Hearing on IRS Assistance for Taxpayers Experiencing Economic Difficulties

Thursday, February 26, 2009 - 10:00am

[House Hearing, 111 Congress]

[From the U.S. Government Printing Office]





                      IRS ASSISTANCE TO TAXPAYERS







                               before the


                       SUBCOMMITTEE ON OVERSIGHT


                                 of the


                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES




                             FIRST SESSION




                           FEBRUARY 26, 2009




                            Serial No. 111-2




         Printed for the use of the Committee on Ways and Means






50-225                    WASHINGTON : 2009


For sale by the Superintendent of Documents, U.S. Government Printing

Office  Internet: bookstore.gov Phone: toll free (866) 512-1800; DC area

(202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC



                      COMMITTEE ON WAYS AND MEANS


                         OVERSIGHT SUBCOMMITTEE


                     JOHN LEWIS, Georgia, Chairman



RON KIND, Wisconsin                  Louisiana, Ranking Member

BILL PASCRELL, JR., New Jersey       DAVID G. REICHERT, Washington

JOHN B. LARSON, Connecticut          PETER J. ROSKAM, Illinois

ARTUR DAVIS, Alabama                 PAUL RYAN, Wisconsin

DANNY K. DAVIS, Illinois             JOHN LINDER, Georgia

BOB ETHERIDGE, North Carolina



             Janice Mays, Chief Counsel and Staff Director


                   Jon Traub, Minority Staff Director


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public

hearing records of the Committee on Ways and Means are also published

in electronic form. The printed hearing record remains the official

version. Because electronic submissions are used to prepare both

printed and electronic versions of the hearing record, the process of

converting between various electronic formats may introduce

unintentional errors or omissions. Such occurrences are inherent in the

current publication process and should diminish as the process is

further refined.


                            C O N T E N T S







Linda E. Stiff, Deputy Commissioner for Services and Enforcement,

  Internal Revenue Service.......................................     5

Nina E. Olson, National Taxpayer Advocate, Internal Revenue

  Service........................................................    17


                       SUBMISSIONS FOR THE RECORD


Howard S. Levy, Statement........................................    63

Moira Souza Shiver, Statement....................................    64

National Treasury Employees Union, Statement.....................    67

Santa Barbara Bank and Trust, Letter.............................    69



                      IRS ASSISTANCE TO TAXPAYERS






                      THURSDAY, FEBRUARY 26, 2009


U.S. House of Representatives,

Committee on Ways and Means,

Subcommittee on Oversight,

Washington, DC.


    The Subcommittee met, pursuant to notice, at 10:07 a.m. in

room 1100, Longworth House Office Building, the Honorable John

Lewis, [Chairman of the subcommittee], presiding.

    [The advisory announcing the hearing follows:]







                       SUBCOMMITTEE ON OVERSIGHT


                                                CONTACT: (202) 225-5522


February 19, 2009



Lewis Announces a Hearing on IRS Assistance for Taxpayers Experiencing

                         Economic Difficulties


    House Ways and Means Oversight Subcommittee Chairman John Lewis (D-

GA) today announced that the Subcommittee on Oversight will hold a

hearing on assistance available from the Internal Revenue Service (IRS)

to taxpayers experiencing economic difficulties. The hearing will take

place on Thursday, February 26, 2009, at 10:00 a.m. in the main

Committee hearing room, 1100 Longworth House Office Building.


    In view of the limited time available to hear witnesses, oral

testimony at this hearing will be from invited witnesses only. The

National Taxpayer Advocate, Nina E. Olson, and the IRS Deputy

Commissioner for Services and Enforcement, Linda E. Stiff, have been

invited to testify. Any individual or organization not scheduled for an

oral appearance may submit a written statement for consideration by the

Subcommittee and for inclusion in the printed record of the hearing.





      During this recession, taxpayers are experiencing financial

difficulties. In 2008, there were 3.4 million foreclosure filings and

2.6 million job losses. Many taxpayers are struggling to meet their

daily living expenses as they face a wide range of financial and

personal issues, which may make it difficult to meet their tax



    On January 6, 2009, the IRS kicked off the 2009 filing season with

an announcement of steps taken to help financially distressed

taxpayers. The IRS announced that its employees have greater

flexibility to assist struggling taxpayers and may be able to adjust

payments for back taxes, expedite levy releases, or postpone

collections. Further, the IRS encouraged taxpayers to take advantage of

new and existing credits (such as the first-time homebuyer credit and

the earned income tax credit), deductions (such as the standard

deduction for real estate taxes), and electronic filing options (such

as Free File Fillable Tax Forms) to maximize and expedite refunds.


    The National Taxpayer Advocate, an independent official appointed

to address taxpayer problems (established in Public Law 104-168),

indicates that more action may be warranted to address the problems of

struggling taxpayers. The Taxpayer Advocate's most recent report to

Congress focused on the challenges to taxpayers and tax administration

during the economic downturn. The report recommended that the IRS

change some of its collection practices in order to avoid exacerbating

the financial distress of taxpayers. The Taxpayer Advocate noted that

the IRS is underutilizing collection alternatives, particularly offers

in compromise and partial pay installment agreements, and IRS employees

need more guidance on how to identify and help distressed taxpayers.


    The Subcommittee will discuss the specific problems encountered by

taxpayers during this recession. The Subcommittee will review the steps

taken by the IRS to assist struggling taxpayers and consider

recommendations of the National Taxpayer Advocate.


    In announcing the hearing, Chairman Lewis said, ``Americans are

suffering during these difficult economic times. They are trying to do

the right thing and pay their taxes, but they may be unable. We need to

understand their problems. They need to reach out to the IRS for

assistance. Together, we must find ways to collect the proper amount of

taxes owed in a manner that is fair and recognizes the problems that

taxpayers are facing during this recession.''






    Please Note: Any person(s) and/or organization(s) wishing to submit

for the hearing record must follow the appropriate link on the hearing

page of the Committee website and complete the informational forms.

From the Committee homepage, https://waysandmeans.house.gov, select

``Committee Hearings''. Select the hearing for which you would like to

submit, and click on the link entitled, ``Click here to provide a

submission for the record.'' Once you have followed the online

instructions, complete all informational forms and click ``submit'' on

the final page. ATTACH your submission as a Word or WordPerfect

document, in compliance with the formatting requirements listed below,

by close of business Thursday, March 12, 2009. Finally, please note

that due to the change in House mail policy, the U.S. Capitol Police

will refuse sealed-package deliveries to all House Office Buildings.

For questions, or if you encounter technical problems, please call

(202) 225-1721.





      The Committee relies on electronic submissions for printing the

official hearing record. As always, submissions will be included in the

record according to the discretion of the Committee. The Committee will

not alter the content of your submission, but we reserve the right to

format it according to our guidelines. Any submission provided to the

Committee by a witness, any supplementary materials submitted for the

printed record, and any written comments in response to a request for

written comments must conform to the guidelines listed below. Any

submission or supplementary item not in compliance with these

guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.


    1. All submissions and supplementary materials must be provided in

Word or WordPerfect format and MUST NOT exceed a total of 10 pages,

including attachments. Witnesses and submitters are advised that the

Committee relies on electronic submissions for printing the official

hearing record.


    2. Copies of whole documents submitted as exhibit material will not

be accepted for printing. Instead, exhibit material should be

referenced and quoted or paraphrased. All exhibit material not meeting

these specifications will be maintained in the Committee files for

review and use by the Committee.


    3. All submissions must include a list of all clients, persons,

and/or organizations on whose behalf the witness appears. A

supplemental sheet must accompany each submission listing the name,

company, address, telephone, and fax numbers of each witness.


    The Committee seeks to make its facilities accessible to persons

with disabilities. If you are in need of special accommodations, please

call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four

business days notice is requested). Questions with regard to special

accommodation needs in general (including availability of Committee

materials in alternative formats) may be directed to the Committee as

noted above.


    Note: All Committee advisories and news releases are available on

the World Wide Web at https://waysandmeans.house.gov.




    Chairman LEWIS. Good morning. The hearing is now called to

order, the hearing of the oversight Committee.


    People all over the country are ready. A record number of

people, our friends, our family and our neighbors are losing

their jobs, losing their homes, and getting in line at food

banks. People are suffering. These are hard-working people with

families who for the first time in their lives are struggling

to stay afloat while their debts increase. We must reach out to

help them.


    Today, the Ways and Means Subcommittee on Oversight will

discuss what the Internal Revenue Service can do for taxpayers

in need. We want people to know that there is help and help

must be on the way. We need to tell people that they can get

free help to prepare their tax returns during the following

season. We want to tell them how to get their refund faster,

especially if there is an emergency. We want them to know what

steps to take if they owe taxes, and want to pay but cannot. In

summary, we want to see the gentler and sweet side of the IRS.


    And I am grateful to our witness for appearing today. We

look forward to you being here and your testimony. As always,

we ask you tell us how the Congress can help you during this

following season and beyond. And I call on the Ranking Member,

Mr. Boustany for his opening statement.


    Mr. BOUSTANY. Thank you, Mr. Chairman, and I thank you for

holding this hearing, and I welcome both of our witnesses.


    I think this will be a very productive hearing. With so

many new Members of this Subcommittee, it is prudent to start

the congress with a hearing that will focus on the operations

of the internal revenue service. As Members of the Ways and

Means Committee, we are asked to consider legislation that

changes the Tax Code and affects millions of Americans. As

such, we also need to be cognizant of the IRS' role, and if

they have the resources to administer and enforce those laws.


    We all met, I think, 2 weeks ago, with the Commissioner,

and he discussed building a world class organization dedicated

to taxpayer service while prudently enforcing the law. Their

mission now includes meeting the substantial challenge of a

recession with millions of taxpayers losing their jobs,

resulting in financial hardship that is making it difficult for

them to fulfill their tax obligations.


    The IRS is trying to help the taxpayers navigate the

options available and in doing so, of course, with some

additional resources we recently provided. But at the same time

this is coming up along with the new tax filing season. So I

believe this hearing will deepen our understanding of the IRS's

taxpayer services, their use of enforcement tools, which is

essential knowledge for all Members of this Subcommittee, and

more, it will allow us to explore what more can be done for

financially distressed taxpayers.


    One final note, Mr. Chairman, as a follow-up to yesterday's

Full Committee hearing: I wanted to offer my full support for

protecting the jurisdiction of the Ways and Means Committee. I

know as we look at all these issues, and there will be multiple

Committees working on some of these, our side is offering full

support to you and to the Chairman of the Full Committee, and I

would be glad to work with you if the opportunity arises to use

this subcommittee to assert our jurisdiction and to work with

you and the chairman.


    Chairman LEWIS. Well, thank you very much. I know the chair

of the Full Committee and all the Members would appreciate your

support and we all look forward to working together.

    Mr. BOUSTANY. Thank you, Mr. Chairman.


    And, finally, before I yield back my time, I want to

acknowledge Chris Giosa, who is leading our side, as a very

dedicated and hardworking staffer. He's the Staff Director of

this Subcommittee. Chris, we want to thank you for all your

great work, and we wish you all the best in your new role in

working with our partner, the IRS, and so while we're losing a

very valuable staffer here and someone who's very knowledgeable

in this issues, we feel that we'll have a partner working in

the executive branch. So, Chris, we offer our deep and sincere

thanks to you.


    Mr. Chairman, I yield back.


    Chairman LEWIS. Mr. Ranking Member, I want to join you in

wishing Chris the best and thank him for his wonderful years of

service. And we wish you well in the days to come. Thank you so



    Now we're going to hear from our witnesses. I ask that you

limit your testimony to 5 minutes. Without objection your

entire statement will be included in the record. And now here's

my great pleasure to introduce the IRS Deputy Commissioner

Linda Stiff and welcome.





    Ms. STIFF. Thank you. Chairman Lewis, Ranking Member

Boustany and Members of the Subcommittee, I appreciate the

opportunity to discuss how the IRS is assisting economically

distressed taxpayers during this period of great need. This

country is currently experiencing an economic crisis unlike any

we have seen in our lifetime.


    Every day we see the fall out with families, friends and

neighbors struggling to hold on to jobs and homes and provide

their families with basic necessities. The IRS' effort to

assist taxpayers during these difficult times are confirmation

of part of our core mission which is to assist taxpayers in

every way possible to meet their obligations. Therefore, the

IRS has taken deliberate and focused actions to provide

tangible relief to taxpayers in distress, while also helping

others from straying across the line into non-compliance.


    Let me briefly describe some of those actions. America's

low income taxpayers have been particularly hard-hit by

financial hardship. Many of these working families may be

eligible for the earned income tax credit, which can put money

in their pockets. The IRS has an aggressive outreach program to

promote greater community awareness of this refundable credit

for low-wage taxpayers. This outreach program includes a

specific day each year devoted to press events, promoting and

explaining the earned income tax credit.


    I want to thank all of the Committee Members for your

support in this effort, especially Chairman Lewis for your

recent help and participation in an event publicizing the EITC

as well as for the time you took to share the law with the IRS

family. This year on January 30th more than 80 partners from

across the country conducted news conferences and over a

hundred more issued press releases on EITC awareness day. Our

efforts to make taxpayers aware of the EITC continue throughout

the year. We send marketing materials to our community partners

to distribute. We include information in English and Spanish on

our website, on IRS dot gov, and by a number of media



    There are also more than 12,000 free tax preparation sites

for low income individuals, seniors, and other eligible

taxpayers around the country. When taxpayers visit one of these

sites, our volunteers can also check to see if they are

potentially eligible, not just for the EITC, but for other

credits, deductions and exclusions, such as the child tax



    We also understand that taxpayer service can only go so far

in assisting millions of distressed taxpayers. This year, many

taxpayers will owe money to the IRS and face difficulties

paying those amounts. Accordingly, we have given our frontline,

collection personnel more flexibility to work through these

issues with taxpayers with a particular focus on previously

compliant taxpayers, who may find themselves for the first time

unable to meet the obligation to pay their Federal taxes.


    Depending on their circumstances, these taxpayers may be

able to adjust payments for back taxes, avoid defaulting on

payment agreements, or possibly defer collection action. We

have reminded our frontline employees about offering

installment agreements at the end of an audit for taxpayers,

enabling them to minimize interest and penalty charges. Another

good example involves the offer-in-compromise program, which

oftentimes is impacted by today's battered real estates market.


    For individual taxpayers, we have responded quickly by

expediting the process and creating flexibilities for people

trying to sell or refinance a home. The bottom line is that the

IRS should not be the reason someone can't get out of a real

estate jam. We have centralized our process to review home

equity values in the volatile market, especially in the offer

in compromise situations.


    We urge all taxpayers to visit our website, IRS dot gov,

the fastest way to give information from the IRS or get

questions answered. This year we even added what we call ``what

if'' scenarios to our website. The ``what if'' scenarios allow

taxpayers to go through what if A, what if B, to deal with

payment and other financial problems.


    I would also like to put one issue on the Subcommittee's

radar screen: the recently enacted stimulus bill includes a

number of refundable credits. We hope taxpayers will take

advantage of these. We also recognize that such credits create

the potential for abuse. We will watch them closely and report

back to you if we see a problem.


    Thank you again, Mr. Chairman, for the opportunity to

testify. The IRS is committed to assist America's taxpayers in

any way it can. You have my commitment and that of Commissioner

Shulman to work closely with you as we move forward.


    Thank you.


    [The statement of Ms. Stiff follows:]


    [GRAPHIC] [TIFF OMITTED] 50225A.001


    [GRAPHIC] [TIFF OMITTED] 50225A.002


    [GRAPHIC] [TIFF OMITTED] 50225A.003


    [GRAPHIC] [TIFF OMITTED] 50225A.004


    [GRAPHIC] [TIFF OMITTED] 50225A.005


    [GRAPHIC] [TIFF OMITTED] 50225A.006


    [GRAPHIC] [TIFF OMITTED] 50225A.007


    [GRAPHIC] [TIFF OMITTED] 50225A.008


    [GRAPHIC] [TIFF OMITTED] 50225A.009


    [GRAPHIC] [TIFF OMITTED] 50225A.010





    Chairman LEWIS. Well, thank you very much, Ms. Stiff. Your

testimony and we would look forward to ongoing relationship and

continue to work with you.


    Now it is my pleasure to introduce the national taxpayer

advocate, Ms. Nina Olson.


                  STATEMENT OF NINA E. OLSON,



    Ms. OLSON. Thank you, Mr. Chairman, Ranking Member

Boustany, and Members of the Subcommittee.


    Thank you for inviting me to testify today about the

challenges facing financially struggling taxpayers. The IRS

itself faces a difficult challenge in trying to balance its

mission of collecting tax revenue with the fair and

compassionate treatment of taxpayers who for whatever reason

are unable to pay their tax bills. The nature of this challenge

is no different in a recession, but the number of affected

taxpayers is obviously much greater.


    The IRS has many tools available to help these taxpayers

and it is now more important than ever that it use these tools

appropriately and compassionately. The general premise under

which the IRS operates is that taxpayers should pay the full

amount of the tax liabilities they owe, but there are times

when taxpayers experience financial difficulties and can't

reasonably pay their tax liabilities in full. This may happen

if a taxpayer has lost a job, become disabled, or experiences

some other financial setback. When this happens, the IRS' goal

should be to collect as much of the tax as possible without

imposing an undue financial burden on the taxpayer or the

taxpayer's family.


    IRS methods for establishing the priority of collection

cases has traditionally placed primary emphasis on those cases

with the greatest total dollar amounts of tax debts. As a

result, many collection accounts do not receive adequate

attention until penalties and interest equal or exceed the

underlying tax due and the total tax bill is so large the

taxpayer can't ever fully pay. This situation occurs against a

backdrop of what I would characterize as an institutional

aversion to any collection method that results in collection of

less than a hundred percent of the tax the IRS believes is



    Consider the following. At the end of fiscal year 2008

there were more than 2.6 million taxpayers with delinquent

accounts or accounts reported not collectible because the

taxpayer had no current means to pay the tax liability. In that

same fiscal year, the IRS accepted only 10,677 offers in

compromise and entered into 22,000 partial payment installment

agreements. In other words, combined, one out of every 78

taxpayers with a delinquent account was granted one of these

collection alternatives. It is clearly not the case that 77 out

of every 78 taxpayers with delinquent accounts were unwilling

to deal with the IRS. Rather, despite explicit congressional

support for collection alternatives, the IRS has made these

options too inaccessible for taxpayers to obtain.


    I am also concerned the IRS does not proactively identify

taxpayers who may be experiencing economic hardship. Today, for

example, the IRS automatically levies 15 percent of the monthly

Social Security benefits of taxpayers who owe Federal taxes

without any screen for low income tax payers or others who

might be harmed as a result of the levy. This year, my research

function developed a model for identifying these taxpayers. Our

study showed that over one-third of taxpayers subject to an

ongoing Social Security levy would likely be classified as

unable to pay based on current IRS allowable expense

guidelines, and that more than one quarter of these taxpayers

had incomes at or below poverty levels.


    To minimize harm to economically distressed taxpayers and

improve collection processes, I recommend that the IRS allocate

resources to provide earlier intervention on delinquent

accounts, make collection alternatives more accessible to

appropriate taxpayers, and implement a hardship screen for

Social Security levies. I also recommend that congress increase

the authorization for low income tax payer clinic funding to

$12 million and explicitly authorize the IRS to refer taxpayers

to IRS-funded clinics, so that in these difficult times low

income tax payers can obtain assistance in tax disputes.


    Another important issue: taxpayers whose lender forgives

their obligation to pay all or some of a debt may face serious

tax consequences, since the Tax Code requires them to include

the amount of debt forgiveness in gross income. There are

exceptions to this cancelation of this debt income rule,

including when the taxpayer is insolvent or the debt relates to

certain home mortgages. But the terms of these exclusions are

complex. Few taxpayers know what the word ``insolvent'' means,

and taxpayers use their home mortgage proceeds for purposes

other than buying or improving their homes; for example, to

consolidated credit card debt or pay education expenses are not

eligible for the recently enacted home indebtedness exclusion.


    To reduce burden these rules impose on financially

struggling taxpayers I recommend that congress consider adding

an exclusion in sections 108(a) of the Code, which provides

that taxpayers are not required to include canceled debts in

gross income if the total amount of the canceled debts from all

sources during the year falls below a specified threshold and

we no longer require these taxpayers to file a very complex

form 982.


    I appreciate your interest in these issues, and I would be

pleased to answer any questions you may have.


    [The statement of Ms. Olson follows:]


    [GRAPHIC] [TIFF OMITTED] 50225A.011


    [GRAPHIC] [TIFF OMITTED] 50225A.012


    [GRAPHIC] [TIFF OMITTED] 50225A.013


    [GRAPHIC] [TIFF OMITTED] 50225A.014


    [GRAPHIC] [TIFF OMITTED] 50225A.015


    [GRAPHIC] [TIFF OMITTED] 50225A.016


    [GRAPHIC] [TIFF OMITTED] 50225A.017


    [GRAPHIC] [TIFF OMITTED] 50225A.018


    [GRAPHIC] [TIFF OMITTED] 50225A.019


    [GRAPHIC] [TIFF OMITTED] 50225A.020


    [GRAPHIC] [TIFF OMITTED] 50225A.021


    [GRAPHIC] [TIFF OMITTED] 50225A.022


    [GRAPHIC] [TIFF OMITTED] 50225A.023


    [GRAPHIC] [TIFF OMITTED] 50225A.024


    [GRAPHIC] [TIFF OMITTED] 50225A.025


    [GRAPHIC] [TIFF OMITTED] 50225A.026


    [GRAPHIC] [TIFF OMITTED] 50225A.027


    [GRAPHIC] [TIFF OMITTED] 50225A.028


    [GRAPHIC] [TIFF OMITTED] 50225A.029


    [GRAPHIC] [TIFF OMITTED] 50225A.030


    [GRAPHIC] [TIFF OMITTED] 50225A.031


    [GRAPHIC] [TIFF OMITTED] 50225A.032


    [GRAPHIC] [TIFF OMITTED] 50225A.033


    [GRAPHIC] [TIFF OMITTED] 50225A.034


    [GRAPHIC] [TIFF OMITTED] 50225A.035


    [GRAPHIC] [TIFF OMITTED] 50225A.036


    [GRAPHIC] [TIFF OMITTED] 50225A.037





    Chairman LEWIS. Ms. Olson, thank you again for being here

and thank you for your testimony.


    At this time I will open the hearing for questions. I ask

that each Member follow the 5-minutes rule. If the witnesses

will respond with short answers, all Members should have the

time to ask question.


    I would like to remind Members that the Subcommittee will

follow the Gibbons rule for questions. Members who were here

before the gavel will be recognized in seniority order. Members

arriving after the gavel are recognized by the time of arrival.

Since we have so many new Members, I felt it was necessary to

state that just to be reminded.


    Madam Deputy Director, the IRS has given its employees

greater flexibility to deal with taxpayers while struggling to

pay what they owe them. Have privates debt collectors also been

given more flexibility to help taxpayers?


    Ms. STIFF. So we've taken a number of steps to increase the

ability of our employees to resolve issues with taxpayers with

minimal amounts of documentation or burden on those taxpayers

in making the decision on how to handle those accounts. And the

PCAs, the cases they get, those authorities that we've given to

our people generally won't be necessary in the situation of the

PCAs, because by definition the private debt collectors are

working cases where the taxpayers can either full pay or they

choose to enter into an installment agreement. And, anything

beyond that, the case comes back to the IRS and the

flexibilities would be applied there.


    Chairman LEWIS. I thank you, Ms. Stiff.

    Ms. Olson, why is it so important for taxpayers to deal

directly with the IRS and not private collection agency when

trying to pay their taxes?


    Ms. OLSON. Well, as Ms. Stiff said, the private collection

agency employees don't have the ability to place taxpayers into

currently not collectible status to process an offer in

compromise, to really make any decision that requires the

exercise of judgment and discretion. Our screens on these cases

aren't sophisticated enough to pick-up taxpayers in those

circumstances, so many of the taxpayers that the private

collections agencies get have to be referred back to the IRS

for processing. It's a duplication of effort.


    Chairman LEWIS. Let me now yield to the Ranking Member for

question, Mr. Boustany.


    Mr. BOUSTANY. Thank you, Mr. Chairman.

    Deputy Commissioner Stiff, the taxpayer advocate sites data

in her written testimony that valid offers and compromises have

fallen and that her analysis suggests more valid offers were

deterred rather than frivolous ones. Do you concur with that



    Ms. OLSON. I know that the data would say that there's a

fewer number of offers coming into the agency today, and I

guess the position I'd like to take on that, and I spent a lot

of time thinking about this over the weekend, because over the

past four to 5 years I think Nina and the IRS have spoken

numerous times to Members of this body and other Members of the

Congress on the offer in compromise program. We've taken

extraordinary steps and measures to improve it. Nevertheless, I

think the most important fact that I focus on is the fact that

last year roughly 50,000 taxpayers came in and requested to be

a part of the offer in compromise process.


    I think that suggests that there's a disconnect between

what's available to taxpayers and what they're availing

themselves of, so I've asked our staff last night. I said I

think it's appropriate that we're going to bring in a third

party to do an assessment of how we're doing our work to help

us figure out where we may be putting impediments or barriers

that we're not even recognizing. And, more importantly, I want

to bring in a third party who can help us determine, who are.

That's what they do for a living is determine how to reach a

customer base or a taxpayer's base and figure out how we can

improve our communications, how we can improve what we're doing

at each step so that an offer in compromise becomes a viable

collection tool, not just for IRS employees, but in the minds

of taxpayers and preparers.


    So I think what I'd like to say here today is that we've

been talking about this for a long time and I think it's time

now to take another step and bring in some outside expertise to

help us expand and see if we can't let the American public see

the offers in compromise are a viable option in the appropriate



    Mr. BOUSTANY. Thank you, and Ms. Olson in your testimony

you discussed your research on the affect of the 2006

legislation which required taxpayers making an offer to make a

downpayment of 20 percent of the offered amount. As a result,

the number of offers fell 21 percent based on your testimony. I

see that the receipt from offers also fell by roughly the same



    The Joint Committee on Taxation estimated that this

legislation would raise 160 million in the first fiscal year

after its enactment. Were there some other actions or events

that could have contributed to this decline in offers, or was

the fall caused solely by the legislation?


    Ms. OLSON. I actually think that that fall was caused by

the legislation. If you look at the table we have in our

testimony, the number of accepted offers between 2000 and 2008

fell by 72 percent. And the first fall was attributable to what

I believe are the IRS' burdensome procedures. Then we imposed a

user fee and then this 20 percent down requirement came in. And

we did a study that found that the taxpayers who submitted good

offers--offers that were accepted right before the legislation

was passed--in 56 percent of those cases taxpayers got their

money for the offer for people other than themselves, from

their family, from friends, from churches, from employers. So

the legislation itself, nobody's going to give somebody money

to put down on an offer that you don't know is going to be

accepted or not. It's only when you know it's going to be

accepted that you'll give that money. So we lost out.


    Mr. BOUSTANY. Would you expect receipts from offers to

return to previous levels if we suspended that 20 percent

downpayment? In other words, do we have 30 million per year as

a revenue raiser on our hands?


    Ms. OLSON. I think it has to be coupled with a vigorous

outreach campaign. And, I have to add this: I personally don't

think we need an outside expert to tell us how to run the offer

program. We have models how to run the offer program correctly.

Most practitioners believe that the offer program is dead, and

so they go to bankruptcy for the clients rather than going into

the offer in compromise program. And we lose money. So it has

to be eliminating the 20 percent down and vigorously telling

taxpayers we want to get good offers, and then changing our

procedures so we receive good offers. We don't stop them at the

door like we are now.


    Mr. BOUSTANY. Thank you.

    Deputy Commissioner, would you like to respond?


    Ms. STIFF. I believe as I said earlier that there are

literally millions of accounts receivables, taxpayers owing

delinquent debts. Only 50,000 came in last year to apply for

the offer program. I think that the program we have works. I

think we're actually granting as many offers pro ratably that

we've ever granted.


    I think the issue for me is there's a gap between taxpayers

that are availing themselves of the program, and that suggests

to me two things: one, that perhaps we're not introducing the

program or making it available in a way that it resonates; and,

two, that I need to be doing something that touches the hearts

and minds of taxpayers so they realize the program is there and

they can use it.


    Mr. BOUSTANY. Thank you.

    I yield back.


    Chairman LEWIS. I am pleased to recognize Mr. Etheridge for



    Mr. ETHERIDGE. Thank you, also, for having this hearing and

for our witnesses for joining us today.


    Madam Deputy Commissioner, I applaud your efforts to aid

the taxpayers that are facing economic difficulty in light of

the current economy, because it really is tough as you indicate

in your testimony. And over the last several years there's

really been a sharp increase in the fund anticipation loans

that people have taken out anticipating a loan.


    So with that and with the current recession being even

deeper, there may be even more taxpayers who borrow against

those expected tax refunds to save their money a little

quicker. And my question to you, are you seeing an increase in

these types of loans already this year or can you tell yet. Is

it too early to know?


    Ms. STIFF. It's too early for me to definitively say that

there are more or less RAU ones. I do think in the first few

weeks of the filing season we had a slight increase in the

number of returns file claiming EITC credits, and generally

speaking, that's where you see the RAU activity. But it's so

early that the increase isn't statistically suggestive or to be

relied on at this time.


    Mr. ETHERIDGE. The reason I asked that question is because

I feel that some of these loans create a problem for some of

these taxpayers, so my question is this. Are there steps that

the IRS is taking or can take that might minimize the number of

taxpayers who choose to participate in these refunds,

anticipate the loans that will help the taxpayer. Because

that's really what it's about; that they don't wind up with

less than they could have had because they've had to

participate in these programs.


    Ms. STIFF. I absolutely agree with you. It's a sad state.

Unfortunately, it occurs where taxpayers actually are willing

to engage in the loan and pay the interest on the loan so that

they can have the money instantaneously. We are trying to

modernize our systems so that we will be able to accelerate the

timeframe for refunds.


    If you file electronically, you'll get your refund within

seven to ten days. Our CADE system, which is our new modernized

platform, processed last year roughly 35 million of the 140

million individual returns on that new system, and it provides

the refund in roughly four to 6 days. Sadly, there are still

taxpayers for whom four to 6 days is longer than they're

willing to wait, and so they still avail themselves of the



    Mr. ETHERIDGE. I thank you, because I think this is an area

where we can have as much impact on people who really have the

greatest need, probably anything we can do to speed this up and

minimize that drag time certainly puts money in the pocket of

taxpayers quickly.


    Ms. Olson, do you have a comment on that?

    Ms. OLSON. Yes, I think that what Ms. Stiff said about the

CADE is very important and I think if congress authorized the

IRS to do an advertising campaign that informed taxpayers of

the different options, because right now there's so much

advertising about these immediate loans, us simply saying it in

a press release is not going to be enough to get the message



    Secondly, I think the government needs to create stored

value cards for taxpayers. We do it with Social Security, and

26 some odd states do it for unemployment compensation where

taxpayers who don't have bank accounts can get what is

essentially an ATM card. They can go to any bank and could get

their refund downloaded. We already have the technology, and I

think we just need to do something like that. There are

taxpayers working at large companies that get their payroll on

these stored value cards. They could write that information in

and we could get their refund out very quickly within these

four to 6 days.


    Mr. ETHERIDGE. I thank you.

    And Mr. Chairman, I think this is an area where we can have

a real impact on a lot of folks who have tremendous needs and

it will be a hug savings. In the little time I have left, let

me ask one final question. Are there more taxpayers calling IRS

for assistance now than there were last year at this time? And

is it increasing? And I guess my question would be what are

taxpayers asking that we can help with.


    Ms. STIFF. Okay. The answer to that question is yes. More

taxpayers are calling us than they did last year, and that in

itself is a significant statement, because as you know, last

year we were kind of crushed with the number of phone calls

calling about stimulus. There are a couple of things that are

impacting the calls that we're having this year. First of all

is that if you were eligible, well, if you were a taxpayer and

you got stimulus last year, and you got a reduced amount or you

didn't get it, but over the course of the year you became

eligible for more than you got, you have an opportunity this

year to claim that additional amount on your tax return. It's

called the rebate recovery program.


    Unfortunately, because of the way the law was crafted

that's a somewhat complex computation and an inordinate number

of taxpayers who have tried to do that have experienced errors,

and so we find them calling. Secondly, you know, in our e-file

program, you can electronically file and you can submit your

return; and, in the past, I'm hoping you all e-file or that

someone is e-filing for you. But, if you e-filed it, then

subsequently you had to send the IRS a form with your signature

on it.


    We made a change this year at the urging of just about

everybody and anybody involved in it that you shouldn't need to

send that form, that you could rely on a pin. That process of

using the pin to file requires you to know your AGI or your

adjusted gross income from the prior year. And, I guess, unlike

myself, a lot of taxpayers don't have their prior year returns

in a desk drawer and go look up their AGI. Instead, they pick

up the phone and they're calling the IRS and saying can you

tell me my AGI so I can e-file this year. So we've had an

inordinate amount of that kind of traffic.


    The third area that we're experiencing, and I think it

really makes good sense and I think if I'm the taxpayers

instead of the IRS I would probably do the same thing. They

have been bombarded on the media, in the news, on the TV, with

talk of stimulus, with talk of bailouts, with talk of checks.

We have thousands of taxpayers calling us a week saying am I

entitled to anything. Should I be getting something? What do I

need to do to get something? And I don't think it's clear to

them how that works, and so we are receiving an inordinate

amount of phone calls.


    Mr. ETHERIDGE. Mr. Chairman, thank you for your indulgence,

and this rates as a real issue that might need to consider.

They do need some money to do some advertising to help get.


    Chairman LEWIS. Thank you very much.


    Mr. ETHERIDGE. Thank you, Mr. Chairman.

    I yield back.


    Chairman LEWIS. Well, thank you.

    I think that is very helpful.

    Mr. Roskam is recognized for question


    Mr. ROSKAM. Thank you, Mr. Chairman.

    And welcome. Thank you. It's an honor to be here.


    Ms. Stiff, Chairman Lewis pointed out, I think accurately,

that we're going to be getting a lot more inquiries in our

district offices. More and more people are hurting. There's

this looming tax liability that's out there and I represent a

district in the West and Northwest suburbs of Chicago that has

an expectation of what's good is good for the gander, just fair



    I am going to ask you to comment on Secretary Geitner's

treatment by the IRS, because it was a highly celebrated. Well,

not celebrated. It got a great deal of attention. I'm obviously

not going to ask you to comment on anything that's in a

confidential file, but the facts and figures are in the public

domain. So there's an expectation that I am going to be hearing

from constituents when they incur a tax liability and incur

interest, and, presumably incur a penalty that they're going to

be treated and sort of get the Geitner rule applied to them.


    Can you comment on what their expectation is? What their

expectation should be? The calculation that the IRS made as it

related to Secretary Geitner's tax liability and the decision

not to pursue a penalty and to let him off by simply writing a

check for the tax liability and the interest. And, what is it

that animates the decisionmaking at the IRS, and how does it

apply to the district that I represent?


    MS. STIFF. Okay. Clearly, I can't speak to any of the facts

specific to Secretary Geitner's individual tax matter. What

your constituents should expect, that if they owe an amount for

their tax, that they're going to be charged with the amount of

tax they owe. that their going to be charged with interest and

penalties to the extent they're applicable.


    If your taxpayers believe there's a reason that those

penalties shouldn't apply that they meet the reasonable cause

standard, then they should expect to be prepared to explain

that to us and engage with us in a discussion, and those

decisions are individual facts and circumstances based on the

penalties that would apply in their case.


    Then, thirdly, they should expect that once those amounts

have been determined and agreed-to, that if they're

experiencing difficulties in coming up with ways to pay that

that they need to engage with us to talk through what payment

plan options there might be, what alternatives they would have

that would allow them to resolve their tax debts in a way that

isn't overly burdensome to them as an individual.


    Mr. ROSKAM. Okay. Let's assume for the sake of argument

that someone has the ability to pay the liability as Secretary

Geitner did. And let's further assume that there is a similar

self-employment issue. Let's say I have a constituent that

worked for the International Monetary Fund and didn't pay their

taxes. Is it an expectation that that taxpayer that I represent

would be treated in that same way, not pay the penalty,

regardless of whether they sort of, you know, pull out a

laminated hall pass that says my accountant said this even

though I got a letter from the IRS. I mean, how is that?


    Ms. STIFF. First of all, and I'm not trying to be coy. I'll

be perfectly honest with you. I don't know the specific facts

of Secretary Geitner's case, but I can tell you that if a

taxpayer failed to pay self-employment tax we would expect them

to report it, pay the taxes they owe. They're going to be

subject clearly to the interest that flows with that. And the

penalty that they may or may not be subject to will be

dependent on the facts and circumstances of their case and the

reasons for why they found themselves in that situation or not.


    Mr. ROSKAM. Okay. Our time is coming to a close. Two

questions: could you follow-up; and, I'd like to hear from you

once you do know the facts of the case. And at some point in

the future within the next couple of weeks, could my office

hear from you on that?


    That's question number one; and question number two is what

is it that creates the predictability for how a taxpayer is

going to be treated and is this an area that needs further

inquiry into the future. Because if it's completely within the

discretion of the internal revenue service and you're bound by

a confidentiality that says you can't disclose, and I would

submit sometimes that's handy and sometimes that's a burden.

Right? And you'd even acknowledge that.


    Ms. STIFF. Be happy----


    Mr. ROSKAM. Let me just finish, because my time is winding


    I think it's very important moving forward in this

environment where, I think, there's going to be more and more

concern about people being treated fairly in the same way in

which powerful people are treated in this country.


    Mr. Chairman, with that, I yield back, because my time has



    Chairman LEWIS. Deputy Commissioner Stiff, do you care to



    Ms. STIFF. I'll respond by saying we'll be happy to get

back with you and I don't want to suggest that the application

of interest and penalties is discretionary. It's a part of

what's expected. The discretion or the judgment comes in if

there's a reasonable basis that it shouldn't be applied. But

we'll come back to you and we'll talk more in detail about



    Mr. ROSKAM. I'm out of time. I'd love to engage you

further. Thank you.


    Chairman LEWIS. Mr. Higgins is recognized for question.


    Mr. HIGGINS. Thank you very much, Mr. Chairman. First of

all, Ms. Stiff, in your testimony you had indicated that the

good news is in this economic contraction that working families

may be eligible for the earned income tax credit which will put

money in their pockets. The bad news is that as many as one in

four eligible taxpayers are not claiming the credit.

    You go on to talk about the initiatives the IRS is making

to go into those economically distressed areas with free tax

preparers, does the IRS have a goal relative to insuring that

people do in fact claim the credit and is there a period of

time within which that goal is anticipated to be achieved?


    Ms. STIFF. Let me just provide a little bit of background

to what you're saying. I mean our goal clearly would be that

every taxpayer that's entitled to that credit would know it,

claim it, and get the benefit of it. Having said that, the one

in four number I itself, there's more behind that. There is

about approximately an 86, 85 percent participation rate with

the EITC credit for people who are eligible with two children.

So the reason for that is at that level the value of the credit

can go as high as $4800 for a family.


    The participation rate for taxpayers with no children, so

the averages kind of mask that, is roughly 56 percent; and, the

reason for that is the credit at that amount can be as low as

$430. So there's a different incentive and a different interest

in making that claim, not that $430 isn't a significant amount

of money at those income levels.


    So where we find ourselves now is we've spent years trying

to up the total participation, and what we're finding now is we

need to make this remaining lift in the participation rate,

that we're going to have to have targeted outreach. And it may

have to be different for the 56 percent with no children than

it is to get the additional 40 percent on the families with two



    Mr. HIGGINS. What was it 5 years ago?


    Ms. STIFF. I don't know the answer off the top of my head,

sir. I'd have to get back to you on that.


    Mr. HIGGINS. But improved?


    Ms. STIFF. I think the overall rate was between 68 and 75,

so the IRS has done extraordinarily well with families with

children and I think what you find in what we call the

childless worker population is that many of those people have

marginal wages, so they may not even be getting large refunds.

They may not even be filing returns; and, so, they don't even

find out that they could get this $450 credit which would

offset the Social Security that's taken out of their checks.


    Mr. HIGGINS. Okay. Ms. Olson, what do you see as the most

complex aspect of the Tax Code for individual taxpayers,

particularly during this economic downturn?


    Ms. OLSON. You know, that's such a hard question to answer

because the law is so complex. You know, there are different

things that impact different taxpayers. Again, we just had the

discussion about the single worker who doesn't even know

there's this benefit out there he can get.


    We have in the retirement provisions people who may need to

take early withdrawals from their accounts, and they may be

taxed. They'll not only be taxed on those early withdrawals,

but depending on the kind of retirement plan they have, they

may get an additional 10 percent tax. You know, that's a real

trap for the unwary.


    I think that the indicator of just how complex the law is

is that over 80 percent of individual taxpayers pay for

assistance in preparing their returns. Over 60 percent go to

paid commercial preparers and another 22 percent by software;

and that's not counting the people who go and get the free tax

preparation. So it's just the sheer size of complexity is just



    Mr. HIGGINS. Yeah, well, as a taxpayers advocate, what are

suggestions, you know, you would have for simplification of the



    Ms. OLSON. Well, we have certainly recommended in the

report additional simplification of the family provisions so

that instead of having six different provisions that people

have to wade through we really have a basic family credit and a

basic worker's credit. We've recommended simplification of the

education incentive so people don't have to have a degree to

figure out which one's the right one for them. And, again, as I

talked about the retirement incentives and I would have to say

you have to eliminate the alternative minimum tax.


    Mr. HIGGINS. Thank you, Mr. Chairman.


    Chairman LEWIS. Among this group, Members I don't think

would be in too much disagreement with that. I think that would

be a proper consensus among the Members of the Committee--not

just the Subcommittee, but the Full Committee--that we must

find a way to eliminate this tax; and, one day--one day--we

will find the courage to do just that or find the means to do


    Mr. KIND. We shall overcome, Mr. Chairman.


    Chairman LEWIS. We shall overcome some day--someday.


    Mr. Reichert is recognized for question.


    Mr. REICHERT. Thank you, Mr. Chairman.

    And I echo Mr. Roskam's statement in honor to be here and

an honor to serve with you and the rest of the colleagues here.


    Chairman LEWIS. Thank you for being here.


    Mr. REICHERT. My pleasure. I wanted to follow-up if I could

on Mr. Roskam's line of questioning, just with a couple of

thoughts. So talking about owed tax, interest and penalties,

and there's disagreements with that, then I think Ms. Stiff,

you said there should be an engagement between the IRS and the

taxpayer. And then hopefully you come to some agreement.


    How does this process take place? Is there a mediator? What

if there's no agreement? What happens? Is there a mediator that

comes in that's bipartisan personality?


    Ms. STIFF. I don't know that I would say that there's a

mediator in the sense that you're probably referring to. If

taxpayers owe us money and they want to debate the amount of

money they owe as a result of an audit, they do have due

process. There's an appeals process, which does bring in third-

party to look at the facts of the case and reach a conclusion.

Taxpayers can always exercise their options to go to court.


    On a collection action, if we're proposing a lien or a levy

as a result of the failure to pay, they have an ability to

appeal that process. Most of where that discussion is to the

reasonableness around penalties, which is the issue that he was

raising, takes place at the frontline, either between the

individual that's interacting with the taxpayer as to the facts

and circumstances. And we recently made some systems changes

and some process changes, actually, at Nina's urging in her

report, to ensure that taxpayers aren't being penalized during

the period of time that we're having that debate.


    Mr. REICHERT. I would assume that some time in this process

of discussing the disagreements that exist, someone makes the

decision whether or not there's a criminal offense that's

occurred. Did that sometimes happen?


    Ms. STIFF. Yes, sir, we do. We have an active what we call

a ``fraud referral process,'' so that either in the collection

or the examination stream, if our personnel identify what we

call the badges of fraud, which are a series of indicators,

then when we feel that we've got enough there. Then we'll cease

on our civil activity, and we'll actually refer that case over

to our criminal investigators so they can evaluate it for its

criminal potential.


    Mr. REICHERT. This is where the Miranda warnings then come


    Ms. STIFF. Yes, sir, it is.


    Mr. REICHERT. Thank you.

    I want to just follow-up to on some comments that you

mentioned there were increased calls. I'm just wondering by

thousands of calls, have you asked for additional staff. Is

there a need for additional staff?


    Ms. STIFF. We've been very fortunate. You and your

colleagues, and in particular Chairman Lewis, have taken steps

to assure that the stimulus bill that you just passed included

funding that is going to supplement our staff which should help

in responding to some of the calls that are related to the



    Mr. REICHERT. Will there be a need for additional staff, do

you think?


    Ms. STIFF. It's probably too soon for me to say that. I

think that what we've asked for and with the passage of an '09,

the omnibus, will position us to get us out from under the CR,

and it also provides for some additional funds to handle the

phone traffic as a follow-up to last year's. I think when we

get that money we should be positioned to respond to what's

coming at us.


    Mr. REICHERT. Great. Ms. Olson, you mentioned the tax gap

in your testimony and that the IRS' lack of resources is

significant. And it's an impediment to your ability to really

get your job done and it creates this tax gap. You mentioned

that the complexity of the Tax Code in your testimony for

example regarding AMT.


    Do you think the complexity of the Tax Code contributes to

the tax gap?


    Ms. OLSON. I think that it contributes to a part of it.

There are so many causes for that, and in a way I believe that

that goes to how we should treat taxpayers. If you have someone

who is actually undertaking fraudulent activity, that's going

to require a very vigorous response from the IRS in terms of

enforcement action and criminal investigation action and

criminal charges.


    On the other hand, if you have someone who is just confused

and has made a mistake you really have to look at what's the

right approach for that person: clearly, educating them; making

sure they don't do that again; and then making sure that they

pay the tax and the interest to the extent that they're able to

that gets into the penalty discussion.


    You know, I recommended a few years ago the proposal that

was called the one-time, stupid act penalty abatement, where

you basically give people a pass the first time. Because the

goal of the penalty really is to make sure that they stay in

voluntary compliance, so let's educate them and say go and sin

no more. You do it again, expect a penalty.


    Mr. REICHERT. Thank you. Thank you Mr. Chairman.


    Chairman LEWIS. Thank you very much.

    Mr. Kind is recognized for question.


    Mr. KIND. Thank you, Mr. Chairman.

    I want to thank our two invited guests here today for your

testimony and thank you for holding this very important

hearing. We have a lot of important issues coming up that gives

us a lot of opportunity to delve into, many of it with you, one

of which is obviously the recently enacted Economic Recovery

and Investment Act (ERIA). There's a lot of tax credits and

deductions, exclusions, things of that nature; and Ms. Stiff,

maybe we could start with you.


    In regards to the type of public education awareness

campaign that needs to take place so people understand this

more and know what they can take advantage of now, it is

somewhat complicated and I'm just wondering what steps the IRS

is taking in order to help with that public education campaign.


    Ms. STIFF. The IRS has actually been working feverishly in

anticipation of the passage of the legislation. Clearly, it was

impossible to finalize what you're going to communicate and

what's the best way to communicates it 'til you knew what was

there. So we were well-positioned when the bill passed to drop

in, kind of, what the provisions are, the rules.


    We've got to have forms. We've got to have pubs. We need to

get information out to taxpayers swiftly. We're working on that

and I think we're days away from being able in a number of

those provisions to be fully loaded for Bear in terms of

communication, not weeks or months.


    Mr. KIND. And a user friendly website, I assume, will go to


    Ms. STIFF. Yes, absolutely everything will go to IRS dot


    Mr. KIND. Is this something our offices will be able to

link to, because we're already getting inquiries, my



    Ms. STIFF. Yes, sir. Clearly, we're still having on some of

the provisions, we're still having to flush exactly how it's

going to be administered, and so we want to have the

information when we get it out there, be as useful as we can.

But I think given that the passage has been in recent days, I

would expect that within just a very short, few days, that

we'll have at least for the provisions that are affected or

affect taxpayers who are trying to file their tax returns this

year, we'll have that out there.


    Mr. KIND. And can we assume that the various software

entities that exist for tax preparation purposes are going to

be able to update all that? Because we're already in tax filing



    Ms. STIFF. Yes, sir. We have been working with them again

since before the holidays to ready for this. They face that

same problem we did until it was passed. They couldn't complete

programming. We are talking to them multiple times a week and

en masse and individually. And at this point, I think by and

large we'll all be prepared to move in time to get done what

needs to be done, what you've asked us to do this year.


    Mr. KIND. Now, the making work pay tax provision in the

recovery package, that's going to be dealt with through the

employers not taking as much withholdings out of the paychecks.

What do you suspect the compliance rate will be with that?


    Will the employers be able to make that quick adjustment?

Because this is my understanding kick in, in April already, and

last throughout the rest of the year.


    Ms. STIFF. I think that for that type of provision we

generally find that most employers are able to respond quickly

and nimbly to that and aren't expecting a lot of compliance

issues there.


    We expect this time next year as taxpayers are trying to

reconcile what was withheld and what they owe, we may see some

additional issues or questions then. But, our experience is

that our employers are as a general rule prepared to respond to

a change.


    Mr. KIND. What about employees with multiple paychecks or

multiple jobs?


    Ms. STIFF. That's where it gets complex, because which

withholding gets adjusted. Where, and is the employee going to

be left as I said earlier at the end of this year, either

having been over withheld more than they wanted or under

withheld; and, part of our communication strategy will be to

alert taxpayers to that. But I'm confident that with 140

million individual filers this year, there will be some that

will encounter that difficulty.


    Mr. KIND. Let me ask you too. I know it's a small item, but

it's one that nevertheless tends to bother me from time to

time. I notice that in the tax rebate notification process last

year, but it's my understanding the IRS is going to be sending

out some tax withholding reports to nine million employers

starting in mid-March, mailing it out.


    How much is that going to cost and is it necessary to have

to actually mail those reports out to nine million employers,

when my guess is all of them are automated anyway and they can

get this information off the Internet?


    Ms. STIFF. I don't know that it's nine million or not, so I

won't dispute your number. But I don't, off the top of my head,

actually know.


    Mr. KIND. At least that's what been reported.


    Ms. STIFF. It hasn't been. Okay. I'll say two things. We

will have the tables on the web, in fact, they may be on the

web. I've lost track in the last few days here. We'll have the

tables on the web for employers to begin accessing almost



    Mr. KIND. Right.


    Ms. STIFF. We also feel that we do have to distribute the

tables, because there's 20 something million small businesses

in this country; and, to assume all of those, particularly some

of the very small, are necessarily going to use the web.


    I don't think that you or anyone would want--you're

intending for this money to get to these taxpayers--and we need

to ensure that we equip the employers with the information they

need to make that happen. I don't know the cost, but I probably

can get that.


    Mr. KIND. Well, I would like to follow-up with you on that,

because we are in the 21st century now; and with all due

respect, technology is a major part of what's going on in the

economy. And it just seems, you know, nine million withholding

tables being mailed out individually. It seems to be an

incredible waste of resources and money.


    I mean, last year, Mr. Chairman, you may recall there were

two IRS notifications on the tax rebate check to the vast

majority of people telling them you don't have to do anything.

And it cost us a hundred million dollars to do those two

mailings for that. So I'm just wondering if the IRS is thinking

through this, how we can best utilize technology for cost

savings; and, granted, the withholding tables may not be that

expense to mail out and there may be certain segments that need

that and show up in their doorstep. But I would hope that as

we're moving forward, given the budget crunch, Your Honor, we

try to streamline some of this.


    And, finally, Ms. Olson, I couldn't agree with you more on

tax simplification and would love to begin a dialog with you,

especially with the education and the savings complexity in the

Code right now and how we can streamline that and consolidate

it. I know you and your organization has done a lot of work on

that, and some of those issues where you mention it and

everyone's head goes up and down in vast agreement, you've just

got to start doing it.


    Ms. OLSON. Thank you.

    Ms. STIFF. Thank you.


    Chairman LEWIS. Mr. Davis is now recognized for question.


    Mr. DAVIS. Thank you, Mr. Chairman.

    Ms. Stiff, unlike Mr. Roskam I don't have any constituents

who work for the IMF so I won't waste your time on that. Let me

though talk about something that's a little bit more relevant

to my constituents. The University of Alabama runs an

organization called the Center for Ethics and Social

Responsibility; and the very talented young man who runs it

happens to be the grandson of the former Supreme Court Justice,

the late Hugo Black.


    And several months ago the Center conducted a sting

operation. They used law students to go to tax preparer sites

in the state of Alabama. All of these tax preparer sites

purported that they would help you get an anticipatory refund

in very short order. Sting operation was done in these 13

sites. Virtually every single one of them was engaging in some

kind of negligent practice or some kind of practice that was an

outright misrepresentation--virtually every single one of the


    So Mr. Black has put together a legislative proposal at the

Alabama legislature is currently considering, and it has

several interesting components I want to get your reaction to.

One of the things that this legislation would require is that

for tax preparers, first of all, would have to be licensed by

the state of Alabama. The second thing is that after being

licensed as with lawyers, as with doctors, as I understand is

the case with accountants, they would have CLE obligations.

They would have to regularly take courses to update their

knowledge of the shifting sands of tax law; and, in addition to

that, they would have to pass a proficiency exam before they

could be licensed at all to be tax preparers.


    Could I get some reaction from you, Ms. Stiff, and from you

Ms. Olson, as to the advisability of a legislature passing that

kind of remedial action to protect people from tax preparer

services? Ms. Stiff, I'll start with you.


    Ms. STIFF. Yeah, I'll say a couple things. Nina will

probably be in a position to respond probably more completely

than you are because in the role of the IRS we generally

enforce and don't advocate laws. But I will say we are



    People that hold themselves out to the public and take on

that fiduciary responsibility that they conduct themselves in

an appropriate manner and we're taking steps to strengthen our

own monitoring of that universe and where we're developing a

preparer strategy in outreach, I know there's been much debate

by this body and on the Senate side as well around the merits

of registering of licensing of monitoring; and, I think that

there's pros and cons to that.


    I am confident that there's administerability issues with

doing any and all of what you're saying, and I think there are

folks that will say to some extent it will help. To other

extent, it tends to make it more difficult for the already

compliant and drive the non-compliant further underground. So I

think there's a lot of debate to be had on the issue.


    Mr. DAVIS. Ms. Olson, would you like to weigh in?


    Ms. OLSON. Well, in 2002 one of my legislative

recommendations was to do exactly what you suggested: register,

test, and require continued testing of what I call unenrolled

preparers; people who are not attorneys, certified public

accounts or enrolled agents who already have a testing and

annual continuing education proposal. That provision has been

passed several times by the Senate.


    Congressman Becerra had a bill last year that had the most

recent version of it and I think there's actually very little

debate on this at this point.


    Mr. DAVIS. Unless you're in the Alabama legislature.


    Ms. OLSON. Well, every single major practitioner group,

including these unenrolled preparers nationally have come out

in support of this proposal. There are little things around the

margin that they're concerned about.


    I just say to me the worst thing that could happen is to

have 50 different regimes around the United States for the

Federal tax law so that people who prepares from one state to

another have to meet all of those requirements. This is a

Federal law and I think we need to make sure that the people

who are making their living by preparing returns, Federal tax

returns, meet a basic level of competency; and we have to have

the regime for that.


    Mr. DAVIS. And I would just conclude, Mr. Chairman, by

saying Ms. Olson I suspect you're right. An ideal world there

would be a Federal standard in place. For various reasons that

has not happened. I think it should happen and until we get to

that point, it seems eminently reasonable to me that states

would regulate in this area. As a matter of just common sense,

it seems to me if you're preparing tax returns for people and

holding yourself out by definition as someone who has expertise

that you ought to have to pass some exam that says that you

have that expertise.


    As we've established, tax law changes constantly. This body

has made changes. The last several years have been very

impactful, so it seems reasonable that you ought to have to

know about those things. And last comment, what has predictably

happened in my state is that there was a lot of momentum around

it. It was moving in a particular direction, and now a lobbying

group has formed in the state of Alabama to fight for the right

to prepare returns without being licensed. Not surprisingly,

the lead entity in that lobbying front happens to be the

company that have the most egregious violations and the sting

operation that was conducted.


    Thank you, Mr. Chairman.


    Chairman LEWIS. Thank the gentleman, Mr. Davis from

Alabama, for raising the issue. I think that concern would have

been before us before, that you have this little fly by-night

tax preparer that comes around during filing season, and a sort

of rip-off to taxpayers. And then I've heard they sort of



    Mr. Becerra, who I want to yield to has been involved in

the issues. I yield.


    Mr. BECERRA. Mr. Chairman, thank you very much.

    Mr. Chairman, I think this type of hearing, in fact, I

think informal sessions with both Ms. Stiff and Ms. Olson would

be very worthwhile for us. So first thank you for being here,

your testimony, your observations; and, once again, Ms. Olson,

thank you for your excellent recommendations on what we could

try to do.


    I think much of what you said includes actions that could

be taken without legislative authority; and, perhaps we could

work with you on trying to help move in that direction with

some of these activities.


    Mr. Chairman, Ms. Olson has in her testimony a figure that

I think is important for us to note. There were more than

2,600,000 taxpayers with delinquent accounts that or non-

collectible accounts in 2008. That same year, the IRS accepted

about 10,600 offers in compromise, negotiated settlement, with

some of these taxpayers who were delinquent. Interests have

been trying to resolve it. Another 22,500 or so were taxpayers

given a chance to arrange partial payment installment



    That means that only one of every 78 taxpayers, who is

delinquent or has an account that's non-collectible, had an

opportunity to try to resolve this without facing some further

legal challenges or consequences. I am gratified to hear that

the IRS is trying to do a little bit more and that recently you

announced that you were going to try to deal with this

situation economic distress that many taxpayers find themselves

in to try to be more accommodating for those who are reasonably

trying to do what they can to pay their share of taxes that

they owe.


    But, I have a question that I'd like to ask Ms. Stiff and

Ms. Olson. Actually, let me direct it to Ms. Olson for now.

Those private collection agencies that are collecting from many

of the most distressed families out there, because many of the

accounts that these collection agencies have are people with

modest incomes whose tax obligation is quite low. But for them

it's a big debt. These collection agencies don't fall into the

same requirements and responsibility that IRS personnel do to

try to provide taxpayers with information about what they can

do to try to make it easier for them to pay their taxes owed.


    Do those agencies have those same types of requirements?


    Ms. OLSON. No. The only thing that those agencies can do is

ask the taxpayer if they can full-pay or if they can pay within

3 years. And anything else, the case has to go back to the IRS;

and, clearly, the incentive is there that you would in ever so

subtle ways, you would want to keep the case, because that's

what your commission is basically based on. The agency's

commission is based on the collections from the full payments

or the installment agreements that they bring in, not that the

IRS brings it.


    Mr. BECERRA. So first these private tax collection agencies

are not required to inform these taxpayers that they could

actually use the IRS directly to try to resolve their problems

if they're wishing to try to pay their taxes.


    Ms. OLSON. They are required to tell the taxpayer that they

can opt-out. I do not know if that's in their scripts. It is in

the first letter that the taxpayer gets. But it doesn't say

that you can opt-out and talk to the IRS about an offer in



    Mr. BECERRA. And are they required to tell these taxpayers

of the new steps that the IRS is taking to assist taxpayers

facing difficulty paying their taxes?


    Ms. OLSON. Not to my knowledge.


    Mr. BECERRA. And then secondly we find that these tax

collection agencies earn their money. They make their profit by

making sure the collection occurs.


    Ms. OLSON. Right.


    Mr. BECERRA. So if they get a cut of the collection, it's

not in their interest to send them over to the IRS. They get no

cut if they just send them over to the IRS. They are the ones

that have to collect. So it's almost in their interest not to

inform taxpayers of the services that the IRS provides free to

try to help them make arrangements to collect their taxes,

which I think is especially in this time of economic hardship

just the wrong way to go.


    Ms. Stiff, I know many of us have concerns with private

collection agencies for quite some time in this regard, and I

hope that we have an opportunity to talk more specifically with

the agency about this, because I think this is the worst time

for us to be having headhunters out there looking for people

who might be willing to pay their taxes but aren't being given

all the information that should be out there for them to try to

help them deal with all their economic circumstances that they

faced right now.


    Mr. Chairman, I know my time has expired, but if I may just

make one other point, it concerns me to no end to know that a

Social Security recipient can have his or her Social Security

monthly stipend levied against based on an IRS claim. Now,

we're all taxpayers, and we all have to pay what we owe the

government. And if it's not a voluntary system, we're in real

trouble and we have to encourage people to be forthcoming and



    But, I've got to believe there's a way for the IRS to work

with recipients or taxpayers who are recipients of Social

Security and probably for their main source of income to work

with them to make sure that as we collect the debt they owe the

government through taxes that we do it in a way that

accommodates their need to continue living, especially if the

Social Security check is their main form of income.


    I know that there are limits that you can place on other

types of levies, but there is apparently no limitation on at

what level you can dig into the pocket of someone who receives

Social Security payments. And I hope that we can examine that a

little closer, because this is probably not the time to hit

people who live off of Social Security to pay their taxes.


    I suspect that they would be more than willing to help make

their payments if we could reach some accommodation with them;

and, so, if we could follow-up with that, I would very much

appreciate it.


    Ms. STIFF. Sure.


    Chairman LEWIS. Let me just ask the two of you. If there

anything that you want to tell us that you think we should know

during this filing season? Do you think we have all the

information that we need?


    What is your greatest concern during this filing season?


    Ms. OLSON. I'm going to say something, because I think

Linda is in an awkward position to say this.


    Chairman LEWIS. You don't think she had the courage to



    Ms. OLSON. I think that in her position she's not able to

say very clearly the resource demands on the IRS about the last

couple of years with the economic stimulus payment and now the

new provisions that are coming in. And I just thought giving

some information about the level of service on the phones. Last

year was a record level of service meaning calls came in and

essentially roughly what percentage of the calls were we able

actually to get to. And I'm not even talking about the wait

time that taxpayers have before we can get there.


    But, through February 7th of this year, their overall level

of service was at 55 percent and a year ago even with the

difficult filing season the same time it was at 79 percent. On

the main 1040 number, through February 2nd of this year, the

level of service--this is the main number for individuals--is

at 50 percent, and a year ago it was at 80 percent. And my own

phone number, my own toll free number for the taxpayer advocate

service, where we get the cases where taxpayers are having the

difficulties, you know, with these things. This is answered by

another part of the IRS. It's part of the main phone system,

but it's a dedicated line.


    We are at 69 percent level of service and a year ago we are

at 83 percent; and I think that as we look to the IRS to

deliver programs, deliver stimulus to the economy, become a

method for helping people with health insurance who've been

unemployed, we have to really think hard about what the IRS

needs and resources in order to be able to do this job. There

are lots of reasons for why the IRS should do the job, because

we have that contact with taxpayers.


    But, on the other hand, if we're doing all these other jobs

and not able to deliver our core ability to process the

returns, answer tax law questions, deal with account questions,

collect money when taxpayers are calling us, you know, then all

of us are harmed. And I just want to make the case for perhaps

this Committee weighing in with the appropriators about, you

know, the need for really adequate funding for the IRS in

interfacing with the taxpayers of the United States.


    Chairman LEWIS. Ms. Olson, I appreciate your comments and I

appreciate you sharing those with us; and, I'm sure my

colleagues appreciate it and the IRS appreciate it also.


    Mr. KIND. Mr. Chairman, could you yield on just that one



    Chairman LEWIS. I assume the same applies to that low-

income taxpayer clinics that are being established and the

increase in demand for assistance and help with those clinics

in preparation?


    Ms. OLSON. Yes, and I'm so proud of their growth that we're

up to 160 now, and we get applications. We do a survey, a needs

assessment of United States low-income taxpayers, to identify

areas where there are populations of taxpayers that we believe

need the assistance. And there are many places out there that I

think we could get a program started with other community



    Ms. STIFF. May I just insert I think there may be the issue

isn't just how much or how many. The issue is that we are now

on about an 18-month run of asking the workforce or the IRS to

do a very heavy lift over and above what their core mission, as

Nina put it, and a lot of nights, weekends, holidays, vacations

sacrificed for doing that. And I think that like any business

at some level when you do that for so long you just increase

the risk of people's ability, their alertness, those things. So

I think when you say what do we worry about, I think that's an

issue that continues to be something that the Commissioner and

I are both cognizant of.


    Chairman LEWIS. Thank you. We appreciate it.

    I want to yield and recognize the Ranking Member, Dr.

Boustany, for in addition the question and statement you'd like

to make.


    Mr. BOUSTANY. Thank you, Mr. Chairman. And that is, Ms.

Stiff, I'm glad to see that the IRS is recognizing the upheaval

and uncertainty in the housing market. And there are going to

be difficulties with valuations of properties, predictably as

we look at the offers in compromise agreements. And in your

testimony you refer to or you suggest that some of these cases

will be referred to a specialized group. Could you elaborate a

little bit on that?


    Ms. STIFF. Yes, what we're doing is kind of instilling.

I'll consider it a fail-safe for the taxpayers. It's that in an

offer in compromise situation, if there's real estate involved,

the valuation of that real estate, the decisions that are made,

could hinge on that. And so we want to ensure that if for any

reason we're denying or that our information about the

valuation runs contrary to that of what the taxpayer believes

it is, that those cases will go to a specialized unit of

people--I think they're located in Texas--whereby, they'll take

the extra step and make sure that the valuation we're relying

on is based on the best facts and come back to it that way. So

it provides what I would describe as the fail-safe for the



    Mr. BOUSTANY. I thank you.

    And, finally, our colleague, Mr. Roskam did raise some

important questions regarding fairness and the public

perception of fairness. And he referenced the case of Secretary

Geitner. And I think it's important, and I think your term as

he was ending his line of questioning was having a reasonable

basis for not applying certain penalties, finds and so forth.

It would be helpful to us to have some general guidelines on

how that is carried out, particularly in high profile cases.

And I'm not going to put you on the spot now with it, but if

you could get back to us in writing on that, it might be



    Ms. STIFF. Will do!


    Mr. BOUSTANY. Thank you.


    With that, Mr. Chairman, I am happy to yield back. I don't

know if my colleague here has an additional question with your



    Chairman LEWIS. Yes, you are recognized.


    Mr. REICHERT. Thank you, Mr. Chairman.

    I won't take up the full 5 minutes but I just want to

quickly comment that I do understand the difficulty in

answering some of these questions. I was Sheriff in Seattle

prior to coming here to Congress and I testified both as an

appointed sheriff and an elected sheriff in front of my county

counsel. So I understand the difference in your ability to

share freely, but I am a little disappointed that that my

question I asked earlier was, I think, initially addressed

until the Chairman pressed it, just a little bit as far as

staffing and the need for staffing additional funding and how

much that might cost.


    So I want to focus on comments made about the offer in

compromise program. There was, I think, Ms. Stiff. You

mentioned that you wanted a third party assessment and are you

thinking of process mapping effort in that program? Is that

what you're looking at?


    Ms. STIFF. Well, that will be part of it, but it's actually

less. We've spent a good deal of time in the last 4 years re-

engineering our internal processes, process mapping, looking at

where the work needs to be done. And, while there remain, you

know, as with any program and opportunity for improvements

there, I think the bigger question for me now isn't what

happens when they get in. It's increasing the number of people

who are availing themselves of the program and then assuring

they're being treated in a fair and equitable way once they're


    Mr. REICHERT. What would be the cost of that, do you think?


    Ms. STIFF. Of the study?


    Mr. BOUSTANY. Yes, of your third party assessment?


    Ms. STIFF. I don't know off the top of my head.


    Mr. BOUSTANY. And so you've been talking about this for a

while though. How long has this discussion in the IRS been

going on?


    Ms. STIFF. Oh, actually not. As I said earlier, when I was

going through everything last night and looking at what we've

done, we've been working with Nina. We've been working with

practitioners and preparers. It's a perennial issue everywhere

we go, and it occurred to me that it may be time for us to look

at it differently than we've been looking at it if we're going

to solve it.


    Mr. REICHERT. Would this be expanded beyond the offer in

compromise program? It seems to me that the IRS overall could

use a third party assessment.


    Ms. STIFF. I'm not sure specifically to what your question

is. We have independent assessments ongoing at any given time

in specific program areas. We also have ongoing oversight by

GAO into specific programs.


    Mr. REICHERT. Is GAO considered to be a third-party

assessment for you?


    Ms. STIFF. Yes.


    Mr. REICHERT. Yeah. Okay, thank you, Mr. Chairman.


    Chairman LEWIS. I would like to thank the IRS Deputy

Commissioner and the national taxpayer advocate for the time

and testimony.


    The Subcommittee appreciates your views. Thank you for

being here today. We look forward to seeing you again; maybe

not soon, but sometime later. There's more business to come

before the Committee. This hearing is now adjourned.

    Thank you very much.


    [Whereupon, at 11:28 a.m., the Subcommittee was adjourned.]


    [Submissions for the Record follow:]


    I am a former IRS attorney who has helped everyday people work

through IRS economic difficulties for almost 20 years. I have seen

through the eyes of the government, and have seen the faces of

taxpayers in distress. I appreciate the opportunity share my

observations and recommendations.

    The problems of taxpayers who are in the system are well-

documented. The IRS offer in compromise program is broken; IRS expenses

allowances make obtaining installment agreements virtually impossible.

Older IRS tax debt sits uncollected, leaving taxpayers in financial

limbo for years.

    My clients who are in the system are increasingly using bankruptcy

to eliminate IRS difficulties, a course of action that cannot be good

for the client, the government, or the economy.

    But the weight of the 6.1 million taxpayers who are out of the

system deserves equal attention.

    I urge you to offer amnesty to the 6.1 million IRS non-filers if

they come forward and pay the taxes they owe. This will strengthen, not

weaken, our tax system. It will alleviate economic hardship on

taxpayers. It will also bring the Treasury billions of needed dollars

not just now, but into the future.

    For most, life situations lead to dropping out of the tax system,

not a desire to gain an advantage. It could be divorce, medical

problems, or the challenges of a business during these hard economic

times. If the taxes cannot be paid, the returns are often not filed.

    Once behind, interest and penalties escalate to the point that a

taxpayer can never catch up. The failure to act is magnified by the

fact that interest and penalties double the original tax liability

every five years. I have seen the discouraged faces of hard-working

Americans--paying $100 monthly on a $20,000 tax debt--when they

discover that the amount they owe is actually increasing, not

decreasing, because of the interest and penalties.

    For taxpayers who come forward with their taxes, provide amnesty

relief from the interest and penalties if the returns are filed and the

tax is paid over an agreed upon payment plan. To ensure future

compliance, implement a five year probationary period to stay current

on all future obligations. Those suspected of tax crimes would not be


    In addition to the non-filers, there are millions of taxpayers who

have filed and owe money. They badly want to repay their debt. They try

to pay it, but can never break free from the weight of interest and

penalties. It holds back their businesses, their lives and the economy.

Provide the same relief to them.

    Tax amnesty works. States offering non-filer amnesty have been

highly successful raising money and bringing taxpayers back into the

system. Nevada recently collected nearly $41 million between July and

October, 2008 from amnesty. Oklahoma generated about twice what it

expected, raising $82 million in 90 days.

    If two states could generate $123 million in less than four months,

imagine the benefit by including everyone back into the Federal system?

    Tax debt puts lives and economies on hold for years. Employment

opportunities are lost and new business ventures delayed; home

ownership is an impossibility.

    People want a fresh start. We as a country are now dedicated to

reclaiming financial stability. To achieve that, encourage those who

are out of the system to come back in. Implement IRS collection

policies that encourage taxpayers who are in the system to stay there.

    I would be happy to meet with Committee Members to discuss this

Statement. My contact information is Voorhees & Levy, LLC, 11159

Kenwood Road, Cincinnati, OH 45242, howard@voorheeslevy.com;



Howard S. Levy






    Victims, taxpayers and citizens, in general, are experiencing an

extraordinary chapter in American financial history. Economic

challenges, budget deficits and tax implications lead the list of many

issues confronting citizens and legislators. Surfacing in the midst of

what appears to be mass chaos is yet another disturbing issue--victims

of investment theft suffering irrecoverable losses in their life

savings. One bright spot, with the uncovering of these massive

investment scams, the media is finally bringing attention to the fact

that there are hundreds of thousands of people across this great

country who are suffering tremendously at no fault of their own.

    For the last ten years, I have been fighting for financial recovery

for victims of investment theft. There's been a law on the books since

1954 that helps some victims, but most often it ignores the truly needy

in favor of the wealthy. Unfortunately, it also requires a monumental

struggle with the IRS to get the deserved relief. The pain and

suffering these issues caused demanded I shift my focus and become an

advocate for victims in three ways:

  Investment Fraud Prevention Through Education

  Maximize Recovery Through Legitimate Sources

  Changes in the Tax Code to Carry Out the Intention of the Law




    The $50 billion dollar Bernard Madoff Ponzi Scheme brought this

subject to the public, but sadly, and very importantly, it also

surfaced so-called experts that began advising victims on the recovery

option under Internal Revenue Code Section 165(c)(2). Adding to the

tragedy of these losses is the fact that those same experts are

supplying incorrect information. As an example: Stanford Law School and

a former senior tax attorney for the IRS are both normally sources you

can depend on for tax law advice. They are both valuable sources of

information, but in trying to help victims of investment fraud, they

recently published information that could cause more problems than they


    An article, Long And Winding Path To Tax Relief For Madoff Victims,

appeared on accountingweb.com dated February 19, 2009. Stanford

University provided information on the IRC 165(c)(2) tax deduction,

quoting a former IRS official. This article is an example of a long

list of experts serving up misconceptions, serious omissions, wrong

answers and lost opportunities. Add The Wall Street Journal, MSN, the

New York Times and even the IRS to your list of experts providing

incorrect information, and you begin to understand the seriousness of

the problem.


    Current law includes but is not limited to, the following facts:


IRC 165(c)(2)


          Law was established in 1954 to help investment fraud

        victims recover a portion of their losses through tax benefits

        (much like that of natural disaster loss victims or casualty

        losses such as a destroyed automobile not covered by

        insurance). It was readdressed in 1984 by the Tax Reform Act,

        which did away with the 10 percent exclusion/$100 per item


          Deduction allows qualifying victims to take their

        total net loss against ordinary income in a single year.

          Deduction allows for the taxpayer to go back three

        years after declaring the loss in the ``Year of Discovery'' if

        a Net Operating Loss (NOL) remains, or, they can waive their

        right to go back, and carry the NOL forward up to 20 years.

          Deduction allows for up to a 20 year carry forward,

        with the exception of when the 3 year carry back is utilized,

        which subsequently creates the potential for a 23 year benefit.

          Losses in IRA and Pension Funds Do Not Qualify.

          The taxpayer must prove the investment was made and

        lost by reasons of theft as defined in the state where the

        transaction took place.

          Taxpayer must exhaust all reasonable means of


          Taxpayer must be able to prove privity (Private or

        joint knowledge of a private matter; especially:cognizance

        implying concurrence (Merriam-Webster) or in practical terms,

        there was a first hand relationship between the thief and the

        victim) in order to qualify. Ponzi scheme victims are generally

        not held to this requirement but that I'm aware, that exception

        is not written as fact.

          (Some) IRS agents consider any form of pending legal

        action (individual, class action, Federal indictments,

        bankruptcy or receivership) as potential recovery and will deny

        a claim until such time as that open pursuit of recovery is


          IRS requires a victim to provide proof of cost basis

        (copies of checks, front and back, wire transfer confirmations,

        disbursements, withdrawals, recovery, etc.).

          Taxes on phantom income are recoverable in full but

        are only allowed to be carried back 3 years. The balance (NOL)

        can be carried forward up to 20 years.


          Before a taxpayer can claim a deduction, they must

        first exclude 10 percent of their Adjusted Gross Income and

        $100 per item--Wrong. Although originally an aspect of the

        deduction, this exclusion was eliminated 25 years ago by the

        Tax Reform Act of 1984.

          2 Year Net Operating Loss Carry Back--Common

        misconception. Other than in 2002, when Congress allowed an

        exception allowing for 5 years, the carry back has always been

        3. The 2 year carry back does not apply to investment losses

        caused by theft.

          Up to 50 percent recovery of loss--Misleading. In my

        experience, taxpayers should expect to receive a total benefit

        between 10-20 percent of their loss. Although there may be an

        exception out there somewhere, I've never seen any victims

        receive even close to a 50 percent benefit.

          The deduction is taken in the year victims discover

        the money is gone--Maybe but not likely. Convincing the IRS of

        the right year to take the deduction is complicated. The big

        issue is the taxpayer having ``exhausted all reasonable means

        of recovery''. The ``year of discovery'' determination will

        vary from agent to agent.

          The deduction is simple to obtain--Really? It takes a

        knowledgeable and experienced 165 tax preparer to guide both

        taxpayers and the IRS agents through this process. I promise

        you, you should be prepared to be fully prepared. Taxpayers

        should expect to be reviewed carefully.


    For some time, I have been trying to get Congress to see the need

for changes in the law. The size of the Madoff ponzi scheme helped me

with my mission to get congresses attention. In doing so, they are now

discovering how prevalent investment theft and ponzi schemes are in

America. Congressman Kendrick Meek of Florida's 17th district moved

quickly and proposed new legislation on February 24, 2009. I'm thrilled

to see it happen, but it did not go far enough.


Proposed changes to current tax law.


          Will allow a 10 year carry back (or length of time in

        fraudulent investment, whichever is lesser) on cost basis and

        taxes paid on phantom income verses the current carry back of 3

        years. Given the fact that a great deal of injured investors

        are in the retiree/elder categories and have had little to no

        income over the last several years, this change will hopefully

        increase the chance of them reaching a year where significant

        taxes were paid.

          Proposes to provide assistance to individuals who

        contributed to charitable organizations. This is a new aspect

        to the law and it needs to be further examined in order to

        determine just who gets what benefits? It's not clear on how

        this will work and I'll have to wait for more details before I

        can comment.

          New legislation uses the word ``estimate'' verses

        ``ascertained''. This may be a big help in the filing of the

        claims in a reasonable amount of time, but it is not definitive

        and more work needs to be done.


          Will the complicated terms ``Year of Discovery,

        Privity, Scienter, Cost Basis and Complete and Final

        Transaction'' be defined in a way that makes it reasonable for

        the taxpayer to meet the requirements for filing? Regardless of

        what legislation is proposed or passed, unless these issues are

        defined in a way that tax payers, their tax professionals and

        the IRS alike can understand, little if any of this assistance

        will reach the intended recipients.

          Why is this limited to just ponzi schemes? Although

        certainly less publicized, other forms of investment fraud are

        still investment fraud and all qualifying victims should be

        given the same consideration, Will the new legislation actually

        limit the amount of time before a victim can claim the

        deduction and the IRS can take to approve it? The current

        process often takes so long that victims lose everything,

        including benefits, their homes and even their lives, before

        the help arrives.

          Will IRA and pension savings be added to the forms of

        acceptable losses/victims? A huge constituency of victims falls

        into this category and although technically they never paid

        taxes, they still worked hard for their money and would have

        paid them when the time arose. The money was withdrawn, the

        perpetrator was enriched and he or she should owe the taxes.

        Regardless of whether the IRS actually receives them, the

        victim should be entitled.

          Would a uniform tax rate potentially be the better

        and fairer way to go? Although the current proposed legislation

        goes far in trying to help, there are still a group of

        individuals that will be left helpless. As many of these

        individuals paid on average 15-20 percent in taxes when the

        money was made, it doesn't seem quite fair that they are

        penalized for having grown older or now having no income.


    I'd start with definable (and reasonable) guidelines for tax payers

and professionals. Next would be setting up fair opportunities for

recovery across the board, regardless of tax bracket or age. And

finally would be the creation of an organization, or an IRS qualifying

exam, that sets the standards for professional services. Setting these

guidelines and standards, much the same as what CPAs, doctors,

attorneys, etc. must adhere to or lose their standing, would help

satisfy the IRS that the claims are legitimate, would provide the

relief that so far is nearly impossible to receive and insure that the

professionals assisting these victims are qualified and making claims

in good faith. By enacting legislation that gives the IRS authority to

qualify those who represent taxpayers, they'd not only protect the

victims, they'd protect all taxpayers against fraudulent or unworthy


    It was a breath of fresh air to finally see someone step up and try

to help these people and I applaud Congressman Meek. He's taken the

first step, and with a few additions, he could make this law something

to be proud of.

    I'd like to officially request an opportunity to discuss this issue

with the individuals working on this bill and formally request the

opportunity to speak before any hearing considering it. I not only can

provide valuable practical information on how current legislation is

affecting individuals but potentially can provide insight into aspects

not yet considered that directly impact this issue.


Thank you for your time and consideration.


Moira Souza Shiver

MSS Advocacy Group






                     STATEMENT OF COLLEEN M. KELLEY

    Chairman Lewis, Ranking Member Boustany, and distinguished Members

of the Subcommittee, I would like to thank you for allowing me to

provide comments on IRS assistance for taxpayers experiencing economic

difficulties. As President of the National Treasury Employees Union

(NTEU), I have the honor of representing over 150,000 Federal workers

in 31 agencies, including the men and women at the IRS.

    Mr. Chairman, NTEU believes that in the current economic climate,

it is more important than ever that taxpayers be able to deal with the

IRS directly to work through any financial difficulties they may

encounter. IRS employees have a wide range of tools and information at

their disposal, which allow them work with taxpayers to address their

financial hardships and to become compliant.

    Above all else, the IRS employee's interest is in assisting

struggling taxpayers to meet their tax obligations in a way that will

not exacerbate their financial distress. When an IRS employee works

with a taxpayer, the employee has access to all of the taxpayer's

information and can answer questions and offer advice. For example,

they can see whether a taxpayer has not filed a return and explain that

the sooner the taxpayer makes arrangements to address filing and

balance due issues the less penalty and interest they will owe. They

can look at the taxpayer's records and answer questions about why they

owe a balance and what they can do about it. They can also tell the

taxpayer that they are not having enough taxes withheld by their

employer and need to address that or that if an ex-spouse is claiming a

child as a dependent they will not also be able to receive an

exemption. If a simple mistake, like a math error, has occurred, they

can fix it. They can provide an extension of the time period for

payment. They can make a determination that the taxpayer meets the

currently not collectible requirements or whether the taxpayer may be

eligible for an Offer in Compromise, in which part of the balance due

is foregone.

    In addition to this wide-range of services, the IRS just last month

announced a number of additional steps which will allow IRS workers to

better assist financially distressed taxpayers. These include,

providing IRS employees with greater authority to suspend collection

actions in certain hardship cases where taxpayers are unable to pay;

allowing skipped payments or partial monthly payments for taxpayers in

existing installment agreements that have previously paid on time but

are no longer able to do so due to loss of employment or some other

financial hardship; easing ability of some taxpayers to get an Offer in

Compromise, and speeding delivery of levy releases for homeowners who

are behind on their taxes who want to refinance or sell their homes.

    Mr. Chairman, while these additional flexibilities will better

enable IRS workers to provide some struggling taxpayers with the

assistance they require to work through their financial difficulties,

some of our most vulnerable taxpayers, including low-income taxpayers,

those with language barriers, the elderly and the less educated will

continue to be disadvantaged as a result of the IRS' continuing use of

private collection agencies (PCAs) to pursue tax debts. Aside from the

folly of turning this inherently governmental function over to the

private sector, use of the PCAs to collect taxes creates a double

standard and disadvantages Americans who may be in the most dire


    Unlike the PCAs, the IRS is able to provide special assistance to

the most vulnerable in our society. IRS workers can postpone, extend or

suspend collection activities for a period of time, make available

flexible payment schedules that provide for skipped or reduced monthly

payments or waive late penalties or postponing asset seizures.

    The PCAs cannot offer taxpayers any of these authorities. They can

only request full payment of taxes owed either immediately or in an

installment agreement of 5 years or less. What is worse is that

taxpayers who deal with PCAs are extremely unlikely to know that other

options are available to them if they deal directly with the IRS,

because the PCAs do not inform them.

    The PCAs sole interest is to collect from a taxpayer the balance

due amount they have been provided. They have no interest in whether

the taxpayer owes other taxes or may not have filed required returns,

nor do they have access to any other taxpayer records, so they are

unable to answer any questions, provide any advice or use any tools,

such as extensions or offers in compromise.

    In addition, while taxpayers unfortunate enough to be assigned to

the PCAs are limited to interacting with the PCAs over the phone,

vulnerable taxpayers that prefer personal, face-to-face tax assistance

with IRS employees can do so at the 401Taxpayer Assistance Centers

(TACs) located nationwide. Taxpayers are able to visit the TACs when

they have complex tax issues, need to resolve tax problems relating to

their tax accounts, have questions about how the tax law applies to

their individual income tax returns, or feel more comfortable talking

with someone in person.

    The IRS is also specially equipped to assist persons with limited

English proficiency work through their financial troubles through its

Multilingual Initiative (MLI). This service wide initiative provides

written and oral assistance to Limited English Proficient (LEP)

taxpayers in Spanish, Chinese, Vietnamese, Korean and Russian. This

program ensures that non-English-speaking taxpayers who lack full

command of the English language and are experiencing financial

difficulties are able to take advantage of the wide array of services

that the IRS can offer them.

    In calling for an end to the IRS use of PCAs, Nina Olson, the

National Taxpayer Advocate, an independent official within the IRS that

looks out for taxpayer rights, has said that taxpayers who are

unrepresented and vulnerable are disproportionately likely to be

contacted by PCAs, and that the median income of taxpayers assigned to

the PCAs is significantly less than that of taxpayers assigned to the


    In addition, Olson has noted that no case can be turned over to a

PCA in which a taxpayer is represented by a tax professional. Thus,

``taxpayers who can afford representation are exempt from this

initiative.'' Clearly, that treats lower income taxpayers more harshly

than others.

    Clearly, a tax system relying on public confidence that everyone is

paying her or his fair share is dangerously eroded by the double

standard generated when bounty hunters collect taxes from vulnerable

people for profit and people who work directly with the IRS are

receiving assistance that those working with debt collectors are not.

    NTEU strongly supports provisions in the Omnibus Appropriations

bill to cut off appropriations for PCAs and supports H.R. 796

introduced by Chairman Lewis and Chris Van Hollen that would repeal the

IRS' authority to use them.

    Mr. Chairman, NTEU believes that in a bleak economic landscape,

with skyrocketing job losses, home foreclosures and rising credit

delinquencies, the last step we should be taking is disadvantaging

people who are among our most vulnerable taxpayers.

    IRS employees remain committed to assisting delinquent taxpayers

facing financial difficulties in the current economic climate. With

access to a wide range of tools and information, the IRS can provide

struggling taxpayers the flexibility and assistance they need to meet

their tax obligations during the current economic downturn.






Dear Mr. Chairman:


    On behalf of Santa Barbara Bank and Trust (SBBT), a brand of

Pacific Capital Bank, N.A. and one of the nation's largest providers of

tax-refund related products, I am writing to respond to testimony

offered by Nina E. Olson, the National Taxpayer Advocate, at the

Subcommittee's February 26th hearing to examine assistance available

from the Internal Revenue Service (IRS) to taxpayers experiencing

economic difficulties.

    The Taxpayer Advocate's testimony focused on the tax compliance

challenges facing struggling taxpayers during this tax filing season.

One such challenge cited by Ms. Olson was that ``[m]any taxpayers who

are entitled to tax refunds and need them quickly do not receive them

for weeks and this delay drives many of them to pay significant

transaction fees to obtain refund anticipation loans (RALs).'' \1\ In

fact, we believe that RALs offer a significant value to almost nine

million families who use them every year to more quickly obtain access

to needed funds in anticipation of their tax refunds.


    \1\ Written statement of Nina E. Olson, National Taxpayer Advocate,

before the Subcommittee on Oversight, House Committee on Ways and

Means, Hearing on Tax Compliance Challenges Facing Struggling

Taxpayers, February 26, 2009, p. 14.


    For many low-income taxpayers, Federal tax refunds represent the

largest sum of money they will receive at any one time in the entire

year. As Ms. Olson's testimony noted, ``[a]mong taxpayers who received

the earned income tax credit (EITC) and tax refunds in tax year 2006,

the average refund amount was $3,184, and the average adjusted gross

income was $15,763. Thus, the average refund amounted to 20 percent of

each taxpayer's adjusted gross income.'' \2\ The National Taxpayer

Advocate also stressed in her 2007 Annual Report to Congress that

delays in obtaining tax refunds can be particularly challenging for

low-income taxpayers:


    \2\ Id., p. 15.


          Tax refunds are particularly important to low-income

        taxpayers--A taxpayer for whom the refund is so significant

        often makes financial plans based on when he or she anticipates

        receiving the refund and may view the refund as a lifeline. For

        some taxpayers, a delay of two to four weeks in receiving the

        refund could mean eviction, inability to pay the high heating

        bills that arise during winter, or defaulting on credit card

        bills from the holiday season.\3\


    \3\ National Taxpayer Advocate's 2007 Annual Report to Congress,

December 31, 2007, Volume I, p. 5.


    The length of time it takes for taxpayers to receive their tax

refund depends on (1) whether or they file electronically, (2) have a

bank account and can receive the tax refund through the IRS Direct

Deposit program, or (3) are unbanked and would have to wait for the IRS

to send their refund via paper check. For taxpayers who have bank

accounts and can receive their refunds through direct deposit, the IRS

has done a good job of shortening the delivery time to between 8-15

days. However, for taxpayers without bank accounts, obtaining a refund

via paper check still takes up to eight weeks from the date they file

their tax return.

    Ms. Olson is concerned that for unbanked taxpayers, such

potentially long delays ``drive many of them to pay significant

transaction fees to obtain refund anticipation loans (RALs).'' \4\

While SBBT cannot speak to the transaction fees charged by tax return

preparers, we believe that our RAL fees are very reasonable and that

RALs provide a valuable service by bridging the potential eight week

gap that those without bank accounts would otherwise have to wait for

their tax refunds.


    \4\ Id., p. 15.


    SBBT's average RAL amount in 2008 was $3,286. For that loan, SBBT

charged a total of $113 in fees, including a $31 bank account set-up

fee and a finance charge of 2.5 percent of the loan amount. Other than

the actual principle due the bank (typically repaid after the IRS

deposits the expected refund into a customer's temporary RAL bank

account), there are no other loan fees, payments or interest due from

the taxpayer, even if the IRS holds the refund up (e.g., because the

taxpayer's return is undergoing a compliance check) or ultimately

refunds less than the expected amount. There is simply the one-time

fee. We believe this is certainly a fair amount to pay to receive

access to much needed funds up to eight weeks faster than the IRS can

currently deliver them.

    In order for SBBT to be able to offer RALs to taxpayers at a fair

and reasonable price, we must develop a business plan each year for the

program. This ``plan'' is based upon loan repayment rates, projected

volume and certain fraud assumptions. The loan repayment rates are

projected out over the tax season to determine the funding curve that

the bank will need to cover the loans until repayment occurs. Finally,

income projections for the filing season complete the ``plan,'' which

is subsequently used to secure appropriate funding for the program.

Funding agreements, sometimes obtained outside the bank, and their

performance are critical to achieve profitability

    This filing season, our RAL program has been thrown into disarray

as a result of significant IRS delays in providing timely refunds for

thousands of taxpayers who are also RAL borrowers. Our information

tells us that the Service is experiencing significant processing and

operational delays, in part due to added compliance checks instituted

this year. As a result of these IRS processing delays, the rate of

return that SBBT will earn on its RAL program will be less than what

was estimated in our plan. Because our earnings will be lower than

estimated, next year the cost of funds to securitize our RAL lending

program will likely increase. That increase will inevitably be passed

on to consumers.

    Collectively, the RAL banks consider ourselves to be major

stakeholders in the IRS electronic filing program. Returns associated

with RALs represent 20-25 percent of all e-filed returns. RALs provide

an important service every year to millions of taxpayers at a fair

price. While the Taxpayer Advocate's suggestion to expand refund

delivery channels is commendable, delivery of refunds for debit cards

would not be a panacea for the processing and operational delays that

occur in almost every tax filing season. For example, the compliance

checks instituted this year would still have caused delays in refunds

being loaded to debit cards for thousands of taxpayers. Conversely,

thousands of taxpayers who otherwise would have had to wait (and would

still be waiting) for their refunds obtained much-needed funds within

24-48 hours after filing their taxes by using RALs. Until the IRS is

able to quickly and efficiently deliver all tax refunds, we believe

that RALs will continue to play an important role in tax


    We look forward to discussing with you and the Subcommittee staff

ways in which both the private and public sectors can achieve greater

transparency for fees throughout the entire tax preparation process,

rather than simply continue to focus on RAL fees.




Joseph Sica

Senior Vice President

National Government Relations Director



Panel 1

Mr. John Doe, President, ExxonMobil

Mr. John Doe, President, ExxonMobil


Panel 2

Mr. John Doe, President, ExxonMobil

Mr. John Doe, President, ExxonMobil

113th Congress