves reviewing the completed 
tax return with the client to ensure they understand how their life 
over the previous year has translated into their tax return, along with 
the acknowledgement that while we have done our part in assisting them, 
ultimately the responsibility for the information contained in that 
return lies with them. This process has consistently yielded 
unparalleled quality results, above 90 percent for the last several 
years, and 93 percent for the most recent filing season.

    Last year, IRS Stakeholder Partnerships Education and Communication 
(SPEC) organization, which has oversight for the VITA and TCE programs, 
estimated that over 5.2 million lives were touched by our collective 
work. That includes all the people (spouses and dependents) who are 
covered and represented by the 1.4 million tax returns we prepared. For 
all the great work that we do, and all the people we serve, two things 
remain lacking. First, after nearly 50 years in operation, the VITA 
program has never formally been authorized by Congress. Formal 
congressional authorization will put the VITA program on sure footing, 
ensuring that you recognize the value we bring to the American people 
we serve, and acknowledging that we should keep up the good work. 
Second, the VITA program lacks adequate funding. In December 2007, 
Congress first appropriated funds to the IRS to establish and 
administer a 1-year matching grant program in consultation with the 
Taxpayer Advocate Service. VITA grant funding has grown from $8 million 
in 2007, to $12 million in 2012, to $15 million in 2015. Still, there 
are millions of low-income, elderly, disabled, rural, underserved, and 
limited English-speaking populations who could benefit from our 
service, but we are constrained by our current funding level in our 
ability to reach and serve them.

    During the last grant cycle, 243 community partners were awarded 
the VITA grant. Seventy percent (70 percent) of VITA sites are 
sponsored by organizations that receive grant funding from the IRS 
while thirty percent (30 percent) are wholly funded and operated by 
their sponsoring community partners who so greatly believe in the work 
we do and the impact it has in their communities, that their 
organizations bear the cost of operating a VITA program with no 
financial support from the IRS.

    For its $15-million investment in the VITA grant program, Federal 
funds which must be matched dollar-for-dollar by either cash or in-kind 
contributions, the cost per return to the Federal Government is $14.74. 
Doubling VITA grant funding to $30 million will help the IRS extend 
more financial resources to support more community partners, which will 
in turn increase their ability to devote time to recruiting, training 
and managing volunteers, to purchase equipment, such as laptops and 
printers, to pay for Internet service, to develop and to execute 
creative and innovative strategies to deliver services more 
effectively, and to market the program to extend their reach and serve 
more people.

    Volunteering in a VITA site helps to keep me grounded. I witness 
first-hand and come to understand the unique and sometimes complex 
challenges that low-income Americans face. Volunteering also helps me 
to see the impact of the work I do during the week, and to get to know 
the people who are impacted by the time I spend working on projects at 
my desk, or in meetings. It brings my work to life and helps me see 
things from the perspectives of the volunteers and clients. I get a 
``boots-on-the-ground'' view that helps me to identify needs, and 
opportunities for program and process improvements that I take back to 
my job during the week and apply it in meaningful ways that will 
ultimately make life a little better, a little easier, and improve the 
financial well-being of those we serve collectively.

    As I go about my daily routine, everywhere I look, I see potential 
VITA clients. They're helping me get to work--conductors on the 
commuter train, driving the Metro. They are in the grocery store, 
helping me make my weekly purchases of food and household items for my 
family. When I went on vacation earlier this summer, they were all 
around me, from the front desk to the cleaning staff at hotels. They 
were in the airports, working in all different capacities to help me 
and my family get to and from our destinations. When I go out to eat on 
occasion, they're all around me, serving, cooking, and cleaning in the 
restaurants I visit. They are teaching my children, serving as school 
support staff, administrators, and janitors. They are seniors drawing 
Social Security but still working to make ends meet, like the cafeteria 
worker who feeds my son lunch during the school year. She told me that 
she was using her refund to cover her household expenses during the 
summer months because she doesn't work when school isn't in session. 
She had paid almost $300 over the last several years to have her return 
prepared. This year she decided that she just couldn't afford to pay 
someone to do her taxes. She found out about our service at the county 
office, where our site is located on Saturdays, when she went there to 
apply for SNAP benefits. Many folks are unaware of this diamond in the 
rough that we call VITA. Others swear by it and tell friends and 
relatives about the great service they found that can save them 
hundreds of dollars, all while providing information about and access 
to other resources that can help improve their family's financial 
future.

    VITA clients, both current and potential, are hard-working, 
everyday Americans. They give so much, are the very fabric of America, 
and they serve me and my family every day. Helping them as many of them 
as we can to fulfill their civic obligation by filing an accurate 
return, accessing and claiming all the credits and benefits they're 
entitled to, and doing it for free, all while connecting them to 
resources and information that can improve their family's financial 
well-being, by making the VITA program permanent, with adequate 
funding, is the least we can do for them.

    Thank you again, Chairman Portman and Ranking Member Warner, for 
providing me with this opportunity to share information with the 
subcommittee about the VITA program. I look forward to answering any 
questions you or the other members may have about it at this time.

                                 ______
                                 
              Prepared Statement of Hon. Mark R. Warner, 
                      a U.S. Senator From Virginia
    Thank you, Mr. Chairman. And I'd like to thank you for your long-
term interest in this subject. I know you and Senator Cardin have been 
leaders in this field, as have Chairman Hatch and Ranking Member Wyden.

    We know the notion of tax administration doesn't necessarily sound 
that exciting, but this is the front line of how Americans intersect 
with the Federal Government. The effectiveness of that intersection and 
the customer service at that intersection are very important. Let's 
face it, no one loves paying taxes, but if we can make that payment of 
taxes more efficient, more user-friendly, more fair, I think an 
obligation that we all have to take on as citizens will at least become 
less painful.

    The title of this hearing is ``Improving Tax Administration 
Today,'' but let me raise two issues about the tax administration of 
tomorrow.

    Over the last few years, I have spent a lot of time looking at the 
changing nature of work. I think we are moving into an environment 
where classic W-2 full-time employment--where folks go work at the same 
firm for 35 years--is a thing of the past. Part of that is driven by 
economic circumstances, part of that is driven by, frankly, the choices 
of millennials. We have seen the emergence of a number of new 
platforms, the so called ``gig economy.'' I believe that people moving 
forward may not have a single income stream, but multiple income 
streams. They may be an IT consultant starting their own business, 
driving for Uber, and renting out their apartment on Airbnb. Frankly, 
the tax administration burden in this new economy is enormously 
challenging. We need to have a tax administration system that doesn't 
impede on individuals who are trying to become more entrepreneurial and 
actually utilize these services and platforms, while making tax 
compliance for them easier.

    I have called for two studies, one from the GAO and one from the 
Treasury Department, to try to look at the size of this workforce and 
how they interact with the tax system. The recent BLS study indicated 
that there is not that much growth in this field. I will accept that 
data, but I don't think it was complete enough. I have seen estimates 
from government and non-government sources that literally show close to 
one third of the American workforce is at least receiving some of its 
income from contingent work.

    So how we think about tax administration, how we think about even 
the concept of a social contract, I would argue means we need to move 
to a portable benefits systems. If we move to a portable benefits 
system, we've got to have flexibility on the tax administration side as 
well.

    The other item that I think is an ongoing challenge is IRS 
technology. We've all seen the IRS make good faith efforts to get its 
technology up to date. Sometimes those good faith efforts have not 
panned out. But something is wrong with our overall Federal Government 
when we spend $90 billion a year on IT, but a huge share is spent on 
maintaining and trying to upgrade legacy systems. My hope is, as well, 
we can get into the question of how we could create a technology-
enabled modern tax system. If the Congress has to bite the bullet and 
go all-in to fully upgrade the Federal IT system, then maybe we need to 
have that kind of discussion.

    Again, I want to thank the chairman for having this hearing, and I 
look forward to hearing from our witnesses today.

                                 ______
                                 

                             Communications

                              ----------                              


                 Statement Submitted by Jeffrey M. Blum

                     Law Offices of Jeffrey M. Blum

                        7106 Meadow Ridge Drive,

                      Louisville, Kentucky 40218,

              Telephone (502) 494-2889, Fax (502) 749-2949

                           [email protected]

Introduction

    I have been representing the owners of Country Folk Art Shows, Inc. 
(``CFAS''), a fully lawful family business, since the summer of 1994. 
CFAS has been victimized by one of the first and largest improper civil 
asset forfeitures conducted by IRS agents. Approximately four million 
dollars has been unlawfully taken and despite repeated court rulings 
and a review conducted by the Deputy Attorney General (initiated by 
Attorney General Ashcroft, and conducted by Deputy Attorney General 
Comey and Associate Deputy Attorney General Catherine O'Neil), all 
directing the IRS to return the money as tax refunds, the IRS has done 
nothing but stonewall since first being directed to address refund 
claims in 2002. The extensive, well-
documented tax refund claims have repeatedly been ``lost,'' and 
inaction has been justified by saying that mere theft of assets by 
agents does not justify a tax refund until the Commissioner writes a 
letter crediting the money as tax payments.

    The details of the circumstances surrounding this illegal 
forfeiture, which include the Sixth Circuit Court of Appeals reasons 
why the money should be returned as tax refunds, are explained in the 
statement that I submitted for the record of the whole Finance 
Committee's confirmation hearing for Commissioner Designate Charles 
Rettig that was held on June 28, 2018. I will not repeat them here. 
This statement will focus on the failure of IRS oversight that we have 
experienced to date. Specifically, I am sorry to say, direct personal 
involvement by the National Taxpayer Advocate Nina Olson appears to 
have been used on two occasions to assist in perpetrating acts of fraud 
and larceny designed to facilitate the unlawful taking of four million 
dollars. On both occasions Ms. Olson nullified a large amount of good, 
careful work by her subordinates, Regional Taxpayer Advocate based in 
Cincinnati, Joseph W. Budd, in 2006, and District of Columbia Taxpayer 
Advocate, Glen Thomas this past year.

    The illegality of what Ms. Olson appears to have been trying to 
achieve can be explained quite simply, even though the initial taking 
occurred in 1992-1993, well before Ms. Olson assumed her current 
position in 2001. Her wrongful acts have been rooted in a combination 
of ignorance, arrogance and abuse of bureaucratic authority. In 
September, 1992 our clients, the owners of Country Folk Art Shows, Inc. 
(``CFAS owners'' or ``the taxpayers'') owed an agreed upon amount of 
$5.3 million to the IRS and wanted to pay off their debt quickly. At 
the request of the United States Attorney for the Eastern District of 
Michigan they agreed to tender slightly over four million dollars in 
assets in a Consent Judgment of Forfeiture. This unusual method of 
first installment payment was possible because the owners and the 
United States agreed that all the income in question had been lawfully 
derived from the gate receipts of country folk art exhibitions 
conducted nationally, and the then IRS Assistant Commissioner in Charge 
of Criminal Investigations had promulgated a policy that forfeiture of 
lawfully derived assets for ``structuring'' could only be used to pay 
down tax liability, not for other purposes such as providing additional 
bounty for IRS agents and agencies. Because the amount of tax liability 
had been agreed upon, the only additional allegation involved the 
amorphous charge of ``structuring,'' and the CFAS owners had been 
assured that the Assistant Commissioner's policy would be followed, the 
agreement embodied in the Consent Judgment was clear. Their remaining 
tax liability should have been $1.3 million, and that appeared to be 
the case until about three months after the assets had been tendered. 
Then suddenly it was raised back up to $5.3 million based on a claim 
that every time the owners deposited their regular cash income in the 
bank, it was a ``structured deposit'' that could be forfeited over and 
above any tax liability.

    Soon after I was retained we learned that the government had not 
been using the actual law against structuring a single transaction in 
currency, 31 U.S.C. Sec. 5324(a)(3), but an imaginary law designed to 
mimic it. Because the imaginary law had no ``single transaction'' 
requirement, it was much broader and made many of the nation's 
legitimate cash businesses vulnerable to having years of income 
forfeited after the fact. The CFAS owners' currency structuring 
convictions were swiftly vacated by the original trial judge in 1997, 
but it took all the way until August 6, 2008 for the United States to 
concede on the record of the Sixth Circuit Court of Appeals that the 
forfeiture had not been based on any structured transactions. The only 
other possible explanation for the tender of four million dollars, 
apart from it being part of some sort of IRS fraud scheme, was that it 
was payment of a tax liability. Because the same taxes can only be 
collected once, not twice, the Court of Appeals pointed to tax refunds 
under the Internal Revenue Code as the proper means of repayment.

    After D.C. Taxpayer Advocate Glen Thomas had worked on this matter 
for several months earlier this year Nina Olson intervened and 
announced a new IRS policy, to be applied retroactively to September 
1992, that any use of the word ``forfeiture'' in an agreement to tender 
assets meant that the IRS was entitled to keep the money over and above 
payment of any tax liability. In doing so she ignored over a hundred 
pages of documentation that had been provided to the D.C. Taxpayer 
Advocate showing that this could not possibly be true. Conversely, if 
Ms. Olson's pronouncement is an accurate statement of IRS policy, then 
it, read in conjunction with the Service's prior handling of this 
matter, means that this is a fundamentally lawless agency that cannot 
be trusted to handle money.

    Shortly before Ms. Olson intervened I had prepared a formal Request 
for a Taxpayer Assistance Order pursuant to 26 U.S.C. Sec. 7811 and 26 
CFR 301.7811-1 that was delivered to Mr. Thomas on March 14, 2018. I am 
now incorporating that formal request into this statement as an 
appendix to this statement. I request specifically that Ms. Olson be 
held accountable and required to meet with a representative of the 
Finance Committee or this Subcommittee to discuss our Request for a 
Taxpayer Assistance Order, ideally with me being allowed to 
participate. Our request is important even beyond the particular case. 
It contains within it an exposition of statutory and regulatory 
authority showing that under the statute and pertinent regulations this 
is an instance where issuance of a Taxpayer Assistance Order is 
mandatory, not discretionary with Ms. Olson. As such the Country Folk 
Art Shows matter and the Taxpayer Advocate Service's handling of the 
owners' Request for a Taxpayer Assistance Order provides a useful 
bellwether to assist the Subcommittee on Oversight in determining 
whether the Taxpayer Advocate Service under Ms. Olson's leadership is 
an agency capable of functioning as intended, or is itself a body 
offering only the illusion of substantive oversight that needs to be 
reconstituted in order for statutory purposes to be given effect. 
Sadly, if this matter is ignored, the United States will continue to 
suffer two significant losses of legitimacy, one of which Ms. Olson 
ironically decried in her testimony before the Subcommittee. The IRS 
will continue its public relations nightmare stemming from its misuse 
of an imaginary law against ``structuring generally,'' and Congress, 
whose approval ratings are currently not the best, will likely be 
suspected of offering only the illusion of substantive oversight. Those 
suspicions will likely be highlighted by the Subcommittee having 
brought in Ms. Olson to provide expert testimony on necessary oversight 
while refusing to question her about her own most egregious acts.

            Respectfully submitted,

            Jeffrey M. Blum
            Counsel for the Owners of Country Folk Art Shows

                                 ______
                                 

                                APPENDIX

    The attached formal Request for a Taxpayer Assistance Order dated 
March 14, 2018 (and commencing on the next page) is incorporated into 
this statement because it is the document, the transmission of which to 
National Taxpayer Advocate Nina E. Olson provides the crux of the 
requested oversight.

                                 ______
                                 

                            Jeffrey M. Blum

                            Attorney-at-Law

_______________________________________________________________________
                                                     March 14, 2018
Mr. Glenn Thomas
D.C. Local Taxpayer Advocate
Taxpayer Advocate Service           DCTA 3 Request for Taxpayer 
                                    Assistance Order
TA:DCLTA, K Suite 1500              By email attachment to
1111 Constitution Ave, NW             [email protected] and fax to
Washington, DC 20224                  (855) 810-2124

Dear Mr. Thomas:

PART ONE:    REQUEST FOR A TAXPAYER ASSISTANCE ORDER

    This letter outlines the Taxpayer Assistance Order now being 
requested by our clients, explains why its issuance is explicitly 
permitted by 26 U.S.C. Sec. 811 and the accompanying regulation, 26 CFR 
301.7811-1, and documents the fact that it is mandated by 
jurisdictional determinations already made by the IRS. The letter also 
argues that the requested Order is either essential, or would at least 
be very helpful, for bringing the IRS into conformity with the law, and 
would not be inconsistent with the brief letter previously written by 
Deputy Commissioner for Services and Enforcement, Kevin M. Brown on 
January 16, 2007.

    The Requested Order

    ``The Taxpayers, John E. and Virginia Long, and John Keith and 
Rhonda Blakely, who have been self-employed owners of the small 
business, Country Folk Art Shows, Inc., have had bona fide, properly 
formalized amended refund claims pending since either March 11, 2002 or 
April 2, 2002. The refund claims arose when the IRS overlooked its 
obligation to credit these taxpayers' voluntarily tendered forfeiture 
of approximately four million dollars in assets as tax payments and 
assessed the same taxes, interest and penalties a second time. Despite 
a July 25, 2005 request from the Deputy Attorney General of the United 
States that the IRS act on the refund claims, the claims have never 
been addressed and no Notice of Disallowance has ever been sent.

    ``This failure to act is due largely to the claims remaining with 
the Criminal Investigations Division (CID) of the IRS nearly the entire 
time, even though its Chief, Nancy Jardini, and counsel, Edward F. 
Cronin, have been clear and emphatic in maintaining that IRS Criminal 
Investigations does not have jurisdiction to address them. In 2003 IRS 
Attorney Joanne Minsky correctly identified the Small Business/Self 
Employed Division as the proper entity within the IRS that would have 
jurisdiction over them. In light of the complexity of background 
circumstances relating to the claims she suggested that counsel for 
these taxpayers communicate directly with the then National IRS Counsel 
for Small Business/Self Employed, Thomas R. Thomas. The current 
Commissioner for the Small Business/Self Employed Division is Mary Beth 
Murphy. The taxpayers' long pending refund claims should be referred to 
Commissioner Murphy within thirty days for decision with a suggestion 
that her counsel communicate directly with counsel for the taxpayers in 
order to make an informed decision about how the claims should be 
resolved. Such communication with counsel should include assurances 
that the refund claims are now being addressed in a reasonably 
expeditious manner.''

    The Requested Order's Appropriateness Under 26 U.S.C. Sec. 7811 and 
26 CFR 301.7811-1

    Under 26 CFR 301.7811-l(a) ``the National Taxpayer Advocate (NTA) 
may issue a Taxpayer Assistance Order (TAO) if, in the determination of 
the NTA, the taxpayer is suffering or is about to suffer a significant 
hardship as a result of the manner in which the internal revenue laws 
are being administered by the Internal Revenue Service (IRS), including 
action or inaction on the part of the IRS.'' (Emphasis supplied.) The 
term ``National Taxpayer Advocate'' includes any designee of the 
National Taxpayer Advocate. 26 U.S.C. Sec. 7811(f). The terms of a 
Taxpayer Assistance Order ``may require the Secretary within a 
specified time period-to cease any action, take any action as permitted 
by law, or refrain from taking any action,'' Sec. 781 1(b), and any 
Taxpayer Assistance Order issued by the National Taxpayer Advocate 
under this section may be modified or rescinded--(1) only by the 
National Taxpayer Advocate, the Commissioner of Internal Revenue or the 
Deputy Commissioner of Internal Revenue, and (2) only if a written 
explanation of the reasons for the modification or rescission is 
provided to the National Taxpayer Advocate.'' Sec. 7811(c). ``In cases 
where any Internal Revenue Service employee is not following applicable 
published administrative guidance (including the Internal Revenue 
Manual) [e.g., defying the IRS Litigation Guideline Memorandum 
directing that `structuring' forfeitures of lawfully derived assets be 
credited as tax payments; requiring IRS Criminal Investigations to 
exercise authority only over matters within its jurisdiction], the 
National Taxpayer Advocate shall construe the factors taken into 
account in determining whether to issue a Taxpayer Assistance Order in 
the manner most favorable to the taxpayer.'' Sec. 7811(a)(3).

    The taxpayers in this case have experienced significant hardship in 
three respects, including (B) a delay of more than 30 days in resolving 
taxpayer account problems, (C) the incurring by the taxpayer(s) of 
significant costs (including fees for professional representation) if 
relief is not granted, and (D) a foreseeable possibility of irreparable 
injury to, or a long-term adverse impact on, the taxpayer if relief is 
not granted. Sec. 301.7811-1(a)(4)(ii). It has now been over 16 years 
since the refund claims were fully submitted, over 12 years since the 
Deputy Attorney General requested that they be processed, and over 9 
years since all pertinent legal questions have been resolved in a 
federal court of appeals. See part two of this letter, at infra. 
Plainly, these time periods exceed 30 days. During this very prolonged 
process the United States has forced the taxpayers to incur significant 
costs, which have included the filing of an additional federal lawsuit, 
as to which the government's only response was to contest venue and 
seek exemption from the court's requirement that it state a position on 
the merits. In addition, massive amounts of wasteful legal 
correspondence have been elicited by a bizarre communications loop 
whereby all the taxpayers' counsel's efforts to communicate with 
appropriate decision makers have been re-routed to IRS Criminal 
Investigations, which has responded uniformly that it does not have 
jurisdiction over the matter. At the insistence of House of 
Representatives government oversight personnel the acting director of 
warrants and forfeitures for CID has communicated with the undersigned 
and expressed sympathy, but refused to play any active, constructive 
role in getting the refund claims referred to the correct division of 
the IRS.

    The possibility of irreparable harm has arisen from the history of 
legal rulings in this case coupled with IRS refusal to acknowledge the 
existence of the rulings pointing to tax refunds as the appropriate 
vehicle for the Longs and Blakelys to have their overpayment returned 
to them. Prior to the Sixth Circuit's published decision in Blakely v. 
United States there had been repeated acknowledgments that they should 
be getting money back and there were four possible avenues of redress. 
The Sixth Circuit eliminated three of the four and specified procedures 
to be followed with the fourth. The three eliminated avenues were (1) 
having the consent judgment of forfeiture set aside, which was rejected 
because the existence of tax liability in excess of the judgment at the 
time of the judgment meant it was a valid consent judgment, (2) suing 
the government under the Federal Tort Claims Act or some other 
authorized tort remedy, which was rejected as being precluded by the 
existence of a valid consent judgment, (3) a petition for remission 
addressed to the Department of Justice, which was held to be voluntary 
with DOJ, which declined to grant it but offered to help get the IRS to 
act on tax refunds, and (4) tax refunds amended and filed in accordance 
with the Sixth Circuit's opinion in Blakely.

    In essence the Court of Appeals ruled, you may not get A, B, or C, 
but you are entitled to get D. Deputy Commissioner Brown's letter of 
January 16, 2007, see Part Two, infra, in essence said we have read the 
court's opinion which says you may not get A, B, or C, and furthermore 
the National Taxpayer Advocate has now overruled the Sixth Circuit 
Court of Appeals to say you are not going to get D either. This is not 
lawful because the National Taxpayer Advocate does not have the 
authority to overrule a federal court of appeals. Worse yet, given the 
other three rulings of the Sixth Circuit, there is the possibility of 
the clients being deprived of all their assets through such unlawful 
machinations. This would certainly constitute irreparable harm. The 
National Taxpayer Advocate could, of course, invite the Longs and 
Blakelys to file the same lawsuit again, but what would be the value of 
winning point D again, if the National Taxpayer Advocate could simply 
ignore and overrule the Court of Appeals, inviting the filing of a 
third attempt to get the same result?

PART TWO:    WHY THE JANUARY 16, 2007 LETTER OF DEPUTY COMMISSIONER 
KEVIN M. BROWN HAS BEEN SUPERSEDED BY THE SIXTH CIRCUIT COURT OF 
APPEALS ORDER OF AUGUST 6, 2008 AND MAY HAVE BEEN INAPPOSITE EVEN WHEN 
WRITTEN

    You have explained that the January 16, 2007 letter I received from 
Deputy Commissioner for Services and Enforcement, Kevin M. Brown, needs 
to be taken seriously regardless of its intellectual merit because of 
the position he then held within the IRS. The letter made two points 
that together led to the erroneous conclusion that ``there is no 
further action to be taken by the Internal Revenue Service.'' These 
were (1) ``The forfeiture action . . . has been litigated through 
federal district court and the Court of Appeals and has been decided by 
them,'' and (2) ``In addition the Taxpayer Advocate Service advised you 
in a letter dated September 19, 2006 that Form 843 is not the 
appropriate course of action for disputing the collection of forfeited 
assets.''

    ``The Forfeiture Action,'' Which Was Then an Amalgam of Two 
Different Cases in the Sixth Circuit Court of Appeals--and Now Includes 
Three--Had Two Main Holdings, Each of Which Is Important.

    The two original cases, Blakely v. United States (``Blakely'') and 
United States v. Real Property at 6185 Brandywine Drive (``Brandywine 
Drive'') addressed and resolved two questions. One was whether the 
Consent Judgment of Forfeiture dated September 22, 1992 would be set 
aside under Rule 60(b), Fed. R. Civ. Proc., and the other was if the 
consent judgment is not set aside, what redress is available to 
taxpayers if the consent judgment has resulted in double taxation. 
Brandywine Drive made clear that the consent judgment would not be set 
aside shortly, while Blakely determined that the imprimatur of 
lawfulness established by the consent judgment would preclude tort 
claims against the government, such as those of the Federal Tort Claims 
Act.

    However, both before and after Blakely and Brandywine Drive there 
have been court decisions involving the Longs and Blakelys that have 
pointed toward the need to return money to them. After the government 
pointed toward the Longs' and Blakelys' guilty pleas on currency 
structuring charges to support the assertion that the forfeiture was 
for ``structuring,'' not tax collection, the District Court that had 
sentenced the Longs and Blakelys vacated their currency structuring 
convictions. Previously the Assistant Commissioner in Charge of IRS 
Criminal Investigations and the IRS Litigation Guideline Memorandum had 
made clear that currency structuring forfeitures of lawfully derived 
assets (which everyone agreed these were) could only be used to pay off 
tax liability.

    Finally, in response to the IRS failure and/or refusal to follow 
through on the Deputy Attorney General's request--and especially 
Division Counsel Cronin's admonition of February 17, 2006, ``if your 
clients remain unsatisfied with the outcome, they are free to take any 
additional legal action they deem prudent; until such legal action is 
pursued by the Longs and Blakelys, the IRS has no further action to 
take in this matter''--I filed another Rule 60(b) motion largely for 
the purpose of forcing the government to acknowledge that it had no 
factual basis for the forfeiture apart from its use as a tax collection 
measure. This conclusion had already been reached by the Deputy 
Attorney General and was reflected in Associate Deputy Attorney General 
Catherine O'Neil letter to IRS Criminal Investigations Chief, Nancy 
Jardini, on July 25, 2005, which stated:

        This office has been mindful of the fact that the factual basis 
        for the forfeiture appears to be closely linked with the facts 
        underlying the $5.3 million tax liability of the taxpayers. 
        Counsel for the taxpayers has advised us that he filed a refund 
        claim with the Internal Revenue Service pertaining to that tax 
        assessment on or about April 2, 2002. As you and I have 
        discussed, I am writing to suggest that your office undertake 
        its own review of the facts of the pending refund claim and 
        render a decision.

Once the action generated by the renewed Rule 60(b) motion 
(``Brandywine Drive II'') reached the Sixth Circuit it quickly yielded 
an Order making clear that the government had had no factual basis for 
the forfeiture other than the Longs' and Blakelys' $5.3 million tax 
liability. In response to a motion to supplement the record on appeal a 
panel of three Sixth Circuit judges ruled that Plaintiffs:

        . . . now move to supplement the record on appeal by requiring 
        the government to file with the court a list of structured 
        transactions. No such list was filed in the district court, and 
        that court did not consider a list of structured transactions 
        in ruling on the appellants' motion to vacate. The government 
        opposes the motion to supplement the record. . . . As noted by 
        the court in denying appellants' motion for a limited remand, a 
        list of structured transactions will not assist the court in 
        its consideration of the issue on appeal.

Order of motions panel filed August 6, 2008. (Emphasis supplied.)

    The Order, which was rendered nineteen months after Deputy 
Commissioner Brown's letter of January 16, 2007 and memorializes what 
is in effect a second consent judgment, makes clear that the factual 
basis for the forfeiture had never been a list of structured 
transactions that would make those assets forfeitable independently of 
their being used to pay off a tax liability. The government again 
refused to provide any list, thus confirming what Associate Deputy 
Attorney General O'Neil had told Chief of Criminal Investigations, 
Nancy Jardini, that the forfeiture had been transacted to pay off most 
of the $5.3 million tax liability.

    After the August 6, 2008 Order it becomes easy to address Deputy 
Commissioner Brown's other point about tax refunds not being ``the 
appropriate course of action for disputing the collection of forfeited 
assets.'' The answer is that the Longs and Blakelys are not now 
``disputing the collection of forfeited assets.'' Rather, the point is 
that now that everyone has agreed the forfeited assets could lawfully 
be collected but only for the purpose of paying off tax liability, the 
IRS decision to collect the same taxes, interest and penalties a second 
time several months later--seemingly forgetting that they had already 
collected them through the Consent Judgment of Forfeiture--had resulted 
in double taxation, for which refunds are now owed.\1\
---------------------------------------------------------------------------
    \1\ If Deputy Commissioner Brown on January 19, 2007 was trying to 
argue that tax refund claims are not the appropriate vehicle for 
remedying double taxation caused by IRS confusion over the factual 
basis of a forfeiture, then he is wrong in this case for three reasons: 
(1) Stare decisis from the Sixth Circuit Court of Appeals decisions in 
Blakely and Brandywine II, (2) the fact that at the time of the 
transaction, the Longs' and Blakelys' consent to forfeit the assets was 
elicited by promising them that the assets would be credited as tax 
payments, and (3) for three different reasons--one in place at the time 
of the consent judgment of forfeiture, a second made clear by Associate 
Deputy Attorney General Catherine O'Neil's review, and a third stated 
outright in an Order from the Sixth Circuit Court of Appeals dated 
August 6, 2008--the only way that the IRS could lawfully forfeit the 
assets was as a tax collection measure.
    All three of these have been communicated to you previously. Since 
you have urged me not to repeat myself, I will simply cite you to the 
pertinent passages, which in turn cite to the primary documents that 
were sent to you in the same transmission. Nearly all evidence is 
discussed in Sections I. A, I. B, and II (pages 1-9) of my letter to 
you dated December 20, 2017 and captioned, ``Outline and History of 
Legal Arguments and Rulings Establishing Taxpayers' Right to Refunds.'' 
This should be found in your email of that date with the caption, 
``DCTA 2.'' The ``APX'' citations in that letter refer to the 
compendium in documents sent to you in five parts, labeled ``Part One, 
Part Two,'' etc. Most are found in the first three parts. All five 
parts use the same consecutive numbering.

The Taxpayer Assistance Order that is Now Being Sought Asks for Nothing 
More than IRS Compliance with Jurisdictional Determinations that It Has 
---------------------------------------------------------------------------
Already Made.

    In response to the July 25, 2005 request of Associate Deputy 
Attorney General Catherine O' Neil, IRS Criminal Investigations Chief 
Nancy Jardini ordered a review of the matter. At the conclusion of the 
review she wrote to me, ``we have concluded that the Internal Revenue 
Service-Criminal Investigations (CI) does not have jurisdiction with 
regard to these [tax refund] claims.'' (APX 86). Although technically 
correct in this, Jardini did not take the next step and pass the refund 
claims along to the Small Business and Self-Employed Division, which 
did have jurisdiction over them. Deputy Commissioner Kevin M. Brown 
oversaw the Criminal Investigations Division and would have been the 
appropriate Deputy Commissioner to exercise jurisdiction over the 
refund claims if the claims had lawfully been within the purview of IRS 
Criminal Investigations. However, according to both the chief of CID 
and several attorneys representing CID, including Division Counsel 
Edward F. Cronin, Criminal Investigations did not have such 
jurisdiction--which probably means that any authoritative determination 
on behalf of the IRS should have been made by the Commissioner of the 
IRS or the Commissioner/Deputy Commissioner in charge of the Small 
Business/Self-Employed Division. The requested Taxpayer Assistance 
Order seeks to remedy this jurisdictional failing.

            Yours truly,

            Jeffrey M. Blum

                                 ______
                                 
                        Center for Fiscal Equity

                      14448 Parkvale Road, Suite 6

                          Rockville, MD 20853

                      [email protected]

                    Statement of Michael G. Bindner

Chairman Portman and Ranking Member Warner, thank you for the 
opportunity to submit these comments for the record to the Taxation and 
IRS Oversight Subcommittee. Recent tax legislation has not met the 
Center's policy goals, nor America's, nor the goals of other advocates 
with similar proposals, for example the advocates of the FairTax, who 
were disappointedly silent in the last round of debate. While recent 
legislation will likely help, radical change is needed to really help 
the average family.

As you may know, we did raise our voices and will continue to, as the 
recent law will still have all of the flaws of the prior system as well 
as the asset inflation that would have made another Great Recession 
inevitable were not for the new biennial spending targets and 
appropriations, including much needed help for the IRS. Still, we 
withdraw none of our proposals. Therefore, as usual, we will preface 
our comments with our comprehensive four-part approach, which will 
provide context for our comments.

      A Value-Added Tax (VAT) to fund domestic military spending and 
domestic discretionary spending with a rate between 10% and 13%, which 
makes sure very American pays something.

      Personal income surtaxes on joint and widowed filers with net 
annual incomes of $100,000 and single filers earning $50,000 per year 
to fund net interest payments, debt retirement and overseas and 
strategic military spending and other international spending, with 
graduated rates between 5% and 25%.

      Employee contributions to Old-Age and Survivors Insurance (OASI) 
with a lower income cap, which allows for lower payment levels to 
wealthier retirees without making bend points more progressive.

      A VAT-like Net Business Receipts Tax (NBRT), which is 
essentially a subtraction VAT with additional tax expenditures for 
family support, health care and the private delivery of governmental 
services, to fund entitlement spending and replace income tax filing 
for most people (including people who file without paying), the 
corporate income tax, business tax filing through individual income 
taxes and the employer contribution to OASI, all payroll taxes for 
hospital insurance, disability insurance, unemployment insurance and 
survivors under age 60.

The collection of the Employee Contribution to Social Security will be 
exactly as it is now. Like proposals for a FairTax, the Value-Added Tax 
and NBRT/Subtraction VAT will be collected by the states. If the basic 
structure of reform is adopted in the states, the biggest change will 
be the need for a common base between federal and state consumption 
taxes.

Shifting from retail sales taxes and gross receipts taxes to value 
added taxes and VAT-like net business receipts taxes will change the 
nature of most state taxation, while enabling ease of collection of 
taxes on online sales, since taxes would be levied at every stage of 
the production process. The IRS will assist states in this process, 
which will likely take the form of some federal-state compact 
commission to draft and approve the transitional rules.

If a common base agreement can be negotiated for these taxes, state 
treasurers can collect both their own taxes and the federal taxes, as 
well as analytical information on tax credit usage, which can then be 
shared with the U.S. Internal Revenue Service in order to track income 
accruing to payers of the federal high income surtax, as well as to 
recipients of the federal child tax credit, which would be paid to 
employees with wages under the NBRT and then verified by a mailing from 
both the employer and the Internal Revenue Service, with employees 
verifying that their employees paid every dollar to them reported as a 
credit. There will likely be problems to resolve in our proposed 
system, where the states collect the Value-Added Tax and the Net 
Business Receipts Tax and forward the money and records to the Internal 
Revenue Service. This will not impact most taxpayers, since once they 
have bought a product, no further action is necessary.

The IRS will likely supplement state-based auditing with reviews of 
their own, but this is a small price to pay for a reform that will 
reduce the income tax payment and audit workload by at least 80%. 
Indeed, income tax simplification (through the elimination of all but a 
few deductions), will further eliminate the workload generated by 
remaining income tax payers.

Employees with children will need to annually verify the information 
provided by employers and, if they received less than was reported to 
the government, notify the IRS who will send a refund and collect the 
difference from the employer. This may trigger a dispute, but likely 
most employers will simply pay if there was an error. Fraud is another 
matter, which is criminal not a dispute to be settled. Other disputes 
may involve parents double dipping on two jobs or two earners, but 
these will likely work out a payment plan or contact their divorce 
lawyers to negotiate who pays.

Whenever an employee or an heir is paid interest, a dividend, a capital 
gain or an heir sells an inherited asset, information will be 
transmitted to the IRS, as well as sales to a qualified Employee Stock 
Ownership Program (untaxed) and aggregated by Social Security Number. 
Verification will be accomplished to make sure that tax avoidance does 
not occur through use of multiple SSNs.

Another option is to charge value-added taxes on any capital gain at 
sale, with losses taxed at the average VAT payment of the last two 
sales. In this case, the NBRT of Lawrence B. Lindsey could be used to 
tax dividends paid and excess salaries paid at a higher rate, this 
making all income tax collection unnecessary.

If income taxes are retained, individuals making over $50,000 per year 
and joint filers making over $100,000 will have their information 
stored to compare to tax filings, unless the Congress authorizes an 
automatic filing system where all income surtax payers will receive 
notification when all data should have arrived and what their refund or 
payment will be once they correct the information or certify it is 
correct already. Banking information should be on file, so 
authorization for payment, either at once or installments should be 
easy.

Very little IRS administration will be required to do this. Indeed, 
data management and mailing could be contracted out. All IRS employees 
could fit in a bathtub with room for Grover Norquist.

Thank you for the opportunity to address the committee. We are, of 
course, available for direct testimony or to answer questions by 
members and staff.

                                 ______
                                 
                  Statement Submitted by David H. Lacy
The so-called Internal Revenue Service does not provide a reasonable 
SERVICE for the individual tax payer to directly submit electronic tax 
returns to the IRS as are paper returns. The IRS has enabled private 
industry to create a monopoly for electronic tax returns rather than 
provide an invaluable service to the ones that pay the taxes in the 
first place.

For years, individual tax payers prepared paper tax returns on IRS 
provided forms without the use of third parties. We, the tax payers, 
should be provided with the same option to electronically prepare and 
transmit tax returns to the IRS without the services of a third party. 
The IRS operates the EFTPS website for taxpayers to make electronic 
payments to the IRS. Internet passwords and PINs are issued by the IRS 
to allow secure electronic payments. Surely, if secure electronic 
payments can be made to the IRS, then the IRS should be able to receive 
individual electronic tax returns.

The IRS should provide electronic forms that include the math 
calculations and electronic integration of Schedules (A, B, C, D, etc.) 
with Form 1040, specifically for individual taxpayers. I used a Lous 1-
2-3 spreadsheet of the IRS Form 1040 in the 1980s to prepare my paper 
tax return. I was able to update the spreadsheet each year based on 
changes to the IRS tax code.

In recent years, I have been using an Excel spreadsheet available from 
an Internet website to prepare my tax return. This site provides free 
Excel formatted forms (Schedules A, B, C, D, etc.) which are 
electronically integrated with the IRS Form 1040, providing highly 
accurate calculations and returns. An Excel file can be configured in a 
PDF form that could be submitted electronically to the IRS.

However, I must now print the return and mail it to the IRS. What a 
waste of paper and time! I'm sure there are many more individuals like 
myself. If one individual can provide this service free, surely the IRS 
with its vast resources could provide such a service. After all, the 
IRS is an organization to serve the people. However, it appears that 
the IRS is more interested in supporting business that sells tax 
preparation software and preparation services rather than directly 
supporting the individual tax payer.

Without such, I will continue to file paper returns of the electronic 
generated returns. As a taxpayer, I am deeply concerned that the IRS is 
pandering to private industry rather than serving individual taxpayers.

                                  [all]