economic growth. what do we need today? jobs. and what is the second thing? jobs brac of the third thing? jobs. i am not amused by the 27 number three amendments a man and have another edo although that is pendingpe and to repeal banking reform. everything d we did, i guesshe he once made to go back to the gates then he put it incoll

his shoe without a calling prepared to end the regulation. to protect health and safety of the people, not one hearing on it.ayin i think the american people have to breakme up sometime today to pay attention what is happening. we have the built but she hates it and the other is that is replaced why are they other republicans stalling or hurting or putting forward amendments that have nothing to do with it d? swim i say voted for it and then taint. of ther same program it removing unanimously including the senior member and a great chairman of the

subcommittee. they voted for it. now they delay it. offering the poison-pille th amendments to it. it. of medicis second time they have done that. america, wake up. they did it to the small-business bill and hurt small business. they do it to this bill and hurting job creation and small business again and big business. and i said before maytag. that is another company. that headquartered newton i wasar employed 1800 factory workers was closed down then the city identified two manufacturing operations that could be located on the old siteon. cpi composites a wind turbine manufacturer and

another manufacturer of steel towers for the windmills. thi to my very important member of the committee, senator cardin, for some remarks. e.d.a. invested $580,000 in 2008 for a wind tower storage facility leased to trinity. that attracted, that $580,000 attracted $21 million in public investment. that same year we saw investments in iowa. so i'm going to stop now, yield the floor so my friend can ask unanimous consent that he be

recognized. a senator: mr. president? the presiding officer: the senator from maryland. mr. cardin: thank you, mr. president. i believe we're on the pending amendment, so we're not -- mrs. boxer: we're on the bill. the presiding officer: that is correct. mr. cardin: mr. president, let me compliment senator boxer for her leadership on this bill. senator boxer pointed out this dea bill is about jobs. it's about offering jobs in under-served areas. these are areas which are difficult to create jobs in good times, but in hard times they get hit even harder. the e.d.a. program leverages a small amount of public support for private-sector investment that creates jobs in underserved eamples in my state of maryland, e.d.a. projects have been very successful in bringing jobs to the rural parts of maryland, to western maryland, to our eastern

shore. they have leveraged private-sector investment and we maintained and created jobs. yesterday on the floor i gave specific examples of e.d.a. projects in western maryland on the eastern shore of maryland. i talked about an old manufacturing plant that was saved under an e.d.a. grant, leveraged 10 to 1 with private-sector investment saving over 100 jobs and creating another 20. these are jobs that are important for economic growth in our community. we all understand that this recovery has been a very difficult one for us to get moving at the pace of job growth that we know that we need for this nation. we all thought about what we could do about our budget deficit. i would hope we would all agree the most important thing to do is to create more jobs. it's interesting that the majority leader has brought forward three major bills now to create jobs.

i'd like to have a little cooperation on the other side of the aisle so we can get these bills to the president for signature. the f.a.a. bill that deals with modernizing our aviation system will create jobs and keep our airs safer is tied up in conference. let's move it forward. let's get it done and get it to the president. we had the sbir bill before us that would help small businesses that are innovation as far as job growth and we had so many nongermane amendments that were offered to it we couldn't get it through -- to the floor of senate. now we've got an e.d.a. bill that came out of the environment public works committee that came out by near unanimous vote that over the history of the e.d.a. has not been controversial in its reauthorization, now it looks like we're going to see that there's going to be numerous nongermane amendments offered in an effort basically

to just ignore the importance of the underlying bill that could create jobs for our communities. so i just want to urge my colleagues to, yes, come forward with your amendments. let's debate them. if they're not relevant to creating jobs on the e.d.a. bill, you know, let's be reasonable about this. let's not have a whole series of amendments that are -- are totally beyond the coach this bill like the -- the debt -- beyond the scope of this bill like the debt or the financial reform of last year. i don't pinned debating those issues, but they shouldn't be debated at this particular moment. i hope that we will be able to get to the reauthorization bill. i pointed out yesterday that one of the highest priorities from the -- from our local people in maryland on need was additional help from the federal government for planning dollars. planning dollars allow local

communities develop a strategy that can help them with economic growth in a community. i can tell you having been recently out to cumberland, maryland, a great part of our state of meryl, beautiful part of our state of maryland, used to have a lot of manufacturing jobs there. many of those jobs have moved on. they want -- they do have a strategy, but they need the planning help and either put that together so they can come together with a game plan attracting more private-sector interest in order to be able to create more job opportunities for families to stay in the western part of our state. it's that type of assistance that is contradictly important to america. -- critically important to america. i come back to the point that senator boxer raised. the purpose of this bill is to create jobs. jobs. #u -- save jobs and create jobs. we need to get on with that business in the united states

senate. that's why i'm proud to have worked to bring this bill forward. i hope that my colleagues will be judicious with their amendments so we can get this bill through the senate to the house so that we'll have an house so that we'll have an

>> i'm pleased to convene the ceiling and consider the funding for the internal revenue service. the largest single account within our subcommittee. our focus today is on the president's budget request for the irs in annual funding constitutes over half the total amount of discretionary funding under the jurisdiction. i'm pleased to share the dying is with my friend and

distinguished ranking member, senator gramm of kansas and other members will probably join us. joining us today to present testimony about the resource needs of the irs is the honorable douglas shulman now in his fourth year of a five-year term as the 42nd commissioner of the internal revenue service. thanks for your service and helping for accepting the challenge to help lead the irs for good to great. i welcome the opportunity to conduct a critical oversight of the irs and its programs through our discussion today. congress exercises its most effective oversight of agencies and programs through the appropriations process. it allows operations and spending to complement congressional oversight the irs caught three of important watchdogs and keen observers including the treasury's inspector general for tax administration and the national taxpayers advocate, the oversight board, the u.s. government accountability office and treasury employees union.

lots of people are watching. i appreciate the contributions of each of these entities to help us prepare for today's hearing. the irs said ministers ball and collects revenue to fund over 96% of the federal government operations each year 95,000 plus employees hundreds of millions of contact taxpayers and businesses. the onerous represents the face of the government to more u.s. citizens than any other agency of the current. on a budget last fiscal year this fiscal year on a budget of 12.1 million the irs collected 2.54 trillion, 93% of all federal taxes this $194 of revenue for every dollar appropriated funds given to the agency. you processed 230 million tax returns, including 141 million individual returns come 7 million corporate, 30 million employment tax returns the issue

109.5 million refunds worth $366 billion, and the list goes on. for fiscal year 12, the president's budget request funding a 13.2 billion represents an overall increase of $1.1 billion or about 9.4%. of the fiscal year 11 level for all irs accounts fiscal year 11 enacted bill maintains funding at the same level as provided in fiscal year 2010. i recognize this level falls over $487 million short of what the president requested for this year so there has been belt-tightening all around and it's affected your agency. we will talk today about the budgetary challenges you face in the upcoming year and policy challenges which drive spending in the agency and i look forward to hearing more about the challenges the irs faces in the difficult budgetary times and now i would like to turn the floor over to my colleague. >> chairman, thank you for the

hearing today, and welcome commission eshelman. understand the irs is tasked with the responsibility to collect the revenue the funds the government that administers the tax law. the ira's goal of increasing services making military compliance easier and enforcing the law to ensure everyone pays their fair share of taxes is all laudable. we all agree we should make sure our tax code and irs compliance efforts don't make it harder for taxpayers and small businessmen and women to meet their tax obligations to the as we know the american economy is facing difficult times and we need to get the economy moving again. americans are struggling and overly burdensome regulations and requirements and for the ability of the small businesses to grow and create jobs. i was pleased to see congress address the uncertainty by passing legislation to repeal the unprecedented 1099 reporting

mandate in the health care law. this marks a significant change in the health care law and the repeal of the 1099 requirement is good news for small business and agricultural producers who bear the largest burden under these provisions. i am interested in talking to you, commissioner, about the consequences of that repeal on your appropriations and budget request. i noted that the request for all irs the fiscal year 2012 is almost 13.3 billion so an approximate 1.1 billion over dhaka 2010 enacted level and the fy 2011 level resulting in a 9% increase. almost half a billion of that increase as requested to begin implementation in the health care law given the trend fiscal reality i'm interested to learn how they intend to prioritize the goal and carry out the responsibilities and enforcement and taxpayer services and make progress on important information technology projects.

i appreciate a sycophant complex responsibilities that the irs faces given our government fiscal constraints we must be careful, carefully review the agency's budget request to ensure the taxpayer dollars are receiving the best value for their dollars and make sure that we address our country's economic problems in a fiscally responsible way. mr. chairman, i look for to hearing the testimony and thank you for calling the hearing and i look forward to working with you on this committee's jurisdiction. >> thanks a lot, senator. mr. shulman, the floor is yours. >> thank you, a ranking member moran it's good to be here and i appreciate the opportunity to testify about the 2012 budget. this budget was crafted during the time of fiscal austerity and belt-tightening in the nation to be as efficient as possible and to spend taxpayer dollars wisely this means in my mind finding savings or we can and continuing

to invest in a strategic priorities to improve service and walter compliance. the fiscal year budget includes bugs 190 million in efficiencies savings and reductions and you've got my commitment to continue to look for ways to save the federal government money. against a backdrop it is clear that the irs is vital to the functioning of the government and keeping the nation and economy strong. the collected as the chairman noted $2.345 trillion in gross revenues to fund the federal government which is partially 93% of all federal receipts. and every dollar spent on all irs weep collect $200 of revenue. one of our duties as you noted is conducting the filing season despite the tax law change it

actually went relatively smoothly. as of the end of may we've got about 133 million individual returns. we did asia over 100 million refunds totaling 200 to $85 billion. we also answered over 50 million taxpayer calls this year. the irs program which is lauded by many as one of the most successful modernization programs and all of government continues to show a growth. this year we reached two major milestones. one is for the first time we had over 100 million people electronically file, and this year we started the final program in 1986 and crossed the 1 billion electronic filing of the tax return this year. clearly it's changed the way americans interact in the irs. it's a big deal for efficiency. to process an electronically filed returns costs $3.66 to

process a paper return and we've been reaping benefits and downsizing the operations ever since e-file started. we also try to help taxpayers who are struggling to regain their footing after the recession. this year we start of something we call a fresh start program which expands the offer in compromise program and it may lean withdraw easy for the taxpayers and to enter an installment plan and change the lurleen criteria. now in recognition of the critical role we play in the economy, both helping taxpayers file their taxes and also collecting the revenue and in the irs in the 2012 budget. this is to the taxpayer service and compliance programs and our commitment to administer the tax

law in the balance and fair manner. it also includes to finish for the 2012 filing season are key cord count database. if and when we have a fully operational account database it will mean faster processing of returns, expedited refunds for all americans, better customer service and enhanced data security. i also want to emphasize because of our unique revenue collection function of the investments in the irs more than pay for themselves by generating much more revenue than they cost. i would be remiss if i didn't mention the house budget resolution which provided a funding level for financial services in general government of approximately $2 billion below the fiscal year enacted level because as you mentioned a majority of the financial-services bill cut the magnitude would be substantial

and affect all operations from taxpayers' questions on of room to front-line compliance activities such as audit coverage. from the reduced tax law enforcement cuts in the house budget resolution would actually increase the deficit widened duties could decrease in revenues. and the cans in conspicuous drops in activities could have an impact on the longer-term voluntary compliance in the country. with that said what we conclude by saying i recognize that we are in a very challenging fiscal environment and that there's going to be a lot of difficult choices you and your colleagues are going to need to make, so i look forward to the constructive dialogue over the weeks and months ahead in this subcommittee and very much appreciate the support the subcommittee has given the irs. as i mentioned in my opening

statement, the irs deals with a huge volume processing more than 230 million tax returns and issuing over 109 million refunds. it is an indication of a challenge that you face and people you work with face on a regular basis. and of course there are going to be cases people set to defraud or cheat the government in terms of filing fees tax returns. i would like to call your attention to one that has received some attention over the last year or so. and this is dhaka providing of refunds to people who are serving in prisons across the united states. the treasury inspector general for the tax administration reported that iran is prisoner refund claims are on the rise, but up to 44,944 claiming refunds of $295.1 million in the year 2009. even though the irs has been

able to present large amounts of the refunds from being issued, 256 million have been rejected in 2009 and this year of the study. the amount of the falls refunds issued still hit a high $39.1 million. since 2004 when 18,103 false tax returns were filed, nearly $123 million in fraudulent refunds have been issued to those serving in prison. now, i can think of a situation where someone serving in prison may be eligible for a refund. it could happen but clearly in this case we are dealing with those ineligible to receive refunds who are trying to defraud the government. they aren't satisfied with being punished by sitting in prison, they are dreaming up new crimes to try to get the taxpayers' expense to try to defraud the government. and so, let me ask at the outset, i understand you've spoken to the u.s. bureau to try to make sure we have the

identification of the prisoners filing returns, but i also understand that when it comes to the state prison systems that your authority to have this kind of information transferred will expire at the end of this year. can you tell me what is being done to stop these false claims by prisoners? and what more we can do to protect the head tax payers in the treasury? >> mr. chairman it is an issue we take very seriously. and we've been focused on. the bottom line is when we have the name of a prisoner we can stop the refund from going out, and we do. the problem is getting the data, and with federal prisons signed last year in a memorandum of understanding we can put screens in place to block i sent letters out to the governors of the ten states that have the highest prison populations and the

biggest problems here. we spent that time signed a memorandum of seven states were in discussions with 17 other states, so we have seen some potential progress with states getting the information so we can block it. we have a bigger problem with the counties and municipalities because we need to get information from them. they've got budget constraints and we need to get it in a format in december so we can note into the system and put blocks for the filing season. but i would tell you and i think the inspector general realized this in the last report, we are stopping more, we are detecting more and screening more. estimates are we prosecuting those who file false returns? >> one of the real issues is the biggest hammer that we have is sending someone to jail and these people are already in

jail, and so actually what we've been doing in these memorandums with the states and federal government is and the authority talked about is allowing us to share tax data which generally we can't under 6103 the tax law so people can do things like have punishment in prison, wardens can put a prisoner in solitary confinement and things of that like. people we generally blocker people that are there for life. as you mentioned there's a lot of prisoners who are married filing jointly or who do a refund is what we need to screen it and make sure we are not hurting the spells of a prisoner. so i think we've made a lot of progress. this year we have actually process and on screens and follow-ups of 100,000 more. i added to the unit that does the screening so all of this is moving in the right direction and as long as we get the information we can properly block. stomach and the infinite wisdom of the members of congress, we dream up new tax deductions and tax credits for perfectly valid

reasons, at least in my opinion. and then it is up to do to try to make it work. and one of them related to tax credits for energy efficient windows, doors and insulation and geothermal heat pumps and solar heaters i probably voted for it. it sounded like a good idea. for tax year 2000 when they claimed more than $5.8 million of the energy credit which were included in the 2009 economic stimulus recovery act. based on the review of the statistically valid sample of the 150 tax returns the treasury inspector general for the tax administration was not able to confirm who ownership for 30% of that sample, 45 of the taxpayers, which of course is required to claim the credit. so there is at least a question going forward as to whether these for 30% of the people who claim the money were eligible for it.

in addition, this inspector general identified 362 and eligible individuals who were allowed to erroneously claimed $404,570 of residential energy credits on their tax returns. .. when people want to give incentives and when there was a major economic melt down across the globe, people quickly used

the tax system to push a lot of money out, to help stabilize economies. the tax system is sufficient and may be an interaction that can happen every year with most americans. when we have time, we can set up filters, find out whether there is potential leakage find out what data we can get in to get through an electronically filed returns and set up screens and filters and we do that. and so, for instance, the report you reference, it happened very quickly when we were trying to do some things. we set out a set of filters. it is generally viable service. we put more filters in place while they're having dialogue with that report. some leakage occurred, which

would like to have zero leakage with any credits because really going to because really going to be able to screen and follow up with a certain amount. but we do do follow-ups. things happen quickly sometimes more refunds go with a terrific and we have an audit program of the audit and find out what they will follow up in clothes. make no mistake. i think you're getting and sophisticated filters and stuff the vast majority of going out. the tax system is built on voluntary compliance and it's got to get balance right between the three friends to people and he's been spent or them to spend an block in the bad ones, there is going to be some leakage. our ballistic at the balance right, to hear the leakage as much as we can.

>> senator brandt, just bear with me. i want to answer questions. and the most egregious cases, when someone is claiming their homeowner title ii these critics and effect are not convinced that they clearly misrepresented the legibility for programs. not a math error, clear misrepresentation. in those cases we need to take them come is a follow-up in terms of penalties, fines, prosecution? >> penalties, gas, fines , yes. pgh prosecutions we have limited prosecutorial resources. resources and places that are the most long-term deterrence. our criminal investigation is things around, prepare your side, identity theft fraud and very specific tax fraud.

we try to allocate resources. so the answer is yes. a lot of times you'll see a scheme where one person is this a bunch of false claims and come off as a return, comes back. usually an individual with a thousand dollars credit for themselves fraudulently used it will be find it much more of a simple context in a criminal context. the bigger the crime, the more it happens and i see no partnership at the justice department and local u.s. attorneys. >> i've talked about this specific credit. last question here. if you could take a look at the overall landscape, which we find find the most proud in terms of claiming that they are not entitled to. >> you know, the tax code is incredibly complex. there's a fair amount of noncompliance. some of it is confusion. some of it is fraud.

the police is refocused, which is really think that most leverages for the texas and to make sure we protect the fifth is overseas and off shore tax evasion, people parking overseas, complexity is where people hate them push the envelope. we've been focused around preparer fraud because we think it's a big point of leverage if one preparer gets 1000 taxpayers and encourages them to do something fraudulent, a lot of time to taxpayers or expect to become like that down as the big link in the system. refundable credit, places where you can get a tax credit that's large defined fried. we did a lot of focus on first-time home buyer, where is the big refundable credit for this temporary, quick. we put a lot of effort there around both civil and criminal follow-up in this set of credits that you talked about is where we put a lot of effort. >> thank you.

thank you, senator graham. >> commissioner, following that line of questioning, how often is that the irs finds the fraud as compared to an inspector general's report tory gao report requested by congress? how actively engaged in how successful are you impaired enough the problem without some other agency pointing out the fraud with the challenge? >> so, every tax return is three spree. it is our fraud filters and it looks fuller returns that have the same addresses. 100 returns at the same addresses. big change in income. you know, not having the proper documentation attached for information in the return. preset filters intolerances frankly based on resources. a lot of these are in dacia that

we need to follow up on and so we have units. this little units that call employers can say is this income accurate? and then it takes such a criminal who develop schemes and beats her criminal prosecution. what i would say is gao, inspect your general, congressional oversight really helps us by focusing on places where they cartoonishly cage. i don't think there's been an instance since i've been there where people have found more fraud in their investigation can be factually wrong. to see these cents anonymous to, ice cream filters take out between what 2 million tax returns the year that we do follow up on. we block every year and reject 2 million returns to have duplicate ssn, dependents or individuals. and sometimes as a transcription

error, but sometimes it is some of the trying to defraud the system. in utc alone we protect $4 billion annually through our enforcement efforts and blocking refunds go out. so we've got incredibly active program name. do you know, it's helpful to the people overseeing the program, finding that there's too much leakage and the continual evolution and take a nap. frankly, the real fraudster art semifamous and her assistants and lewis have to be one step ahead. >> two examples that chairman durbin indicated that the prisoner example is something you would've no before we read about in the paper? shura, we've had extensive conversations. the root word -- let a counterintuitive to a average american set of prisoner can get a tax refund. >> i think the reality is some

prisoners can't get tax refunds. we need to do screening. if you actually look at the report does say there have been more, they also show we been screening more and blocking board and identifying mark. the gross volume every time this year, the numbers, percentages were taught, the amount we filtered or protect them a lot more money. as a fraction, moore was going out. >> you talked about the philemon savings that come from the successful program. first of all, how much more potential is there for savings? is the more opportunity for more defiling expected? secondly, you talk about the 190 million in efficiency savings reductions in nonrecurring committees. what does that mean in the budget and appropriations

process? >> so, keyfile, just to tell you what we've done, we've shut down five of our 10 processing centers over the last six years. hasn't been popular with folks for those processing centers for, but we've been very clearly reaping the savings that he finally and for right now we plan with a series of shutdowns, but certainly we're going to look to be ignored. 75% individuals defiling. 20 years from now, the irs won't take any paper. we still take some paper. i am hoping the percentage will just keep going up in madison great working with the with individuals connected to security very seriously and no one has been worried with returns there's going to be any leakage.

since i came here and for every budget for the last two years that i've submitted, we've always submitted financial stadiums. i believe this ahead of the agency do you can always find efficiencies and you've always got to be looking at corporation , stopping operations that don't make sense if you can reinvest in the future. this year, the 190 million are savings turned keyfile, repeat cutting down or processing operations reducing i.t. infrastructure. we been through a capable maturity models which is standard track is what they been stockmarkets and the computer systems, where you bring in an standardize your processes across your whole i.t. infrastructures. you are on standard ways of

documenting, outside of the thing of software engineering that action will come in and do random audits to see. is that we've been promising for the last two years 75 million a year at the more efficient and more standardized and cheap to elegy officers signed up for the saving. as i missing here you just ask act will keep doing savings than just corporations. it actually increases it will save you money. this year we didn't send out any 1040 forms. as the family we crossed a threshold. within in the past if he filed for the 1040, who attenuate 1040. i thought that was a self-fulfilling prophecy. we're not going to spend $10 million printing and sending out those who prepare contracts. this is just a series of issues.

to be honest, as the chairman said, we've been under acr because their sensation in teams like rent and other things an effective cut them into an aggressive cost cutting this year as well, and he on the things listed in our 2011 budget as cost savings. the immaculate across $190 million more in your appropriations request and budget request before the savings. >> correct. >> what percentage of american individuals filed the return with the assistance of a professional preparer? >> about 60% was last year. that number is actually going up. and another 20% use prepackaged software. 80% are using them sort of -- some of the professional realm to help them with their tax return. >> at e.u. summit in the film, is not an automatic defile or their prepares on paper?

>> so, one of the things it becomes one of our processing centers, which drives me crazy, when i walk around us have it printed after the attacks are turned on the computer and send it to us that the people they're tacky is back and after it's already been type to influence. you know, there is a 10% error. through their reducing, but that's how you transcription errors. it's incredibly inefficient. last year, congress actually passed in the final man date for preparers. we've been seizing again. gives it ready to have any preparer who files can return to the file. this year we started preparers with 100 returns. you know, that the thing about keyfile and i think we get this rate over the years is the only guy to mandate once we really had meant some and i must everyone we could convince voluntary be to cendant had

involuntarily. really increased use on others to mandate that says very prepare using software unique keyfile blessed to get a waiver from your client to really wants to send it in on paper. >> chairman, at other questions. >> so, we are in this debate here about our deficit in how we can come up with savings of $4 trillion over 10 years of roughly 400 alien dollars a year, either intended spending so that is kind of the standard greasing. save 400 billion. it is estimated $345 billion in federal taxes go and collected, a noncompliance rate of 16.3%. this growth problem illustrates an enormous untapped resource of federal revenue, which could go a long way to dealing with their

shortfalls in our deficit. most of the tax gap maternity 5 billion out of 345 is attributable to underreporting of tax liability. 197 billion on thoughts from individual income taxpayers. underreporting can be the result of understated income, improper reductions, overstay reduction expenses and erroneously claimed credit. so we went through an exercise here in the affordable health care and decided one way we can capture some of these uncollected tax revenues when it came to small businesses was to have more reporting from them, more 1090 nines reflect in their business committee. well, naturally there was huge pushback from the business community, seymore paperwork, thank you, washington. so we packed track walked away from that and said we won't take them in the system.

so i want to ask you a pretty obvious question with a pretty obvious answer insured. is there a way to address this tax gap without more reporting, more regulation and more disclosure? >> so, our statistics basically show we have information with porting and withholding. so the average american's paycheck is withheld and the employer since then the taxes and they get a refund. you're over 99% compliance. or you have some information reporting, mortgage interest, deduction, 1090 nines reporting for interest on bank account, you know, that kind of thing is that 95, 96% compliance. where you have no information with porting from a cash economy, businesses, you know, compliance -- it's hard to do

the studies. they are by their nature and accurate. recoded to research, to some statistically select did samples, et cetera. you get 50%, 60% compliance, 70% compliance. to really answer that please are his leverages information reporting. as you said, we separate tax system is a voluntary tax system, we are fully forthcoming with the government, report which you know we keep an eye on things. the week in a broad coverage is having a third party to information reporting. it's the only efficient way to go in the tax gap. because it affects a lot of people at the tax code, it becomes politically unpopular like he said that the 1090 nines reporting. i fully understand both politics realities around small businesses and what people are trying to do cheers and so it is very tough. there is an economist who spent a lot of time to set the thing

to remember about the tax gap if it is like deep shale oil preserved. this is not just minicity mutates easily tap. we have in many ways tapped the money. we actually have a very high tax tax compliance rate. there's only five countries to study the tax gap and we are as high as any of them. the way to go at the tax cuts is better information reporting. but it brings with it some burden. i do think there's just basically said offender information technology to become more ubiquitous. it is lower cost and easier for people to the reporting. a good example is history we are implementing the credit card reporting, where we would get from credit card processors and people like paypal gross receipts that were paid into

businesses that's not a direct match because some industries have high credit card receipts. some industries have lower credit card receipts. we will look at the statistics and it will be another factor reuse in our audit selection and site selection. but we sure could do is spend time i'm not placed tax payers. >> was way to ask a question about the countries do it for's leg and we do and i think he said with a top-five and clients, but if there is mixing old of a country that figured out how to do this is great proficiency in terms of collecting taxes owed, i would appreciate you sharing it. the second part i think you've alluded to, as we started off with the premise, i receive it to be two and 44 from the irs can sit down and to really fill it out, sign it in the mail back

at some human being receives the paper and goes through it to see if i'm telling the truth or if it looks presentable. the whole system is starting to change and become paperless and information is flowing back and forth without the traditional peeper for them. so where would the king -- looking to a transformation in information gathering is the just described with credit cards that may make compliance easier, where he may not be burdening local businesses so much with filing forms, but rather having some basic flow through information that tells us what we need to know if to assert tax liability? >> so i think there are a couple possibilities. i laid out a long-term vision. we've got to get some of our quartet elegy done of actually trying to get btus, 1090 nines loaded into our system before filing. so right now, the way out the reporting happened if those

don't get it until after people file. so they can't use those as screens and blacks and visits back to the refundable credit question. and we got a concept of basically said we can figure out a way to frontload the issue, actually potentially work with private sector can make information available to people. rapid people scrambling and looking to file for envelopes of the important tax return information and open it up or keep a phyletic, we have a database that would have that. when people filed if there was a mismatch, but have to correct it before it came in. it would come into us. we got a lot better compliance on the front and in creed a lot less hassle for taxpayers because taxpayers are now defiling get it wrong, six months later you get a letter from s. beauty then have to scramble future records, pay them again ago 32nd loop, which is probably unnecessary. i think that's one thing we can

potentially do. second is i actually started an office reporting directly to me and compliance data analytics, which is looking at databases can try to make sure we are really smart about information we have and we are applying appropriate treatment screens. so for instance, we are looking at things like rather than sending out the standard for letters to taxpayers, which they get overtime, making a call to a taxpayer immediately when they have a tax liability to sort things out much like the credit card company and continually looking at data analytics to get better. on the flow through, it is more of a conceptual conversation, when we have took a full vetting with congress. as the 1090 nines issue showed, people are very sensitive about burden, but also the voluntary nature of our tax system in the government not knowing too much about people. in her complaint shall be javaone be want as much information as we can.

i think the world is what are information available that can move around a lot quicker and could be less burdensome ways to get information. >> one last question is do you have the information to elegy capability and staff capability to develop what you just discussed? a new generation about collecting and processing information that doesn't rely on the transfer paper? >> we've had this conversation. i think we have the staff capability. by i.t. leadership team that we have recruited that would put up against anyone else in the private air. we brought in a cto would then have to elegy for boeing, visa international has built an incredibly strong team and that's why we are able under tough budget circumstances to finish this twenty-year modernization of our account

database. with that said, where i came from, building big tech elegy in benchmarks and financial services you spend somewhere between 10% and 20% on capital investment because you're all about processing money, getting information, serving people, which is a similar model to worse. our capital investment, this president has asked almost doubled from 1.5% of their budget to just under 3%. so my object in view is that the agency for 20 years has been underfunded and kind of interesting technology in the future. we are just getting there and recognize constraints were under. i'm not going to make a request for a 10% increase or 10% of our technology budget the technology investment, but i do think the

future of running the nation's tax system is all about investment elegy, investment information that we need to keep investing. >> thank you. >> mr. chairman, thank you and aired the fire is 1090 nines issue to chairman durbin just talk about, as i understand your budget request included 23.382 million full-time employees attributed to the health care loss provisions. in light of this repeal, the irs request is reduced by 23.3 million a change -- i'm sorry, 82 full-time employees? >> yes, that's dropped. >> good. >> which escapes the money. >> what chairman durbin was talking about caused me to want to inquire about the security.

he mentioned the voluntary nature concern by americans about information -- the federal government having information about them. how secure of a system do we have in place that protects taxpayer information from those who would want to be there harm the system or steal information for their abuse? >> is very secure knockdowns. i tell everybody i was sworn in, came back to the office and the first briefing i had as irs commissioner was about protection of taxpayer data and data security. it's really built in the dna of the irs. there are laws that give it our individual employees from sharing information that any individual taxpayer with anyone and we prosecute aggressively when anything happens. from the pure data security infrastructure, we've got

extensive perimeter infrastructure around the web and we are continually monitoring that. we coordinate with all the federal national security agencies to make sure infrastructure is good. internal security we have blogs, monitoring, back down to one of the things i committed when i came it is any type what you put online lap 100% locked down data security. you have to make choices, but were never going to make a choice and data security. we take this very seriously and will stay focused on it. >> one of the reasons -- all shift topics, but one reason you would request for money and personnel is passage of the affordable care act. its constitutionality is being tested in a simpleton like what we decided about the united states from court.

in light of whatever the answer to deas, the magnitude, is the irs operating as if it is kind to shill going to be fully implemented? is very middle-of-the-road approach? i assume you're not sitting there waiting for constitutionality to be determined. are you behaving differently in the expenditure of money coming use of personnel, focusing resources because of the constitutional challenge? ..

we had started with a small amount of problem. we move toward what the laws on the books. >> timeframe wise for implementation of dca, what happens incrementally between now and 2014 towards full implementation? >> we go through series of additional use of resources, personnel and tax collections and enforcement. >> yeah, so you can really break up the work that we are going to need to do on the affordable care act into the technology infrastructure largely rounded refundable credits and connecting with the state exchanges and that is our biggest list between now and 2014. technology and operations is 82% of the request and the 2012 budget. it is building the infrastructure to hook up with

all the state exchanges so that when people are registering, they can find out their eligibility for tax credit, can find out for tax credit and then we have the information flows in the money flows with the insurance companies to be paying those on a regular basis. and then there are some very -- tax law in the affordable care act that we need to implement immediately. there is a lot of immediately effective provisions such as there is a tax on an excise tax on tanning salons, which was implemented and right now we are doing outreach to them. there are 25,000 was never had an excise tax so we are doing outreach education and then we will have a compliance program. there's a credit for small businesses to help them fight insurance or i mean help them buy insurance for their employees. there is a tax on branded pharmaceuticals which right now we have sent out the initial bill to the branded pharmaceutical companies for

that. they are verifying the data based on government purchases so there is that kind of work. that is a small amount of work so between now and 2014 there will be immediately implemented tax provisions in the work that has to happen there. but the big list is building the tech allergy infrastructure to be ready to interface with the state exchanges and the insurance companies around the $40 billion of refundable credits. >> and that was required in 2014? >> yeah. the open enrollment will happen sometime in 2013 and if you scope a systems built you basically need to lock down requirement. then do your bill and then do your testing so there is a huge list in 2012 around requirements and bills because by 2013 you should be testing the system's. >> mr. chairman i think perhaps my last question is related to

the national taxpayer advocate's testimony. she raised a couple of issues for me, talking about really customer service, taxpayer service. for irs fy210 management discussion and analysis including gao's auditing the irs collection relate to enforcement activities totaled 56.7 billion a 34% increase over 2004. by contrast out of the iris answered 74% of all calls from taxpayers seeking to speak with the telephone assistant in 10 as compared to 87% in 04. so a decline of 13%, 13 percentage points or 13% so less access to the live person on the phone is the point that is being made here and then also this

sentence that the backlog of taxpayer correspondence and the tax adjustment amatory is has jumped by 26%, representive uncontrolled correspondence, not exactly sure what uncontrolled means that not yet entered into the computer system has increased by 134% and a percentage the percentage of taxpayer correspondence classified as overreaching has increased by 135%. what are we being told and what does that mean? >> sure. as i mentioned at the beginning, i take very seriously the vast majority of americans are wrestling with a very complex tax code. their interaction with us every year spyware attorney get a refund and that is the last figure of us. i think about it and talk about it internally as we are big financial service operation and we need to answer the phones. process paper and do all the things you need to do to serve the american people.

the reality is we are right now operating with about 1200 less people than we were at the end of last fiscal year because we are under cr and our budget is slightly reduced. we have allocations to taxpayer service and we have allocations to enforcement of those enforcement allocations have a ring around them because they have a direct revenue producing effect. the reality in my mind is our taxpayer service operations also bring in revenue when we answer a tax law questions to help them get it right. e-file in those computer system so we can do managing, all of those accounts actually help get the $2.3 trillion in revenue. and we are trying to get a mix. the phonecalls i think we are actually doing okay. we actually need more people to answer more phonecalls and we didn't get the request last year

for 2011 and we put the credit -- request in for 2012 which will bring up that level of service. i would point out because we use this thing called the level of service. that is not in the taxpayer satisfied with the service. we actually have a 96% customer satisfaction rating on our phonecalls. we have introduced a few things which have dropped our level of service to increase satisfaction like wait time. so if the taxpayer calls and hangs up, that counts as a negative so that is not in the 74%. but we tell them is a 12 minute wait, you might want to call back at a less busy time. our paper inventory has been growing. we do put people on the phone to put people in the paper. the way we try to balance it is during march and april we be sure to answer all the focus we can sell the paper gets backed up back definitely catch up with paper as we go.

this request ask more customer service folks. we need people to process and open it up and look at it and make decisions about where it goes and things fall into error. so that has gone down. i have always leaned in and set around priorities. we want to make sure, technology is the key and we need to make sure we invest in technology. phones and paper and the web we can move people off the paper and the phone if we do more transactions on the web. it has to be invested in an frankly though, the conversation that ends up happening with people who spend time with the budget is there is always a tendency to put money into enforcement. we really need -- as you are pointing out in the taxpayer advocates are pointing out we need to keep an eye on a balance program. i think the president's budget is very balanced and will boost those numbers and so we will be serving people better but make them -- in tough budget times they were going to be longer wait times and we will answer

less phonecalls and papers will take longer. >> are there more inquires overtime with taxpayers calling for help? >> despite based on different provisions. we had a huge spike in 2008 when we sent out the stimulus checks to every american. where's my stimulus check? am i going to get one? vendor phonecall volume spiked in our level of service plummeted. we have had steady but a lot of it depends on tax law and what is going to happen. if you look at our affordable care act request, back to what you were talking about, technology and service to make sure people understand how the rules work and what they are eligible for is often the request. >> thank you commissioner, thank you mr. chairman. >> mr. chairman done of us have been accused of being in a tanning booth so i think you can go forward with your outreach without us being affected. i want to ask about the taxpayer

advocate. it takes american about 6 billion man-hours a year to comply with federal taxes. which, when you divide it out by the full-time equivalent employee is 3 million jobs just complying with federal law. when we look at how people then comply with this law in a practical way, about 60% of the individuals are hiring someone else. about 29% of people are interacting with software. it is a hidden tax on americans on average of about 250 bucks a year. it is really an extra tax on top of the tax that you pay to comply with federal law. have you thought about a way and it seems to be unreasonable to take 3 million americans in a country of 300 million to comply with federal law. have you thought about a way to develop that matrix through

software, get it down to 1 million americans? maybe just 2 billion hours to comply with taxes instead of 6 billion backs this is an incredible drag on the economy. >> so, as you know, the congress has the prerogative of passing the tax laws. our job is to administer whatever laws congress passes and the president signs. >> let me interrupt you on that. there are two ways in the 21st century we can handle complexity. the ideal way for me is a flatter, fair tax like what the gang of six may come up with to lower the rate to 26% but we will see. the other ways entirely in your hands, that an american doesn't pay h&r block. simply log onto the irs web site and fills out their taxes in an accurate, complete way in which the software is handling all of the complexity and the amount of time spent complying with federal law drops like a rock

which is entirely within your purview. >> so we were talking earlier about my few and looking at the metrics that we have under invested in the irs to knowledge he. over 20 years, not in recent history, so i will tell you frankly we don't have -- we need to build some things like art account database and get that off of a 30 year platform which your finishing this year. way to build some core infrastructure. we do have available you know, forms that calculate that people can go in and file on line directly with us. i think there is a big discussion about irs having software and frankly i think it is an administrative discussion but it is also a political discussion. speier total budget is how much? >> our total budget is about 12 billion. >> mr. chairman i think americans would love not to pay

turbotax and not pay someone else. just my guess and correct me if i'm wrong, to develop a software package might ea 20 to 30 million-dollar job and then put it up on the web for free to americans. >> i guess i would say we have taken some looks at this. i don't think it is quite that simple and i think there are traces. >> actually i would disagree. it might actually be more simple because the software companies have to make software calls based on checking with you where is you actually all the rules and could be setting up the decision matrix because you are the authority. >> look him i would love senator to talk about this further and having talked about it here, i've gotten lots of letters on both sides of these issues about should we be in the business of actually the sets of choice is embedded in software or shouldn't we? what i would tell you is we have got a very full plate now off technology of technology that we need to get done that would

build a basic and restructure and start talking about those things. i would welcome a full range discussion about a. >> chairman of the something we can work together on because you shouldn't be a theological discussion. your mission should be to make it as easy as possible to comply with federal law, so this argument inside your shop should and again in our. then you say how do we then deploy software in a 21st century context of the americans get on, put in their basic data files, doesn't pay anybody and sort of like the e-verify program. we are making it as easy as possible with anderson at -- internet solutions to comply with the law. thank you mr. chairman. >> a call from h&r block. [laughter] thank you very much, and i don't think -- i think it is a valid question. >> i do too. i totally agree. >> if we can eliminate the middleman.

the middleman will hate it but it may save taxpayers money. i am looking for ease of filing. to put another idea on the table which will never pass as law, i made matt mentioned to you 15 years ago my account and died in springfield and i said, i am a lawyer, i am a senator. my tax return is not that complicated. i will do it myself. every member of congress should be required to do their own personal income tax. i guarantee we would have tax simplification overnight because i struggled with it for hours thinking, why is this so hard? because i don't do it and i didn't have a computer program to work with. it is just using my wits and it didn't turn out to be that impressive. the point i'm getting to is that the complexity of the system i think you would agree needs to be continually reviewed so that we can make it within the grasp of ordinary americans to understand how their taxes are being calculated.

if there is a mystery associated with it, there's a sense of injustice that somebody -- i am paying it in he isn't, that sort of notion. and it is expensive is that to get some of these tax repairs to do some basic returns. i don't think senator kirk is off base on that. i want to follow through and see what we can do on that. senator moran do you have any more? mr. shulman, we will have written questions for you and baby colleagues will as well. >> thank you very much. [inaudible conversations]