>> committee will come to order. welcome, commissioner koskinen. on december 20th, the senate confirmed john koskinen as the 48th commissioner of the internal revenue service. commissioner koskinen joins the service after a very distinguished service in the leadership of freddie mac, deputy mayor and city administrator of washington, d.c. and as deputy director for management at the office of

mansionment and budget and before that, as ceo of a management consulting firm where he helped to turn around large and troubled organizations. a career i'm sure that's fitting at this point in time. commissioner koskinen's career centered on stepping in and repairing failing institutions from private companies to the d.c. government to freddie mac and given the challenges facing the irs i'm very hopeful that the troubled agency will benefit from your experience, commissioner. the irs staffed with hard working men and women who do a tough job collecting $2.4 trillion in annual revenue and administering the complex and outdated tax code but recent years the trust of the irs is shaken. in 2011, the committee investigated rumors that the irs was seeking to interpret the gift tax an apply it to donors to right-leaning social welfare organizations. the rumors were proven true. the committee immediately took action to successfully halt this

sudden and unexplained enforce frmt the irs. the committee then began investigating allegations that the irs was delaying and harassing right-leaning applicants for tax xemplt status and the rumors were proven true and now the irs recently published draft rules that would essential codify the continued tar getting of the very same groups. the insults to the public's trust have occurred during a time when the irs is taking on vast new responsibilities under the president's health law while the agency continues to struggle with many of its core essential missions of revenue collection and taxpayer service. as i mentioned, over two years ago the committee began investigating allegations that the irs was harassing individuals and organizations on the basis of their personal and political beliefs. early last year the treasury inspector general for tax administration released an audit finding the agency had, in fact, targeted groups based on their

policy views. for instance, if they had sought to, quote, make america a better place, end quote or based on the views and had named themselves with the words tea party or patriot. following the release of the tigda audit, the committee sought an reviewed roughly 400,000 internal irs documents and interviewed dozens of irs personnel from front line screeners in cincinnati up to the former commissioner. however, this ongoing investigation has been delayed. we have hit a roadblock because the irs has yet to provide all the e-mails former director of exempt organizations lois lerner. despite the fact that the committees invest gaitding the matter have not received the documents requested or con ducted the interviews sought, the irs released a report weeks after the tigda report declaring no wrongdoing occurred.

the irs came to this conclusion without an investigation or interviewing the managers involved f. you're told that the investigation is complete and no targeting occurred, you have been misled. last president the claimed in an interview there was not -- and i quote, not even a smid jon of corruption at the irs, end quote. and he plamed targeting on, quote, boneheaded decisions by a local office, end quote. now this committee investigated the matter to significant degree and found otherwise. i believe the president's staff is either very poorly informed or they're actually misleading him. despite the fact that the investigation is ongoing, november 2013, the irs also proposed new rules for 501c 4 organizations to push many of the targeted groups out of the public square completely. the draft rules would up end regulations that have been in place since 1959.

they would incentize political activity by charities and proposed because of in the irs's words, quote, considerable confusion, end quote. by irs employees over 501c 4 political activity but the committee on ways and means has actually investigated the matter and interviewed front line employees in the exempt organizations division and the committee has found no confusion. irs screeners were competent, well equipped to evaluate applications for tax exempt sta stus of groups with political activity. the new rules do not seek to clarify. they seek to silence. we also spent time meeting with the victims. the organizations and individuals that had been targeted. something that the irs still has not done. these problems come against the backdrop of an unprecedented backlog in applications for 501c

3 applications up over 500% if a year ago. they come in the context of an estimated $140 billion in improper payments processed by the irs in the past 10 years and a growing plague of identity theft. in some cases, identity theft led to over a million dollars of fraudulent refunds going to single addresses or bank accounts and in one case we have uncovered $156,000 sent to a single address in shanghai, china. this gross waste of taxpayer dollars must come to an end. this occurs as the irs begins implement the single biggest change to the tax code in a generation. the health care law. the health care law has charged the irs with administering 47 new tax provisions collecting over $1 trillion in tax increases and looking at very complex tax credits, refundable tax credits, so commissioner, the task before you is daunting. your charge to restore public confidence in the irs, rid the

agency of mismanagement, end political bias and stop the hemorrhaging of taxpayer dollars to crooksters and fraudsters. we are your friend. we are not your adversary but i cannot stress enough how important it is that we build a cooperative and productive relationship going forward. you'll serve as commissioner for five years so your relationship with the committee will be a long one. it can be a productive relationship or it can be an adversarial relationship. we have to make this productive. just this week, you announced to my surprise that you had changed an earlier decision in award over $43 million in bonuses to irs employee union members. this occurred at a time when the irs is constantly complaining about the scarce resources, making matters worse, the irs failed to inform the committee of the decision in advance of the announcement knowing it was a subject of concern for this

committee and the subcommittee, in particular. adding insult to injury as we'll get to later, the irs continues to with hold documents requested by this committee pursuant to the ongoing investigation. commissioner, we need you to turn these documents over. the agency owes us and the american people these documents so we can get this relationship off to the right start. we can clear the slate. get a clean slate going forward so you can implement the reforms you want to do. restore the trust to the agency went we can carry on the oversight aifts and then address some of the other ongoing future problems with the irs. with that, i now yield to the distinguished ranking member from georgia, mr. lewis. >> good morning. thank you, mr. chairman for holding this hearing. i'm pleased to welcome the new internal revenue service commissioner john koskinen to the ways and means oversight subcommittee. mr. commissioner, you have a

tough job ahead of you. and i want to thank you for accepting this challenge. for being willing to serve. please know that many of us want to work with you address the financial service and staffing problem facing the irs. as you know, the recent omnibus funding bill provided $11.2 billion for irs operation in fiscal year 2014. this is a $1 billion decrease from the year 2010. i'm very concerned about the unavoidable reality of these budget cuts. today, there are thousands fewer irs workers struggling to meet a heavier workload. now, it takes much longer for taxpayers to receive responses to their inquiries and backlog that's not a dream.

it is grounded and cold, hard facts. the irs staff must process 5 million more individual's return and answer 15 million more phone calls with $1 billion less. let me say that again. 5 million more returns, 15 million more calls and $1 billion less. my friends, you can only get out what you put in. and you cannot get blood out of a turnip. in particular, i'm very concerned that the irs long standing practice of assisting low-income, elderly and disabled taxpayers in preparing their returns has been discontinued because of these cuts. why is this? congress so determined to

balance the budget on the backs of the poor. enforcing tax laws, collecting taxes and providing service to taxpayers are some of the most vital responsibility of our government. we cannot keep robbing peter to pay paul. congress cannot cut the irs budget and hope taxpayers will continue to receive the service they expect and they rightly deserve. it is not just the commissioner who has called for more resources but also the irs oversight board. taxpayers advocate and treasury inspector general. when taxpayers cannot get the help they need and deserve from a federal agency, they turn to us. i'm hopeful that this committee and the appropriation committee will listen. we must do everything in our power to support this agency and

its staff. in closing, i would like to thank you for being here today. i look forward to your testimony and working with you and the members of this committee to address these important and other issues. thank you, mr. commissioner. thank you, mr. chairman. >> thank you, mr. lewis. now it's my pleasure to welcome our witness, the honorable john koskinen, commissioner of the internal revenue service. welcome, commissioner. i know this is your first appearance before a -- the ways and means committee subcommittee included and certainly your first appearance since confirmation before congress. so we welcome you. we thank you for your time today. we look forward to discussing many of these very serious issues facing the irs and i want to assure you, we have shared goals in this and we want to -- as i said before, want to clear the slate so that we can move forward to achieve the real

reform that is you hope to institute and this committee will be a partner with you in that. your written statement will be made part of the formal record. we'll give you five minutes as customary to deliver oral comments and then we'll open it for questions. you may begin, sir, when you're ready. >> thank you, chairman boustany, ranking member law wis and members of the subcommittee. i appear appearing before you and i look forward to a productive working relationship for the remaining years of my term. i'm honored to serve as the irs commissioner and to have the opportunity to lead this agency and its dedicated employees because i believe that the success of the irs is vital for this country. the irs touches virtually every american. i want to outline for you what i believe are the irs's key challenges and what i will focus on going forward. first and foremost, we just started a new filing season last friday. we sometimes lose sight of what a tremendous accomplishment it

is for the agency to process efficiently almost 150 million individual taxpayer returns with 120 million of them being filed elect trn cli. i'm confident that thanks to the hard work of our employees this filing season will go well. another priority for our agency is to put to rest all of the issues and concerns surrounding the application process for tax exempt status. the management problems associated with 501c 4 applications have shaken public trust in the irs. under the leadership of former acting commission tier war full, the irs made great progress in this area and it is my job to help make sure we complete the work. in every area of the irs taxpayers need to be confident that they'll be treated fairly, no matter what their background or their affiliations. as the chairman noted, public trust is the irs's most valuable asset. the irs also needs to build on the progress that's been made to improve tax compliance in a

number of areas. one of the most critical is refund fraud caused by idty theft. the irs is better at resolving identity theft cases. we closed 963,000 last year, almost double the number for the year before and we're resolving cases faster. at it now takes 120 to 135 days for new cases to be resolved, compared to more than 300 days in previous years. but we can and will do better. along with enforcement, the irs also needs to keep looking for ways to improve the service we provide to taxpayers, which is critical to ensuring that our system of voluntary compliance works properly. we continue to upgrade our website, irs.gov, and are adding more online tools and services this filing season to make it as easy as possible for taxpayers to determine the amount they owe, and to pay that amount on time. another priority is fulfilling our responsibilities for tax legislation including the

affordable care act and the foreign account tax compliance act. on the management side i strongly believe that the success of the irs depends on the experience, skills and enthusiasm of our employees. i'm committed to doing everything possible to ensure that they have the leadership, systems, and training to support them in their work, and to allow them to reach their full potential. the irs needs to have adequate resources. i'm deeply concerned about the significant reduction in the irs budget over the past several years. our current funding level at just under $11.3 billion is roughly $900 million to a billion below what it was four years ago. we now have about 10,000 fewer employees than four years ago, including 3,000 fewer revenue agents and officers. one of our biggest concerns is being able to deliver the services taxpayers need during the filing season. last year for example about 40% of tax pay hoarse called the irs were unable to reach an irs

employee. that's unacceptable. but we don't see that number improving much if at all this year and we're worried there will often be extensive wait times for taxpayers trying to get through. expanding our online offerings can only go so far to ameliorate this problem. amid our budget difficulties i recognize that there has been a loss of confidence within congress in regard to the way the irs has managed its operations. one of my responsibilities is to ensure that we quickly solve management and operational problems that may arise, so that congress can be confident our funding will always be used wisely. i look forward to working with congress and with this committee to solve this budget problem. i hope that one of the legacies of the four years remaining in my term as irs commissioner is that we'll be able to put the agency's funding on a more solid and sustainable basis. that concludes my preliminary comments, and i will be happy to entertain your questions. >> thank you, commissioner. two days ago, the irs announced it had reached a deal with the

irs employee union, the national treasury employees union to award over $43 million in bonuses to unionized employees. the irs also announced new bonuses for managers and executives. and this comes at a time when every agency is certainly struggling to do more with less, and we're open to that. we're sympathetic to that. and the irs is blaming the declining customer service on insufficient funding. but many americans, frankly, and i hear this in my district, i think others, as well, are surprised to hear that irs employees are unionized. they will be even more surprised at how much money is being spent on union activity. last year, as oversight chairman i looked into this question, and found that in 2012, irs employees used almost 600,000 hours of official work time on union activity and spent hundreds of thousands of taxpayer dollars on travel expenses for union events. so i mean, i understand that the

question of why irs employees are unionized predates your confirmation. i mean, it's -- that's known. but, but can you tell us why the irs is now reversing a decision that danny wuerfel, when he was your predecessor, made. he put these bonuses on hold. why did you reverse that decision and will union members continue to be able to use official time to engage in union activity and will you seek to do something to change that type of what seemingly appears to be an abuse to the american people? >> mr. chairman i appreciate that question. let me make clear these are not bonuses, these are performance awards, they will not be made to every employee. last year a third of the employees got no bonuses. the performance level is determined by managers, not the employees, as we go forward. >> but are these built into the union contract? >> the union contract provided or provides that the performance

award pool will be 1.75% of bargaining unit employees. last summer, danny wuerfel confronted very difficult decision, which was in light of the sequester, how many furlough days would be necessary to continue to operate the irs. if the performance awards had been made last summer one of the options would have been to increase furlough days. the irs under danny's leadership took the position that under the contract the irs had the ability to negotiate the 1.75% down to zero percent. the union file d disagreed, fild an unfair labor practice and lawsuit. all of those legal actions are pending. in the negotiations with the union we're negotiating a new five-year agreement in which we will deal and are discussing with them the appropriate amount of time that should be spent on union activities in the course of that agreement we reached a settlement with the union that

we would settle the unfair labor practice agreements, the lawsuits everything else, not by providing a pool of 1.75 but providing a pool of 1% for performance awards that would be made according to the performance of the employees. i would note that one of 99 achievements in that negotiation with the union is for the first time we'll actually align the timing of performance awards for bargaining employees with the performance awards for management in the irs. the result of the -- that transition is that we will not be paying any more performance awards this year than are in our budget. in effect, the performance awards for this year will be paid in the next fiscal year. so it's no additional funding cost to the irs. it settles significance litigation and the performance awards or for employees who had no pay raises for four years up until this year and otherwise have been constrained in terms

of limitation on their training, travel, and support we provide to them. ultimately i think the morale of the irs employees is a significant concern to everyone. federal employees have had a tough time with no pay raises, the government shutdown and furloughs. irs morale has not been improved with discussions over the last year, which focused on important set of issues but involved 800 employees in the exempt organization unit. we have almost 90,000 employees across the irs. and so i think it's important to see this in the perspective in terms of their performance awards, they will only go to probably somewhere between 50% and 65% of the employees. and they allow us to settle litigation which would have cost us, if we lost it, 1.75%, rather than 1%. so we spent a lot of time thinking about this in the middle of the negotiations with the union. and i'm comfortable that it's an appropriate, as i said, to the union and the employees, an appropriate compromise, and an important signal to our employees that we value their

contributions to the operation of the agency. >> i appreciate your answer. but just so i can get a clarification. in the contract negotiations, you are going to address official work time being used for union activity? >> we are. we are discussing that and negotiating that with the union. we're looking at the official work time that's spent in other agencies. we're discussing with the union ways that that work time can be used more efficiently. we've had significant, over 80%, cuts in travel and training across the board. which is included travel for the union. so the amount of travel spent by unions for union business last year was relatively minimal. i will say, as i said in my prepared testimony, that while i again understand the pressures trying to meet the sequestration levels of last year on the agency, my experience in the private sector is, when times are tight, the first thing that requests is training. my experience is the last thing that should go is franing. what we need to do is make sure

that we provide sufficient training to our employees so that they are comfortable and adequately informed to deal with the american public. so we will spend more money this year on training. not as much as we spent in the past, but probably more money than we spent last year. >> i just want to make clear that our constituents want to make sure that taxpayer dollars are being used for legitimate, official activity, and obligations and responsibilities, and not for union organizing and political activity. >> i think those are always legitimate concerns. but the unions are legitimately are there. they have a negotiated right to represent employees. they are, in fact, an important partner for us in the management of the agency. and so, there is a significant amount of work they do that is appropriate, is legitimate, and furthers the operational ability of the agency. so i think it's an important question to make sure that it's within appropriate bounds. but the -- there is significant amount of union activity that is important and is legitimate, and

deserves to be supported. >> i thank you. we'll follow this with you closely and look forward to seeing how the progress goes with these contract negotiations. to change subjects now, for nearly eight months, this committee has had an outstanding request for all of lois learn err's e-mails. these files exist at the irs. the committee is authorized to receive 6103 information, so no editing, sensoring or redacting should be necessary. yet the agency has continued to withhold these documents which impedes and prolongs this investigation. commissioner, can you tell the subcommittee how many lois lerner documents and how many e-mails still exist within the scope of this committee's request that we have not received? >> i do not know the number of that. as you noted, along the way, you received over 500,000 pages of irs information and my understanding is that we're working with the committee, continuing to work with the

committee to get you the documents you need that you already have all the lois lernor e-mails in question but our people are working with your staff to make sure you get you all the information you need to resolve this investigation as you and i discussed, nobody wants this investigation to be completed sooner than i do. i think we need to get the facts out. we have six investigations going on. my hope is that some consensus about what went on will arise from those reports. i look forward to them, as the facts are actually determined by your investigation, and the others. we'll deal with those facts and my hope is be able to move on taking the necessary steps to assure not only the committee but the public that the problems have been solved, and as i said, i want everyone in the united states who's a taxpayer to understand and be confident that when they deal with the irs we will deal with them in a straightforward way no matter their political beliefs, no matter what organization they belong to, whatever church they

belong to, whether they belong to any church, that if you deal with the irs, we will deal with you in a straightforward, honest way, and we will deal with everyone in the same way. >> well, i just want to assure you that it's -- it's in your interest to clear this -- clear this deck, and ours, to get this investigation done so that you can move forward to institute the reforms. so i just want to make sure we have your solid commitment to expedite the forwarding of these documents that we've requested. we have a number of outstanding issues that we need to cover, and we want to get these things cleared out as quickly as possible. >> as i said, i think it's in everybody's interest, it's clearly in the interest of the agency, clearly i think in the interest of the public, they get to the bottom of this as quickly as we can and then move forward with it. i met with chairman kemp. we gave me the list of the things he thought were outstanding. my understanding is we're well on the way to delivering at least half of those. we are, i think, narrowing the field, and our goal really is to

have you feel comfortable that you've gotten the documents you need to close this investigation, and as i say, my view is the facts will be what they are, and we'll deal with them accordingly. >> thank you, commissioner. just this morning, i reviewed the -- with ways and means staff, the seven items that chairman camp requested from the irs. >> right. >> and as of this morning, we've only received or really completed concerns on one of those seven. so, if we can -- we can, you know, address that and get those seven items into the hands of the committee that chairman camp requested, that will certainly help us move forward. >> it's at the top of our list. and i appreciated having a list because it again allows us to focus on what you actually need and what's left. my understanding is i think we're doing better than the one but we are clearly committed to working through that list with you, and with the chairman. >> thank you. last week chairman camp wrote asking that you provide all

documents pertaining to the recent 501(c)4 rule making that we both talked about today. it asks for these documents by february 13th. can you confirm whether the irs will provide these documents within the requested time frame? >> we and the treasury just received that letter from the chairman. this is not a concluded rulemaking. we are at the front end of the rule making. the draft proposal was issued before i became commissioner, actually before my hearing which made the hearing more interesting. and it asked for comments on the three basic issues of the regulations. that is what should be defined as political activity. how much of that activity can be allowed for organizations of any kind. what -- and what the percentage is, and to which organizations in the 501c exempt area should any of those definitions and regulations apply.

at last count i'm told we have received over 21,000 comments, which sets a new american record for responses to draft regulations. but we're in the middle of that process. we need to then, the comment period will close at the end of this month, so i'd encourage anybody else who has a view on it to provide that it will take some time to go through those comments. we will probably have a public hearing on it. so the issue of in the middle of that process, providing information about who talked to whom and what they had to say, is complicated because what we don't want to do is interfere with the internal discussions and review of those comments, and the proposal of what the -- either potentially final regulation would look like for more comment. but we are anxious to work with the chairman in terms of making sure you have information, as i say, we would like to close the 501(c)4 issue. the issue of how the regulations were defined, and designed, is to my mind somewhat of a separate issue and we need to

discuss that with you. but i would stress we're in the middle at the front end of that process, and so we need to be careful that we don't end up interfere with that process as it goes forward. >> thank you. and finally, years before lois lerner's admission that the irs targeted conservative groups the committee opened an investigation into allegations that conservative donors were being targeted. our fears were confirmed when we discovered that the irs inappropriately asked several groups for information about their donors. and even though the irs says donor information was destroyed, the committee has found examples of donor information still in case files, and to date the irs has been unable to tell the committee whether the irs has taken action against any of these donors. so commissioner, can you tell us, with certainty, whether any donors were audited or otherwise targeted based on the information the irs improperly solicited from these groups? >> my understanding is those donor lists have been destroyed. that anyone audited is being audited for reasons other than their process there.

one of my concerns in terms of the public confidence in the irs is even with diminished resources, and even though we have fewer audits now than we've had over the last five years on an average we still audit some of them are letter audits. send the 1.4 million audits a year. so somebody on that audit list is likely to be an active democrat. somebody else is likely to be a visible republican. somebody is clearly going to belong to one of the organizations here. just statistically. and i am concerned that people, everybody getting now, a notice from the irs may think well it must be because of something i said, a meeting i went to. and i can assure you we've looked into this. the audit selection procedures we reviewed and are independent. there's a very detailed process by which audits are determined for selection. and as far as i'm able to say, i can guarantee you no one has been selected for an audit because they showed up, at least since i've been around, because they showed up any of those lists because those lists are no longer available to anyone in

the country, including in the irs. >> i thank you. and committee of course will continue to follow along with any problems for concerns expressed by our constituents on these items. but, let me just close out by saying if you would, the seven items that chairman camp has requested formally, we hope we can get these things taken care of as quickly as possible. >> i, i agree. i was delighted to get the list. we're working with the chairman's staff, and we will get -- we're trying to get those documents to you as quickly as we can, because it's a very helpful list to get an idea of what does it take to get to closure. >> right. many of these were letters that we submitted months ago. trying to get information. so, we want to get all this cleared out so you can move forward. working with this committee to ensure trust in the irs once again on the part of the american people. >> i appreciate that, mr. chairman. >> thank you. mr. lewis? >> thank you very much, mr. chairman.

mr. commissioner, it's my understanding that the union that represent the rank and file irs employees was started many, many years ago, maybe during the '30s? >> that's my understanding, and, in fact, i dealt with all of the government unions 20 years ago, when i was the deputy director for management, and the nteu then was a very active representative of irs employees. >> is it your feeling or your knowledge that the union had played a major role in assisting the irs in carrying out its mandate? >> it is my understanding. i've had a long career of dealing with organizations in the private sector, as well as the public sector, that have unionized employees. the city of washington, when i was responsible for the day-to-day operations, was represented by a range of unions. and much as the chairman said, you can have relationships that

are productive in those situations, or you can have contentious relationships. and just as i look forward to an effective working relationship with this committee, my experience dealing with unions is that they have been very effective partners, if you make them partners. i was chairman of the labor management partners, and senior member of the labor management partnership program that was set up in the mid '90s here. we had a very active labor management partnership program at the city of washington, and i look forward to a productive working relationship with the union. we won't always agree about everything in the negotiations, but they serve a very valuable role in terms of working with us to make sure that we are understanding what is going on on the front lines, and that we are listening and responding to those concerns. >> mr. commissioner, i want to go back to something i tried to raise in my open statement. i know the irs budget has been your biggest challenge.

in light of the necessary resources, the cuts, what impact is this having on your ability to carry out the mandate of the irs? >> cuts across the board, the inspector general last fall noted that as he looked over time, that compliance revenues were down, his determination was $8 billion in response to the billion dollars of cuts. there are other numbers that say $4 billion or $5 billion in difference. it's clear that historically over the last 30 or 40 years that the more funds the irs has available for enforcement, the more funds it collects. the entire compliance activity of the agency, money we collect, is almost -- is between four and five times the entire budget of the irs. this year, we have 3100 fewer revenue agents and officers than we had four years ago. which means we're going to do fewer audits, we're going to have fewer compliance activities. somehow that has never resonated as much as what people now begin to understand is i view taxpayer services as the other side of

compliance. we need to make it easy, as easy as possible for taxpayers to pay so they have confidence in the system. as i noted, taxpayer services are suffered not because our employees aren't working hard, but because there are fewer of them. 40% of the people cannot get anybody on the phone, and that's likely to be the circumstance this year. it's not helping taxpayers, it's not helping taxpayer compliance. we -- i met with revenue agents and officers in philadelphia, on traveling to the 25 largest irs offices across the united states, they talked with me about the concern they have that we don't have enough people to be able to, in fact, send out the 100,000 additional letters and audit inquiries that we would normally have sent out this year if we had the resources. so across the board, i've already been to six offices. i'm off to dallas and jacksonville this week. the major concern i hear in employee town halls, which i conduct and which they're allowed to ask me any question they'd like, is that in every department of the agency, including the legal operation,

we are understaffed. and it means that people are working harder, trying to do their best. but it means ultimately that we're not performing as well. and one of the reasons i've made a bigger issue of this is as i said at my confirmation hearing to some extent you get what you pay for. we get more than probably we have a right to deserve for the work of these employees under the stress they're under. but i think it's important to understand what we're not going to get because we're not paying for it. >> well, i want to thank you for making a trip to atlanta. i visited the people there from time to time, and there's hundreds and thousand of hard-working irs employees there. i want to thank you. i yield back, mr. chairman. >> my wife worries a little about this two city a week trip. but my experience in the private sector, and in the public sector, has been the people who know best about what's going on in the organization are the front line workers. and one of the things i hope to encourage in the irs is more information flow from the front line up to the top. as i've told workers, if there's

a problem, it's my problem, and we'll work together to solve it. if there's a mistake, it's my mistake, and we'll work together to solve it. and if there's a problem i don't know about, that's my fault, because that means i have not -- a culture where people are comfortable that if there's an issue they can raise it without, in fact, any concern. so i've told people, my way of running organizations is bad news is good news. that i can't help solve a problem if i don't know it exists. so i've encouraged people, i chaired the cross-government organization of inspectors general, when i was at omb for three years and i've tried in the private sector to remind people internal auditors are your best friend. i've told government executives during my career that inspectors general are your best friends. internal auditors and inspector generals don't create the problems, they simply advise you about the problem before it gets bigger. now we're all human if you make a mistake you kind of hope nobody notices. but my experience is problems don't get better with age, they get more complicated, they get more difficult. so one of the things i hope to

encourage in these trips, i will be to offices that cover about 55,000 to 60,000 employees, is to send the message that we're all in it together. i'm prepared to stand behind them but we all -- i need to know what they know. i need to have their suggestions for how to improve operations. i need to know where they think there are problems. >> thank you. >> i thank the gentleman. commissioner, we're joined by the chairman of the full committee, chairman camp and he's going to ask some questions. >> well, thank you mr. chairman. commissioner, i happened to hear the exchange regarding the 501(c)4 regulations. and what we're requesting is everything up until the regulation was issued. as you know it was issued on black friday, the day after thanksgiving, the proposed regulation. i'd like not to interfere with the regulatory process but to get all communications up until the regulation was issued. i think you should be able to comply with that without having any interference with the ongoing process. so i would hope you were to comply with that and cooperate with the committee in that

regard. >> as you and i discussed, i'm anxious to cooperate with the full committee as well as this subcommittee. because i do think we have substantial joint interests in improving the operations of the irs. my point was to the -- >> thank you. i heard the point. and i want to move on to something else now. commissioner, the obama administration's tried to blame the irs' targeting of conservative and tea party groups on low-level workers. who were confused about how to process their applications. on sunday the president claimed the targeting was based on 501(c)4 law that people think is confusing. and that's a quote. and frankly, that assertion, i find a bit confusing, because nowhere in our investigation have we found that to be the case. i'd like to display an e-mail, are you aware that when a screener in cincinnati first alerted his superiors to certain tea party cases in february of 2010 that he didn't do it because he was confused? he said in his e-mail, and i'm

quoting, and it's displayed on the screen, recent media attention to this type of organization indicates to me that it is a high profile case. end quote. so did you know that it was media interest, and not confusion about the law, that started this? >> i did not know that. i have not been participating in any part of the investigations. all of this happened, obviously, before i started. as you heard and as we discussed, my view is that we now have six investigations going on, two in the house, two in the senate, the justice department, and the inspector general, my goal is to get everybody the information they need, to get these investigations closed, and to determine what the facts are. i -- >> okay, well then i would certainly urge you to go back and look at the facts, to read that e-mail. because in addition to flagging it because of media attention, the cincinnati worker correctly quoted the irs' procedures regarding the processing of these kinds of cases. he was clearly not confused.

he knew exactly what he was doing and it was washington, d.c. that told him to hold and sit on these cases. so i understand that when new subjects pop up, sometimes people are unsure how to react to them. but again that isn't the case here and the rules for 501(c)4 organizations are well established. do you know how long the rules have been in place for these organizations? >> the statute was passed some time ago in 1959. the eisenhower administration made the determination that the wording exclusive in the statute, which could be interpreted in a lot of different ways including no activity should be interpreted that exclusively engaged in social welfare activities should mean primarily. and since 1959 that has been excuse me the standard as i understand it. >> yeah, so these -- you know, these have been in place for more than a half a century. so the irs and its employees have been dealing with these groups for a very long time. i think it feels like a stretch to claim the agency was confused after this long. i frankly give the employees of

the irs more credit than that. now are you aware that irs employees in cincinnati were actually process iing cases befe washington, d.c.'s involvement? they were actually processing them through to completion? >> mr. chairman, we've provided you over 500,000 pages of documents. i have not looked at any of those documents. my view is that for me to try to track through all of that, and catch up with everybody, is not a productive use of my time. i look forward to your report. as i said, i think the facts will be what they are, and we will respond to them. and so i will guarantee you i will read the report and we will respond to the facts. but it doesn't serve my ability to manage the agency to go back in time and try to look at any particular activity. >> frankly i think this has a direct bearing on the management of the agency. it's a fact that cincinnati was approving tea party cases before getting orders from washington, d.c. to hold them. and they were processing them without delay and without intrusive questions.

now through our investigation we've identified examples of applications coming in subjected to review and approved from conservative and tea party groups that were approved within three months. and it was only after cincinnati highlighted this high profile media attention that washington, d.c. got involved. and it was only then that these groups were subjected to what i would call inexcusable delay and harassment. there's a pretty clear fact pattern that's developing here. and it wasn't confusion. it was washington, d.c. that caused conservative groups to be targeted and harassed. now the attempt to mischaracterize the targeting is being driven -- as being driven by confusion or as the president said, boneheaded decisions, out of a local office, and that's a quote from the commander in chief, is bad enough. what's worse is the administration's attempt to mislead the american public about the reason for the proposed regulations. and the proposed regulations, as i mentioned, were released on

black friday in 2013. they were drafted in a manner, in my view, intended to shut down tea party groups. but they were marketed to the american people as a response to the targeting, as a, quote, solution to clarify the rules as recommended by the inspector general. and the truth is that our investigation has revealed that the regulations weren't drafted as a remedy to targeting. in fact, they were being worked on in 2011. during the time of the targeting. as another line of attack against these groups. now, commissioner koskinen the committee has found irs e-mails from 2012 in which the irs and treasury discussed working on 501c regulations quote off plan. do you know what off plan means? >> i do not know what that would have meant in 2012. >> well i'm pretty sure that means hidden from the public. and would you agree that if treasury and the irs had fabricated the rationale for a rule change, it would tend to

raise questions about the integrity of the rulemaking process? >> i look forward to working with the committee. i wanted you to get the documents you need. i look forward to discussing with you the report when it's finalized. and i look forward to reviewing with the treasury department all of the comments about the regulatory process. at this point i did not participate in it, i do not know the background of how the regulations were drafted. but i can guarantee you that i will look independently, and in a balanced way, at what will be -- to the extent i have any control over it, at what the appropriate draft regulations and final regulations should be. as i said, earlier we have 21,000 comments, which is more comments than ever in any regulation and i think all of these issues will be appropriately considered in the comment review process. >> have you seen the rationale, the published rationale for the 501(c)4 proposed rule? >> my understanding is that they were -- all i know is what i read in the press when they were put out. i didn't -- it was before my

confirmation hearing. >> i commend that to your reading. >> right. but it will be open, everyone can make comments about the draft regulations as they are now. there will be a public hearing. there will be numerous occasions for people to bring any information that they would like, or perspectives about those regulations forward before they were finalized and they're claiming they're not going to be finalized in the near term future. >> do you know how many tea party and applications from conservative groups are still awaiting review at the irs? >> my understanding, and i asked that question, of the 131 that were in the queue, 121 of those have been resolved with about 85 of them approved, some dropped out, some are under further review. of the 10 that are remaining. so, give or take a little over 95% of the applications in the queue have been resolved one way or the other. >> and of those that are still waiting, how many have been longer than one year? >> i can't answer that question,

but i assume out of 131 by definition they would all be there more than one year. >> i understand, obviously, that you're new to this job as you've mentioned. and the agency's had a lot of turnover at the top in the last two years which frankly it needed. but it's clear to me that we need to get to the truth about what happened at the irs, and how conservative and tea party groups were targeted by the agency. and i want to be perfectly clear. this committee will fight any efforts to restrict the rights of groups to organize. and they need to speak out, they have the ability to educate the public, just as unions are allowed to do. and so we'll get to the bottom of this. and i certainly expect you to produce, and quickly, the outstanding documents this committee has requested. i gave you a letter on january

8th, or a memo, with a list of outstanding requests, and of those we've received some documents on one of the seven requests that i made. so there's still a lot of work to do. so i appreciate, and agree with the statement you made in your written testimony that public trust is the irs' most important and valuable asset, and i believe the irs has a long way to go in restoring its credibility. and i think you can take the first step by fully complying with this committee's request. and stopping the rule making action on the 501(c)4s, until the appropriate investigations are complete. and as soon as we get the documents that have been requested for a long-standing time, i can assure you that we'll move forward okay this investigation in a very timely manner. with that i yield back. >> i thank chairman camp. we've also been joined by ranking member levin and pleased to recognize mr. levin for questions. >> thank you, and welcome

mr. commissioner. >> thank you. >> i think it's not surprising, but unfortunate that this hearing with the new commissioner has taken this approach. i remember when we had a hear ing with the inspector general when the chairman talked about a culture of corruption, and there's never been any evidence of that, or political influence. e-mails that were just put forth here came from a gentleman and we pulled the story about him that goes back to june 18th, and i read it. the head line is conservative republican at irs defends treatment of tea party.

john schaefer, who described himself as a conservative republican told congressional investigators he flagged the first application for tax exempt status from a tea party aligned group that he and lower level agents came across in february 2010, because it was a new, high-profile issue. this is from mr. schaefer who describes himself as a conservative republican. and all of these efforts to tie this to the white house have been salacious. i now would like to read a communication from the deputy inspector general for investigations dated friday, may 3rd of 2013. gentlemen, as a result of our meeting with russell a couple weeks ago, we agreed to pull

e-mails from identified staff members of the organization in cincinnati to find out, number one, if an e-mail existed that directed the staff to in quotes target tea party and other political organizations. and, two, if there was a conspiracy or effort to hide e-mails about the alleged director. audit provided us with a list of employees in question. keyword search terms, and a time frame for the e-mails. we pulled the availablers e-mails, which resulted in 5500 responsive e-mails. it continues. review of these e-mails revealed that there was a lot of discussion between the employees and how to treat the tea party and other political organization applications. there was a be on the lookout, a bolo list specifically naming these groups. by the way it turned out, groups

besides tea party. i continue. however the e-mail indicated the organization's need to be pulled because the irs employees were not sure how to process them. not because they wanted to stall or hender the application. there was no indication that pulling these selected e-mails -- these selected applications were politically motivated. i repeat, there was no indication that pulling these selected applications were politically motivated. i ask that this be inserted in the record. >> without objection. >> so mr. chairman -- >> would the gentleman yield for a moment? >> yes. >> i want to emphasize that this committee's investigation is not complete. and the purpose of all of this inquiry with the commissioner

today is to get his assurances that he will provide the documents that we've requested to complete this investigation, and then will come up with conclusions. i think it's in the interest of every member of this committee, regardless of their party affiliation, to get to the bottom of this, based on the facts. >> all right, so, look, just ask him. will you supply the information. don't veer off in trying to revive a position that has not been supported one iota. one iota, and it's clear you're trying to keep this issue alive for political purposes. this statement from the deputy says there was no political motivation, and there never has been a scintilla of evidence. and so now the commissioner comes here a new commissioner, when we should try to get off on the right foot, on a

constructive foot, and what happens? you confront him with e-mails. he wasn't involved. and e-mails that try to resurrect an issue that is not supported, mr. chairman. if you want to have a constructive, cooperative, bipartisan effort, do so. but don't use this hearing as an effort to essentially pursue a political purpose. so i ask you, and i'll finish, to the director, are you willing to cooperate fully with this committee? >> i am. and i look forward, as i said earlier, to that cooperation. >> thank you. >> i thank the gentleman. i welcome the commissioner's commitment, and i want to just simply emphasize that there are a number of outstanding requests that have not been met, and so we welcome the commitment on the part of the commissioner to

expedite this process, and to meet the demands of the committee so that we can complete this investigation. i mean we clearly have documentation that a number of the front line workers were doing their work appropriately. and that the confusion set in only after there was some intervention by washington. so we just want to get to the bottom of this. -- >> i don't think the evidence shows that. >> -- will be necessary to do so. i now yield to miss black. >> thank you, mr. chairman. and commissioner, welcome to our committee. >> thank you. >> we appreciate your being here. we understand that there are some questions that you can't answer, i'm going to try to ask you some questions that maybe you can help clear up about some things that we did see that occurred that are not only a concern of this committee, bit also the american people. i want to follow up on two things that you answered questions with chairman boustany. in one you said there were six ongoing investigations. was i correct in what i heard that there are six investigations? >> that's my understanding, that

there is a on investigation going on by the senate finance committee, the permanent subcommittee on investigations, this committee of the house oversight committee, the justice department, and the fbi, and the inspector general. and i think that adds up to 6. >> and at this point in time, none of these investigations have offered a report, have completed a report, is that correct? >> that's correct. >> that you're aware of. >> okay. i'm not aware of any of those, either. and i thank you for chronicling those investigations. the other thing that i thought i heard you say but i wanted to clear fie that, as well is you said they are evaluating 501 cs, or is that just the 501(c)4 that's being looked at right now for potential changes in regulation? >> when the draft regulations were prepared before my hearing the request for comments, included several things. what should be the definition of political activity.

to what organizations should that definition supply, whether just the c4s and beyond that and what percentage of political activity would disqualify you from tax exemption. so one of the questions on which people are providing comments is whatever the definition of political activity, to what 501c organization should that definition apply? >> so 501c5s will be included in that? are they looking at the c-5s as well? >> people are commenting. i have not looked at any of the comments but i assume some of the 21,000 comments are coming from people familiar with the activities of 501c-3s, 5s, 6s, 7s and they are responding to whether or not and there should be a common definition, whether there should be a definition for those particular subjects, what the percentage should be, that's what the comment requests were for. >> so potentially we may see

some changes in the regular laces for c-5s and their political activity as well? >> my understanding is that the request for comments will be considered, and then the determination will be made as to what, if any, regulation should be issued, and to which 501c3s it should apply. >> so let me go back. last year our committee uncovered the existence of the irs surveillance program. called the review of operations that was used to keep tabs on organizations that are approved, they've already been approved, for their tax exempt status. and the committee is in possession of e-mails, and i'm not going to ask you to weigh an opinion on those e-mails that you have not seen, but in which high-ranking irs officials said, and i quote, we suspect we will have to approve the majority of the c-4 applications, closed quote, but they also they would also, in quote refer these organizations to the review of operations for follow-up in the later year.

this was a period in the summer of 2012, where the irs had a lot of applications that they were approving. certain applications for the 501c status in response to congressional pressure and also the commencement of this investigation. so to be clear, the irs employee was saying they would approve the applications but subject them to later future surveillance. not surprisingly, our investigation also discovered groups that were referred the surveillance, 83% were right leaning. and after the committee discovered the practice, the irs quickly suspended it, saying that, and i quote, referrals were being returned to eo determinations for further review to ensure they were appropriate. so moving forward, and looking at the current status where is the status of this surveillance program now? >> my understanding is there is

not a, quote, surveillance program in existence. as i think all of you understand, determinations are made at the front end for all 501c3 applicants. last year we had 80,000 applicants for 501c status of one kind or another, the bulk for c-3 status. everyone who is determined and passes through that hurdle and gets a certification to be a 501c3, 4, 5, 6 or 7 then goes out and does their work and it's an obligation of the irs over the course of time to review those activities to determine that they are, in fact, doing what they said they were going to do when they were given 501c status. most of those oversight reviews are for 501c3s because they are the most voluminous. the number of 501(c)4 applications overall is probably 4r% or 5% of the applications we get every year. 95% of the work that goes on has nothing to do with c4s and the

c4 applications are spread around a lot of activities. there are garden clubs, there are a lot of other social welfare activities in that pool. all of them are subject to review. >> if i could reclaim my time because i've got a red light. i just want to be assured that none of those applications that were in that roo are in that category and they've all been released and that's all been taken care of. >> that's been taken care of. but i would stress that every organization that has a 501c determination over time will be reviewed. because that's an obligation of theers to make sure that people are, in fact, performing in their 501c exempt status as they said they're going to. whether they're a charitable organization or a political organization or a social welfare organization, five years out it's important for the public to be confident that they're still doing what they said they were going to do on the application process. >> thank you so much. >> miss sanchez? >> thank you. and i want to thank you, commissioner koskinen for being with us today.

can i just ask, when were you confirmed for your position as commissioner at the irs? >> i was confirmed on the last day of the last session on december 20th. >> and do you feel like you're in a position to speculate as to people's motivations, or pieces of evidence, or activity that might have occurred at the irs prior to your being there? >> i am not qualified now, and i don't think i'll ever be qualified to speculate about what happened in the past. >> okay. because i'm getting the sense that, you know, i may be wrong but i thought this hearing was to talk prospectively about issues that we're concerned with, things like identity theft and improper payments, and it seems like we're just beating a dead horse over and over again. there are ongoing investigations, which i appreciate and understand the importance of. but i'd really like to talk prospectively about some of the other issues that were noticed in the hearing for today. and i'll use my time to do that. i joint with my colleagues in

expressing deep concern for things like identity theft, and improper payments made by the irs. but i do want to commend you for coming and being forthright and for addressing those issues head-on and continuing to keep us informed about how congress can improve that situation. that being said i want to talk specifically about the eitc. i don't agree with comments that demean the outstanding goals that have been achieved through the earned income tax credit. i think that we can probably all agree that fraudulent payments have to be combatted. but, for me that doesn't mean that you throw the baby out with the bathwater. eitc is one of the most powerful anti-poverty programs that we have in this country, and i think we need to strengthen it, not demonize it and get rid of it. i think that hard-working americans who are struggling to make ends meet with benefit from that because nobody gets rich from the eitc.

folks that claim the eitc generally are just trying to make ends meet. so i can't help but think that what the committee should be addressing today is the underutilization of this credit by the people who need it most. hard-working americans, many of whom are trying to support a family. and i think somewhere between 3.5 and 7 million eligible families never even claim that credit. eitc has been one of the most powerful welfare-to-work incentives and we should be promoting it, quite frankly, not cutting the budget of the irs. and not getting rid of programs that help tax filers understand how to file their tax returns, and how to claim the credit. i'd be much more in favor of a constructive discussion by this committee, instead of a partisan witch-hunt at issues at the irs. eitc enjoyed years of bipartisan support. and i have to say that i'm

frustrated and let down by some of the recent conversations that have taken a most unconstructive turn towards the eitc. so you know, i'd love to hear your ideas for ways in which we could possibly strengthen the eitc. i understand that we need to combat the fraud that exists in that program, but it's kind of hard, i think, for an agency to do its best work when it's being underfunded. any comments on eitc, commissioner? >> well, i've been around awhile. and so i was actually working in the senate. i was an administrative assistant during the nixon administration when the eitc program was passed with the support of that administration and somebody reminded me recently that president reagan referred to it as his favorite poverty program for the reasons you noted. it encouraged working poor, encouraged people to work, and provided them added incentives. so we have a balancing act. we have a responsibility because we're running the program, in addition to collecting taxes, to make sure that it's properly

utilized. so we kicked off tax filing season on last friday, i was in baltimore with an eitc awareness day, because we do estimate about 20% of eligible people for the program do not apply. at the same time, i am concerned, as i think this committee and others are, to make sure that we are providing the appropriate amount of money to the right people, not more, not less. so we need to get everyone eligible to participate, but we need to make sure that that payment stream is effective and appropriate. and so we're working on both counts. and i noted it in my challenges we're facing. and it's an area that i think we need to devote as much resource as we can. part of it is resource on the front end. in terms of being provided advice to taxpayers as to whether they qualify or not and qualification changes about a third of the people, their qualification changes every year. they either make more money or less money. their family situation changes,

they may get divorced. children move. so that it's a complicated program for someone trying to make an honest determination, or prepare to deal with. so we're trying to work on both sides. we want everybody eligible to benefit from the program. we want to make sure that improper payments are cut to the extent we can to make sure that the funds are utilized effectively. >> thank you, commissioner. i see that my time is expired. and instead of going over time, i would just like to alert you to the fact that i do have another issue that i -- is on my radar screen about the orphan drug tax credit. and i'll submit that in writing for you to be answered after your testimony. thank you. and i yield back. >> thank the gentle lady. i can assure her that we want to root out the fraudulent payments in the eitc program but certainly recognize the value of the program, and it's a program that we will be able to partner with the commissioner to hopefully simplify it to make it work better. with that i yield to miss

jenkins. >> thank you, mr. chairman. and thank you, commissioner, for joining us. the president's health care law resulted in the largest expansion of the irs' role in history. burdening the agency with enforcement of 47 new provisions totalling about a trillion in new taxes. one of the irs' new duties under the law will be verifying income information to determine how much an individual will receive in the premium tax credit subsidies. >> yes. >> and back last fall the treasury inspector general for tax administration released a report detailing improvements needed in order to ensure the irs could adequately strengthen the premium tax project that is a part of the law. these, as you well know, these premiums are tax subsidies available to enrollees in the form of refundable tax credits. the cbo's annual budget and economic outlook, which was

released just yesterday estimates that 80% of folks enroll in over the health care exchange will qualify for and use one of these premium tax credits. the cbo estimates that the treasury will be giving out nearly $900 billion over the next ten years in health care premium tax credits. now, then, even the most honest of taxpayers can expect to face difficulties with the irs over the subsidy. any number of normal life events, as you just talked about, with the eitc, such as marriage, or a job promotion, could inadvertently lead to an individual being paid too large a premium tax credit, and it will be up to the irs to recover that money. however, it doesn't even begin to touch on the difficulty the irs will face when confronting folks who might commit outright tax fraud. as i just noted these are

refundable tax credits which are particularly attractive to those who are wishing to commit fraud. we're talking about millions of individual tax returns, and a pot of nearly $900 billion. so that brings me to my primary concern. beginning on page 14 of the report, the inspector general raises significant concerns over the irs' lack of fraud mitigation strategy to guide the systems' development as it relates to the premium tax credits, it notes that there is no overarching fraud, mitigation strategy, and concludes by saying this, and i quote, the irs' existing fraud detection system may not be capable of identifying aca refund fraud or schemes prior to the issuance of tax refund returns, end quote. now i see that the irs agreed with the inspector general's recommendations to develop fraud mitigation systems. so can you just give our committee an update of what

exactly the irs is doing in its effort, and how success -- how successful we can expect that to be? >> i'm happy to. we could have a long hearing on where we are in that subject but in the short answer let me say first of all, the irs role in the front end of the program and its rollout went very well. so with all of the other difficulties, it is important to note that we were able to serve the income verification role in the fall and continue to do that effectively. we are concerned that people's life experiences will change. they are making -- we are -- determinations are made about what the premium tax credit in advance should be based on estimate by the individual of what they will earn in 2014. and as we all know when we do withholding determinations for w-2 purposes or otherwise you make an estimate but it never is quite exactly right. so there will be reconciliations of those tax credits at the back end. and that's a major challenge for us. but in terms of the fraud

potential, it's important to understand, as i think this committee does more than most, that the advanced premium tax credits don't go to the individual. they go to the insurance company. so the opportunity for fraud at the front end in terms of claiming the credit with third parties claiming it are limited compared to what the normal identity theft and refund fraud claims are. so the money is going to an insurance company, so unless you have a relative in an insurance company you'd like to help out by getting him more money, there's no incentive at the front end to have an increased payment. at the back end, when you come in and you actually reconcile what you actually thought you would earn in 2014 with what you did earn and then complete a calculation as to what your premium tax credit ought to be, to the extent that either you didn't get a credit or you got too small a credit and you are owed a refund, that will be based on an insurance policy that you actually own. you cannot fabricate that. we will actually on a regular basis be getting from it, and we

are now, getting from insurers the enrollees, who is on their policies, who is engaged in them. so that your chances at the back end, even if you get a refund, you can't get that free and clear, you will have to have had a policy that you've paid a premium on. so notwithstanding all that we do that, we do need to make sure that people are reporting their income correctly. because the way you could increase or decrease, you may have a policy if you underreport your income and, therefore, say you have right to a bigger premium. that would be a refund fraud if you're doing it willingly. we are developing screens for that. i would note with the inspector general report, that was with our i.t. people who are working in conjunction with the inspector general to come in at a regular basis and review the progress. it's a productive working relationship. we are confident that based, to some extent, on our success at the front-end rollout, to some

extent on the success we've had on our i.t. initiatives the last three or four years that we will be successfully able to execute our responsibilities at the back end. but it comes at a cost. and that cost is under the resources. it's an additional buried thade we're bearing. it's going to come out of other irs activities because no funding has been provided in our budge budget. >> thank you. mr. davis? >> thank you very much, mr. chairman. thank you, commissioner. i was thinking, i don't envy your challenge of trying to clear up misconceptions, allegations, things that may have occurred and did occur prior to the time that you have become the commissioner. but i'm also wondering -- and i agree that you can't necessarily get blood out of a turnip. and i don't necessarily want to

rehash all of the old liens and difficulty that is have existed. but i do want to explore, how do we go forward? i mentioned -- i noticed that you put a great deal of emphasis on training. that is, training staff so that they fully understand the best approaches to meeting the service needs of the agency. and yet i note that the training budget has been severely slashed so that the resources simply are not there. i guess my first question is, how do you motivate staff and stimulate the agency, put in the management procedures that's going to allow us to get more

with less? and it seems to me that's one of your real challenges, based upon all of the needs that we know exist. >> well, it's an important question that goes to the heart of your management approach to an organization. as i said earlier, i spent my career taking over or managing organizations under stress of one kind or another. part of my role is not to look back and guess what happened in the past, but simply play the hand you're dealt. one of the first things that always seems to get cut is training. in my view as a manager, it's the last thing that ought to get cut. certainly in the irs, 75% of our budget is people. we need to be efficient withes they people. we need to train them appropriately so they can deal with the public appropriately and we need to provide them the resources so that we can increase their effectiveness. one of the things we're doing, in fact, trying to help taxpayer service deal with budget

constraightens but, in fact, move forward into the 2 st century is change the utilization of our website. if you look at the website today from where it was a year ago, we're trying to make it more user friendly. last couple of years, we've had an app called "where's my refund." last year it got 250 million hits. obviously, some people are checking every day to see where their refund is. but they would be making calls otherwise. that's 250 million calls that you didn't have to entertain, theoretically. this year for the first time we have "get a transcript." you can get online once you authenticate who you are back information. that was a significant volume of calls as well. we are trying, as best we can, to utilize technology, to provide a better, more user-friendly interface with the taxpayer, which will allow us to be more efficient. less office space by the end of this year than we have before.

we've cut outside contractors by $200 million. we no longer send everybody an irs tax booklet, because most people never used it. and that saves us $50 to $60 million in printing and postage. so, we're being as efficient as we can. ultimately, it goes back to your point. we have to invest in our workforce. they are, in fact -- that's why i stress frontline workers so much. they are the people who do the work and can give you the most information about what needs to be done. we'll spend more money on training. i'm going to find it some place this year than we did last. it won't be as much as we used to spend. i think it's a critical investment for the agency to make. >> let me ask you quickly, what are you hearing from your frontline staffers? what are they telling you? >> a couple of issues. overriding one is the understaffing. they're in call centers, revenue

agents work in legal, they're all -- not complaining but describe the limitations on our ability to do the work because we don't have enough people. the other issue i discover that's not there, it happens in the private sector as well. frontline employees often times never get asked what they think. if they get asked often times they have a feeling nobody listens to the answer. one thing i hope to encourage in the irs culture is more information flow, as i said earlier, from the bottom up as well as the top down. and also across the silos that inevitably exist in an organization. because i think it's important for employees to understand, we value their insights. we value their work. we're only going to be as good as the information they provide us. >> thank you very much. and i yield back. >> thank the gentleman. >> thank you, mr. chairman. welcome, commissioner. as a congressman, our front line people back home are constituents. >> right. >> and they do not hesitate to

share with us the shortcomings and their concerns. and right now they've lost confidence in the impartiality of the irs. and i don't know of any time in my career where they have been more vocal about that. and they're angry about it. so, some of the questions i'll ask are questions that they're asking me. and can you say unequivocally at this time that there is no targeting going on in the irs of any of these groups? >> i can tell you that -- and i ask that question myself somewhat regularly. as far as i know, there is no targeting. one of the things i hope to hear from frontline employees is if anybody out there thinks that they're being asked to do something they shouldn't be doing, they will let me know directly, personally. they know how to reach me. at this point, we are -- i am,

every place i go, stressing that the irs needs to be apolitical. it needs to be viewed as an agency with integrity. and people need to have trust in it. ultimately the proof will be in the pudding. we need to deliver on that position. we need to assure people ta when they hear from the irs, it's not because of something they said or some place -- or a group they belong to. they hear from us because we have an inquiry about information they provided and it's the same inquiry everybody else in that situation would get. over time, people can listen to me and think if they believe me, nobody's challenged my integrity in the past. but ultimately the words won't do it. it is, in fact, we need to deliver with performance. >> in this committee, historically, members on both sides of the aisle have asked that very specific question, and were not told the complete truth. so, i appreciate your answer. if you discover this kind of activity, will there be

immediate and swift action taken to bring that to this committee and relieve and fire employees for that kind of behavior? >> i have committed both in the senate and this committee as well that if there is a problem, you will be the first to hear about it, not the last. as i said, one of my reasons for traveling the 25 cities over the next few weeks -- i've been to six. as i said, i've got 19 to go. i want to stress that message to employees. i want them to understand, we don't shoot messengers. if somebody has a concern, if something's going on that shouldn't be go iing on, we nee to know about it and fix the problem quickly and we need to be transparent about it. again, as i said, i don't look back. i've got enough problems looking forward to solve these problems. but clearly i understand that if you don't have confidence that you're getting a straight answer from us, our working relationship won't be

productive. >> several of the groups that were targeted -- >> pardon? >> several of the groups that were targeted are in my district. and many of those groups who have tried to achieve their status filled out these questionnaire questionnaires that went out. and many of them gave names of their donors. now, in previous testimony today, you have said that there is no correlation between any of those donors being audited now and the fact that those donors names were disclosed. is that correct? >> that's correct. those lists no longer exist. >> the list no longer exists. but -- and you said if they are, it's a statistical -- it's just something that's statistical. but it's less than 100 names that were disclosed. and you've said that there's 1.4 million audits going out this

year. so, it's difficult to believe that 100 possible donors names are out there over 1.4 million audits are going on and if any of those people are being audited, it's difficult to believe that there isn't any correlation there. would you disclose to the council of our committee if any of those names of any of the people on those donor lists are being, in fact, audited? >> i would be happy -- i don't actually have authority and it's appropriate that i don't, to intervene or investigate any individual audit that's going on. let me just stress, our audit rate is -- for people making more than $1 million a year, your chances are 10%. i don't know who those donors are, what their income base is. i can guarantee you that there are 104 million audits out there and some of these people will be

upper or higher class income earners, it's one out of ten for people making over $1 million. it's about 3% for everybody between $200,000 and $1 million. so, i expect, you know -- i'm in that sort of -- somewhere in the middle. at some point i'll get an audit letter. it won't be because it's t-- i' the irs commissioner. what the determination for audits are. my concern is that people are legitimately going to be in that 1.4 million. and if they happen to be very liberal, very conservative, i don't want them thinking i got this letter from the irs because of who i am in terms of what organization i belong to, who i voted for in the last presidential election, what church i go to, or whether i go to church or not. that's my commitment to the american public. but i will say that i can't