>> do you have any thoughts about what treasury is telling people about buying back preferred stock and the regulators kind of might view actions on the? >> senator, from the treasure perspective we've been working our way through the tarp assets trying to resolve them so that we can recover taxpayers investments fully, whenever possible. and we have worked with community institutions and have

no objection when committee institutions are able to do that. i'm not sure what the regulatory issue is what you're describing but i'd be happy to look into. we don't have any authority over that decision. >> how the fed does have to coordinate with treasure. i'd like to get you a formal letter on this -- >> i would be happy to look into the. >> two other points that are very specific to the maryland d.c. area, just bring your attention and ask you to look into them and then i have a pretty big question. one of which is that the entire -- retired d.c. firefighters have called my office along with alan holmes norton that there is an accounting and old accounting error was discovered in several retirees are getting notification that their benefits might be reduced. these are the pensions that you

are responsible for sadr like to get your letter on the and the letter from eleanor holmes norton. that's a lesson that many. about asking for response there. the other is the treasury i know is merging financial management service with the bureau of public debt. the financial management services is i was able to negotiate a five year delay with treasury in terms of this move but we hear that there are in place at -- employees so grouchy about what he did to protect those people so we could search this out. they're being demoted intimidated and pushed out. would you take a look at the? >> i will take a look at it. it would be unacceptable if that were true. i think the merger has been effective, but there should be no kind of treatment like you have described.

>> well, you know, they were looking for $8 an hour accounts in west virginia. i don't think any account is $8 an hour but i'm not going to get into the legacy. i can assure you i will have many legacies of barbara mikulski as i can. the other is a larger question. you and i have lived through two appropriations together when i was the chair now the vice chair. could you tell me the impact of the crisis driven appropriations with a last minute agreements to an omnibus very well organized? i have nothing but excellent work you said that my congressman and congressman harold rogers but it was a hell of a time and as i wonder as you as the second treasury, domestic economy and our global economy what is the impact of crisis driven appropriations just what i would like to raise, and just

as colleague jerry moran has raised by getting back to regular order. >> senator i think that's exporting no important question, and i commend you for the work you did last year to put together an omnibus appropriation bill with funding levels were designed to meet current needs which is so important in terms of having our system maintain its responsiveness and its agility. continuing resolutions don't have that ability. i think when you look at the deadline driven crisis driven funding decisions made over the last number of years it's caused substantial anxiety. not just in the united states but around the world. i think when one looks at the business investment environment it is psychology. psychology is about confidence. this since government is behaving in a way a reasonable set of institutions should behave as confidence. the since we're hurtling off of

a cliff destroys that sense of confidence. i've detected considerable improvements in both the united states and internationally in confidence in u.s. as a system and as an economy since we have seen a return to something that approaches regular order. i think maintaining regular order is extraordinarily important, keeping to recover we going and having the investment decisions that depend on people thinking will things be going in the right direction in a year, two years, three years, not just in the week month or for maybe part of this year. i applaud the efforts of touch with you to put an omnibus together, and if congress can meet the requirements to fund the government to make sure that our debt doesn't become an issue at anxiety again, that would be very important. >> mr. chairman i know my time is up but i've got latebreaking news. this is good news.

the senate version of the homeland security bill cleared the house 257-167 so it is on its way to the president. so that means we on the appropriations committee, we now have past 12 bills and we've completed now today our fiscal '15 work. >> congratulations. >> thank you, mr. secretary, for being here. we appreciate you coming in testifying. i think that we've got some really valuable information. we will follow up with additional questions for the record, that our member's may have been a future. we would appreciate your time and responses as always. in order to move to the witnesses today, the next there'll -- >> thank you very much, mr. chairman. >> so thank you again for being here.

[inaudible conversations] >> commissioner koskinen, i now invite you to present your testimony on behalf of the internal revenue service. >> chairman boozman, ranking member coons and members of the subcommittee. thank you for the opportunity to discuss the irs budget and current operations. i remain deeply concerned that the significant reductions in our budget over the last five years are undermining the agency's ability to continue to deliver on its missions both this filing system in the

future. as you know i or someone has been reduced by 1.8 labelers over the last five years dropping to 10.9 billion for fiscal '15. at the same time the number of taxpayers has increased by over 7 million the irs has been given significant additional responsibility of these include implementation of the form tax compliance act and the affordable care act. the disconnect between our funding levels and our responsibilities is illustrated in some way by the fact that just three days after getting our budget by about $350 million congress passed legislation requiring the irs to design and implement two new programs by july 1. implementation of the able act and the certification requirement for professional employer organizations is accrual we are in the of our most complicated filing season in years. in discussing our need for adequate funding i understand we have an obligation to be careful stewards of the taxpayer dollars

we receive. we must be as efficient as possible. the irs has in fact, made considerable efforts for several years to find efficiencies in our operation. both in regard to personnel and nonlabor spending. through cuts in office space contracts, printings and mailings we are sitting over $200 million a year. we have made significant progress over the past few years and moving millions of taxpayer inquiries from our call centers and walk insights to our significant updated and improved website. already this filing season there been more than 150 million visits to irs.gov, and more than 2.7 million visits to the section devoted to the affordable care act. we've got over 125 million hits on our or is my refund site, the electronic tracking on irs.gov. also more than 11 million copies of previously filed tax

information have been obtained online with our get transcript application. in the past all of these inquiries would've been inundated our phone lines and resulted in even longer lines at our walk insights. i would also emphasize we've taken seriously issues raised about inappropriate actions and activities in the past by making this is a changes and improvements in our policies and procedures to ensure that the situations do not recur. woodcut conference spending by 80% we've established review board for video productions and training expenses. we have ensured that those who willfully fail to meet their tax obligations are not eligible for performance awards. we are reviewing our hiring process to ensure the extent possible by law the former employees with a series prior conduct issues are not retired. we now require that all contractors maintain the same high standards for tax compliance is. we have implement the recommendations of the inspector

general with regard to the serious management failures surrounding the review of applications by organizations seeking to achieve social welfare status. but does there's a limit to how much we can do. this year we reached the point of having to make very critical performance trade-offs. there was simply no way around the severity of the budget cuts without taking difficult steps which that negative impacts on service enforcement and information technology. the funding cuts have also limited our ability to work toward giving taxpayers a more complete online filing experience. taxpayers and are the odds of the same level of service from the irs that they have no from the financial institutions whether it is a bank mortgage company, or brokerage firm. the president's fiscal 2016 budget request for the irs which totaled $12.9 billion would help the agency move ahead in these critical areas. for example we be able to bring our phone level of service up

from the current 43% to 80%. we would also the significant increase enforcement and collection activities generating over $2 billion more in increased government revenues every year. and we would be able to take steps toward building a more modern interface between the agency and taxpayers. i understand and appreciate the concerns raised over the past few years the activities of the agency that i took this job 15 months ago because also understand the critical role the irs place in the lives of taxpayers and in the collection of the revenues that fund the government. i know i speak for the thousands of professional, experienced and dedicated employees of the agency when i say that we are committed to working with you and the other members of congress to lead the agency effectively and appropriately into the future. but we need your help and support if we are going to be successful. this concludes my statement and i would be happy to take your questions.

>> what i'd like to do is go ahead and go to you -- [inaudible] go ahead and then i will come in. >> okay thank you very much. thank you again for being here today, and i appreciate your testimony. the problem is this lack of confidence. and we can go all through these things but irs targeting hiring people that had left we hiring people who had left with bad records, some of them actually having marks on their file don't hire. tax refunds for prisoners, 25% earned income tax credit fraud the ig no safeguards am not no safeguards, but not enough safeguards in sensitive information you want employee taking home over $1 million over a million not dollars a million records, and the list goes on and on.

this program is in shambles. cybersecurity licensors, wasting billions of dollars, bonuses for people for poor performance record, taking bank accounts for people come from people with little evidence of wrongdoing. still having tax entities that are waiting for tax literature literally for years. and still no execution plan on how to implement the aca that we have been aware. so again the problem is is accountability and getting some confidence back. so in your budget request are asking for almost 12.9 billion for the irs but even without the request for six under $67 million above current spending limits, you're so asking for a $1.3 billion increase. for comparison under the budget control act, total nondefense discretionary spending for the entire federal government will

increase by only $1.1 billion. given current budget constraints and past history, is it a clear it is clear that this request favors hope over reality. the question is are you developing contingency plans and had to carry out your mission based on a more realistic budget expectations by? first i would note the difference between irs and the other agencies is if you give us money, we give you more money back. so that in terms of deficit reduction which is a critical issue going forward in many ways it's counterproductive that the more revenues and support for the irs get cut the greater the difficulty we have been collecting revenues. but i do take the point and we are continuing to assume that one of the options going into the future is that we will in fact, stay at the flat level. that was her assumption going into 2015 when we ended up with a budget cut of $350 million.

the only major agency in the count with a cut. we're the only major agency in the cover that was not restored to the pre-sequester level when this request was implement. so combined together we have in effect at the impact of two sequesters what ever else is waiting to see what happens for the next question. as i told omb we are two sequesters ahead of everybody else so to that extent we already have had to deal with the very difficult reality. >> a very good. >> so we are prepared. allall i can to you last july testified i said if we did not get the increase in funding requested for customer service for example, the customer service level is going to drop by 50% and it is done the. to the extent we do not get additional revenues for enforcement, i configured the enforcement revenue is available will increase by six to eight

times more. but we are prepared as i said we will play the hand you deal that is dealt to us. whatever decisions you make we will abide with them. but i will tell you there are great threats to taxpayer service, on tax enforcement and information technology. cybersecurity is a critical issue force. we get attacked 145 million times a year. there's no database that is more attractive than our database coming yet we are dealing with less and less support for ig system than we think is appropriate. so we will deal with whatever you give us but i can tell you we are significantly underfunded at this point already. >> how much money did you waste and licensure? >> in where? >> and licensure last year. >> and licensure? >> yes. >> i don't know in what sense. you mean in terms of i.t. licensure? there's an ig report that we had disagreed with in terms of use of licenses for software asked

whether in fact we had lost money on those software licenses by not using them. it was an issue of how you measure but we have taken to this is over the past history taken actions to make sure because i'm a big supporter of ig when you raise an issue like that we deal with it. >> we will visit with the ig about that. during a hearing last month senator grassley asked you about the tax consequences of presidents unilateral action on immigration what it would allow individuals to claim millions of dollars in tax benefits for unauthorized work. your follow-up letter to him last week that individuals individual may claim up to three years of refunds on income even if they're working off the books or never pay taxes, is truly startling. why are you allowing individuals who cheated by not paying any taxes can have him a refund that would be financed by hard-working americans who have been paying taxes all of? >> it has to be clear you are eligible for the tax credit only if you had earnings, and

earnings that meet the requirements of the statute. we have 700 us and undocumented residents who pay taxes every year. they use what's called and i can come identification number for them. they are paying even though they're a document other already paid into the system. anyone who now under the provisions program is provide a social security number with -- would be eligible for filing an amended return but after then demonstrate that they actually had earnings and have to pay taxes on those earnings are least filed a return and only then would they be eligible and the single employee at the low end of the scale without a family is eligible to less than 600 a year and earn income tax credit. so you have to have worked in those three years to get the file an amended return you to provide evidence and documentation -- documentation patchwork. -- that you worked. >> said the statement than -- so

the statement benefit individuals may claim up to three years of refunds on income even if they're working off the books or never pay taxes is not true speak with no. they basically have to come if they want to file a committed return to have to file for the income they earned. i noted there are 700,000 undocumented residents on taxes every year with us. so to qualify the earned income tax revenue you had to work. if you file a return you have to provide us with the documentation that showed good earnings that year, you owed taxes and we factored into what if any tax credit you're entitled to. there's not an automatic payment. >> the senator from maryland. >> thank you, mr. chairman. and thank you, mr. koskinen. first of all i really appreciate someone of your caliber has decided to continue a life of public service and to do it at irs.

the irs has taken a beating both in the budget, by members of congress. we demonize the men and women who work there then we underfunded and give them an impossible job. and when they can't do the impossible, we punish them by giving them even less money so the impossible goes to the catastrophic. so i really would appreciate you do showing up every day and trying to run this ship. i really do think the president's budget, if we don't find it full close to $30 million, we are talking about the need to add more money and taxpayer service, beefing up enforcement, strengthen the operation and looking at new technology. so let me get to my question, which goes to service. i am concerned about giving you less money, we end up with more

fraud and abuse. so tell me how many people have had, what is the staff level reduction since 2010? >> since 2010 we have lost 13,000 employees. we asked if we lose another 3000 at the end of fiscal 2013. we will be down a total estimated 16,000 employees. >> 16,000 employees in four years? >> five years. since 2010. >> and then have a look at that i understand from the taxpayer aggregate that for every dollar spent on tax enforcement we get $6 back. but i'm concerned about the fraud issues, as i know you are. we talked about it. you know the guys in prison who come up with dummy accounts but this recent thing with turbotax. we could go through one fraudulent thing after another.

what is the impact of shrinking amount of money both in the area of enforcement and then the investigation staff and all that you have? >> it cuts across the board because we have no choice but to cut across the border three quarters of her budget is people. as with fewer people we have to have fewer people everywhere. we've tried to support and maintain the number of people helping taxpayers who have been victims of taxpayer fraud, but the short underfunded of our information technology means we've made less progress in the department of our filters and a system capable of dealing with the influx of those returns. we have 5000 fewer revenue agents officers and criminal investigators. so while again an increasing percentage of our for criminal investigation work is focused on tracking down identity thieves and those are responsible for refund fraud, there's a limit to what our revenue agents can do a limit to what our criminal investigators can do. as a reference to the earned

income tax credit a problem on greater concern about and as noted in my testimony we need help in terms of legislative taxes but there again we have a limited number of people in that area as well. >> with this double sequester and the reductions that congress was forced, are you having a hard time recruiting people? >> at this point we have some difficulty but we're basically not our own way to get the dishes we said except for emergencies we are not hiring anybody. and when people leave -- >> do you have a freeze of? >> a total freeze. we've taken 10% of what we would save with a total free for emergency because makes no sense when the vision of the senior managers, but as a general matter we're basically not replacing anyone when they leave leave. >> and when you have a freeze, when people leave like an enforcement area, the investigation area you replace them? >> no.

>> it is a freeze on replacement replacement? >> the rate we're going to lose 3000 people this year simply not replacing those. we have 1000 people right now who have applications in to retire. they will retire over the near-term future. they will not be replaced. that's a significant amount of experience going at the door that will not be replaced. my concern in the long run it means will have an employee based at as a kind of baby bust in the middle of it because we have been replacing only one in every five over the past two years but as you look into the future there's going to be a time at which we will have a gap in our experience level, and over three to five years in a that would be a service problem no matter what we do now. >> well then, we go to the impact. i don't know, i want to raise the issue related to helping victims of the payroll provider fraud problem. i have many constituents who

were victims of a crime related to the company called accu bay. and as you know when whether it was a pub or home improvement agency they hire someone to do their books. that's the way they talk about it. and then this company took their money that they gave to pay the taxes, didn't pay irs. they then kind of disappeared. i get into the oven trying to get it straight and what i find is that approximately five-600 businesses were scanned in my state. the irs has only offered 54 offers and compromise to these businesses. remember, they paid the company. they didn't pay irs so irs comes back and goes after the home of proven, the beauty shop. this is the kind of, when we say small business, it's the really

main street strip multi-business. and i put in legislation that requires irs to do more but they haven't. they just haven't followed my laws. it's even become an issue with the national taxpayer advocate. the irs does not comply with the law regarding victims of payroll service provider failure. could you help me out with his? >> yes. the requirement is a very thoughtful sensible point is that we should come every time a tax preparer an intermediary payroll provider makes any change in the residence, we should actually notify the constituents that they're payroll provider has moved.

we also again within the concerns of personnel, are trying battle in this area but across the board whenever anyone misses and decimated taxpaying, rather than waiting until the end of the year we will try to more affirmatively reach out and identify when payments are not made on a quarterly basis of that we can catch these problems earlier. part of the problem accupay is no, i don't know is probably to well after the end of the year. now what we'll try to do with the limited resources is to the extent we can identify where we are not getting the quarterly payments of employee taxes that we should be getting and both notify that payers as well as the intermediaries. >> that's a solution but can i ask you to look into what the taxpayer advocate says that they're not complying with the law? your agency is not implementing the law. >> i will be delighted to look into that. we are now in the process of notifying people when there are address changes to make sure -- >> i got that but speed i will

be happy to talk to the taxpayer advocate. i meet with her to make sure we do the. in fact, i asked her last year ambitious will to take her 23 most significant challenges that she lives every year, and to give me the list of those we confront without having to spend more money. last year she gave me that list and we implement most of them including the taxpayer bill of rights and the made the same offer this should. i said if you give me out of your list of things we should do, the things we could do without any expenditure of money which would odyssey don't have we'll make a series effort to do that. this would be one of those. >> thank you. t. want to take this over? we will give it to you right now. >> thank you, senator. i think you brought up an excellent point. the senator from kansas. >> thank you, mr. chairman. commissioner, a couple of the topics. personal data with the veterans. -- first of all dealing with

veterans. my understanding is the national american legion has been required by the irs to provide tax identification numbers from every post across the country when they filed their return and that they are incapable of doing the their charter indicates they are not a parent organization for various american legions across the country. and they have been trying to sort this out with the irs without any success. a number of letters and requests have been made to the irs. if you could bring you up-to-date on this topic. and then i would also say i met with you and your predecessor back in 2013, in which the public was american legion post across the country were being required to provide the to 14

the service-connected discharge document for every veteran that was a member of their poster to my understand was that practice was coming to a conclusion, that the irs had concluded that wasn't a beneficial use of their limited resources. before i walked into this hearing came from a meeting with vfw members who indicate that circumstance is again occurring across the country, that vfw post now like american legion post are being required to provide the 214 for every post member which is something very difficult if not impossible to accomplish. that's the issue that arose in 2013 that i was assured had come to an end. and then more recently the american legion being told they must provide tax exempt status documentation from every post across the country which they're incapable of doing what also

have been unable to receive a response to the inquiry from the irs. >> i'm happy to assume responsibility everything the irs does even before it got there at the end of 2014. whatever the discussion were 2013 i'm not privy to them your i thought we had resolved the issue on the dd-214 with the va. if your staff would get us a background information we would be delighted to make sure the obviously our challenge is again with our limited resources and the limited resources of the tax exempt organizations is to try to ensure to the extent we can and they can that they are operating within the realm of their charters and their exemption. that involves weapons or positions are basically dealing with veterans and not expanding their operations to include nonveterans. by take the point about we've taken the point in the past that this has to be done in a reasonable way. we can't be laboring impossible

burdens on top of people. so if you give me the details about that i would be happy to look into it and get back to you probably. >> does the second of march aspect of american legion, the national post the national american legion being required to provide information from every post across the country to the irs, which is a different issue than the one you and i just described, do you know anything about that topic? >> i have not heard the problem. to the extent they're not in control and don't charter and to establish post across the country and another records, that wouldn't make much sense is either. the vin number is four employee taxes. but again i'm happy to look at both those issues for your and legend of the status of to make it back to you quickly. >> based upon your tone and words, your response, my assumption is this appears to be something about to be able to be resolved quickly and satisfactory towards veteran service organizations?

>> yes. again i'm not an expert in where we are in the details of it but our goal in a lot of these errors is primary to make it easy for people to establish that they're still operating serving within the charters and serving the people they were meant to. but we ought to be looking at how to do that anyway the works artificially. >> i was surprised, i think in 2013 i think it was her predecessor, the acting commissioner assured me that this practice was coming to the conclusion. i had not heard about at the local level until as i say this meeting right before. i've got to go question the irs commissioner and immediately they had a request. and disappeared is three vfw post in new york state. >> if acting commissioner werfel said the process is coming to an end, it should have come to an end. there are residual elements out there, i would be delighted to look into them. >> thank you very much. a similar question i asked secretary lew on this

legislation that congress passed, the tribal general welfare explosion act, the law stipulates that all audits related to benefits under the general welfare exclusion should be suspended until tribal advisory committees are established and the irs field agents are probably trained and educated in federal law and how it relates to sovereign tribal, solving indian tribes. with this issue is maybe your family with -- >> i am. i met with the tribal leaders late last fall when you're here in washington at may been a time and irs commissioner have done that. >> thank you for doing the. i think the concern that he says is the irs audits continue even though the tribes believed that the issue that are being audited are related to the general welfare exclusion. and so my question to you is can you provide me with the standard being used to determine whether an odd audit relates to the general welfare exclusion and

confirmation that deference is being provided to the tribal government based on that exclusive? >> i will be delighted to get you that information to my understanding is that they been made clear that the general welfare exclusion of light and we would honor that. but again i'm delighted to be able to go back check on that and get back to you with the. so again if your staff could just list of the details of where they're heading that from again i can't talk about an individual case but clearly that was our understanding when i met with tribal leaders and we're going to try to have a better working relationship understand the significance of their sovereignty and make sure that our people as you note were properly trained and respectful of that sovereignty. >> do you have an idea of how many audits have been suspended as a result of this requirement of these exclusion acts because i do not. i cannot believe -- >> another question is a measure providing information in addition to how many audits have been put on hold suspended

awaiting the training at appointment of the advisory committee, i would ask that if there is a tribe that believes that the audit is improper how did he the appeal the decision that they're being audited? in their conversations with me seemed to have no recourse but he i arrest is here. they should be auditing us but we don't know what to do about it. if you could respond -- >> i would be delighted to do. every taxpayer has a right to our appellate process, but if you included in your inquiry i will be delighted to get on the roadmap as to what they should be doing to make sure they feel they have an appropriate way to raise their concerns. >> thank you to responding to both of my native american as well as by veteran questions. >> i would associate myself with senator marantz expressed concerns about the veteran issues in particular would appreciate follow up on that. although she has departed, i

joined the appropriations committee in no small part because of the fervor and passion and commitment that the chair and now vice chair senator mikulski demonstrators to returning us to write an order entered effective leadership. that will be sorely missed at the end of these two years. you identify the service and a force that an i.t. as three core themes, we think funding shortfalls of cause real challenges for irs and taxpayer. i want to touch on a few of those. tigta identified security for for taxpayer data as its number one priority challenge for you this year. i assume that's not unrelated to your i.t. investment. let me talk to the could for a moment about identity theft and combating refund fraud. your estimate was you paid 5.8 billion identity theft refunds in touch your 2013. just tell me a little more about your strategy for dealing with refund fraud and identity theft.

is a comprehensive enough aggressive enough to keep pace with fraudsters to keep finding more and more sophisticated ways, either to hack in and access code to take advantage of different schemes? and what measures would help the irs better to detect fraud and hold fraud schemes before they get out of in? >> it has been historically a growing problem, explode in the 2010-2012 area, overwhelmed law enforcement as well as the irs. we have made significant progress but to some extent the point you raise is important want to know that as i said we've gotten over 2000 convictions of people going to jail for an average of 40 months or higher. and to some extent was that a lot of the individuals including prisoners identified and prosecuted. but what we're finding, not surprisingly because it's consistent across all the cyber areas is that we are dealing with organized crime syndicates here and around the world.

we are dealing with people not found just one return at a time people filing 500 returned at a time to reverse engineering are filled, trying to get what gets through and adjust accordingly as we go. we have continued over the last three or four years to increase our investigations and prosecutions on the one hand to increase the level of sophistication of our filters on the other. last year we stopped approximately 5 million returns before they went out because of suspicions about identity theft and refund fraud but unfortunately, we continue to have a number of taxpayers three to 500000 taxpayers will have their identity stolen and refund fraud as a result of that. but we been able we have doubled even with the resource constraints the number of people helping taxpayers over 3000 people focused on working with taxpayers. used to take us a year now takes us, our goal is to get them resolved in less than 120 days. part of our challenge with the funding is while this is high

priority, there's a limit to all of the priorities we have. so we have been slower in developing more sophisticated fraud filters and detection devices than we would like to of been but we are making progress. we are stopping more returns at the front end before their processed than we did last you as a result of the improvements. but if we have the funding we're suggesting next you would be able to get to point where we be even more effective. in terms of additional tools across the board if we got wto information returned earlier it would have a significantly. -- w-2. we were to legislate requirements that if we could get in effect unique identifiers to every w-2 which would be easy enough to do we be able to identify legitimate w-2s. there's a move afoot by criminal to form false corporations, it falls the ims and file false tiny teens which they would file a return against those.

both those legislative fixes would be cynically important for us. >> thank you for into. for the. let me just raise the taxpayer advocate, in terms of dealing with those who've been victims i did identity fraud have advocated an approach that would assign a single account representative to tax and identity theft victims help them navigate the case rather than be frosted by having several different irs employees handle it. is that something you're intending to them by the? >> what we've done is we think we've done what is the proper response of that, that is just completing it now, moved all of the refund fraud activity into a single location. it used to be spread throughout the agency. there is a single point of contact working these issues. taxpayers advocate suggestion is that we have an individual envoy who is assigned to each of three to 500,000 taxpayers working their way through. we disagree with that only in the sense if you think of your experience deal with call

centers anywhere else, whether amazon or a bank or someone else. when you get assistance you get a taste of come you could help with the next time you go back you don't ask for joan or susan because they may be on vacation. talking to someone else maybe out of the office. you want to call back in and make sure when you call back into the single point of contact they know who you are. you don't have to start all over again. many taxpayers have at the expense. we don't think -- >> mic'd up -- >> we don't think after tracked on your single appointed irs employee. >> commissioner graham in the time got left, service levels is a significant concern to me. my impression is roughly a decade ago the irs answered 87% of calls and the way time of two and a half minutes. your projection given the significant reduction in your workforce for this taxpaying season is that less than half

the callers seeking advice and assistance, answers to tax questions will ever succeed in having their calls answered. there's an average wait time of 33 minutes. what do you think would be unacceptable level service for taxpayers calling the toll-free line trying to get a question answered? what dollar amount of increased funding would be required to return you to your 2004 service-level? what's the revenue consequences, social consequences of having those who are trying to figure how to comply voluntarily unable to get their questions answered? >> we identify come if we had $380 million, applicable in the area we could bring a level of service to 80%. we think the 85% 87% is the ultimate right number. you don't want to be a 100% because any of a lot of people waiting for the calls. but the waiting time ought to be lessened by the to you should be countable you get a live assist in less than five minutes. the impact we're concerned about

that i am personally concerned about his would focus on how much money do we collect with our activities six or eight times as much. enforcer revenues and activities and taxpayer service on the other, trying to help people figure what they owe and how to pay are two sides of the compliance going. the number i'm concerned that is we collect $3 trillion a year in a voluntary compliance is at that rate goes down by one person it because people think the chances getting caught are down or because they can't find of the right information or they just get aggravated 1% decline in the compliance rate cost the government $30 billion annually. on a 10 year window it is 300 elgin dollars. besides the fact it's not an on-off switch. it goes to the chairman's concern which i have as well, if people lose confidence in the agency, lose confidence in the fairness of the system, the risk to us is not that our collections will go down although they will, the real risk is what happens to the overall compliance rate what

happened to the $3 trillion number. i'm concerned about the people, the most concern are our employees because they view the service that taxpayers ought to get, they are committed to. as i go around the country i've talked to 13,000 individual irs employees in the biggest concern is not that they're overworked. the biggest concern is there are not enough people to provide the services to taxpayers they think is important. >> thank you commissioned. i've additional questions but i will submit them for the record. thank you commissioned. >> thank you for your testimony today, commissioner. i know you the big job and we look forward to work in with you in an effort to serve and protect the american taxpayer. so thank you for appearing here today. at this time i would like to call forward inspector general george to present his testimony.

>> thank you mr. chairman. [inaudible conversations] >> [inaudible conversations] >> inspector general, please proceed.

>> thank you, mr. chairman, ranking member coons. thank you for the opportunity to appear today. in my test i will address the internal revenue service fiscal year 2015 budget request and specific areas where you can perform its mission more effectively. i will also address fiscal year 2016 budget request for tigta a treasury inspector general for tax administration to the proposed irs budget request appropriated resources of $12.9 billion. this is an increase of $2 billion from fiscal year 2015 enacted level. this proposed increase is intended to improve taxpayer service levels and enforcement efforts. it also provides for critical information technology changes related to the affordable care act, and other requirements to sustain information technology infrastructure. we have reported that a shred of

lower budgets and reduced staffing has affected the rss ability to deliver its authority program areas, including customer service and enforcement. at the same time it is increases posed by of inflicting certain provisions of the affordable care act. the irs also continues today state significant resources to detect and review potential identity theft tax returns and assist victims. irs employees who work the majority of identity theft cases are telephone and sisters who also respond to taxpayers calls to the irs is toll-free telephone once. -- a sisters. this has contributed to their inability to timely -- decline in its ability to timely respond to taxpayers written correspondence. as of april 14, 2015 the average wait time for the irs to answer a call with 28 minutes.

the level of service was only 23%. him. one irs faces many resource challenges, tigta has reported on several areas where the irs can operate more effectively deployed simply believe i rest could save about $70 million per year if it allow taxpayers to electronically file amended tax returns. rather than only allowing paper returns. this would also enable the irs to use the same validation processes that utilizes to verify originally filed tax returns. tigta estimates this to prevent the issuance of more than to $.1 billion in potentially erroneous refunds over the next five years. he irs could make more informed business decisions when determining how to use its

limited resources. for example the irs eliminated or reduced services at taxpayer assistance servers said although the irs to the source is a limited or reduced were in part the result of the irs anticipated budget cuts, the irs plans did not show to what extent the services that would lower costs. moreover it had to reverse certain decisions. tigta also found that the irs fieldwork clinton process is not designed to ensure that cases with the highest collection potential are identified. additionally changing the law to require third parties information returned earlier would provide the irs the opportunity to use the information contained on these forms to verify tax returns at the time they are processed rather than after refunds are issued. however, even if the third party add-on returns are received more timely, ma the irs still meet

certain authorities to more efficiently and effectively use this data. generally the i rest must audit any tax returns and identifies with a questionable claim before the claim can be adjusted or denied, even if the irs has reliable data that indicate the claim is erroneous. the department of the treasury have included a legislative proposal as part of the irs budget request since fiscal year 2013 to obtain correctable air of authority which would permit the irs to systematically denied all tax claims which the irs has reliable data showing the claim is erroneous. tigta estimates this authority along with expanded use of the national directory of new hires, part of the department of health and human services, could have prevented the issuance of more than $1.7 billion in questionable earned income tax credit claims in tax year 2012.

tigta's disco year 2016 proposed budget request -- fiscal year 2016 proposed budget request of come in increase of 5.7% compared to the fiscal year 2015 enacted budget. tigta's budget buyers include mitigating risks associate with tax refund fraud and identity theft, monitoring the irs is a limitation of the affordable care act, and other tax law changes and assessing the irs effort to improve tax compliance involving foreign financial assets in offshore accounts. in addition investigating allegations of serious misconduct in criminal activity by irs employees, ensuring irs employees are safe, and irs facility dated and infrastructure are secured and not impeded by threats of violence and protecting the irs against external attempts to corrupt or otherwise interview

with administration will continue to take priority. chairman boozman ranking member coons and members of the subcommittee, thank you for the opportunity to share my views. i'm happy to take your questions questions. >> thank you very much. i know that senator coons has a classified briefing that is posted yet so we would go to him on this round. >> that's very kind of you thank you chairman. and i will try to be brief if i might. mr. george, tigta identified security taxpayer data as the number one management challenge facing the irs. what are your key concerns about the adequacy of the information security and how responsive as the irs been to your recommendation to bolster its systems? and what would you recommend they make their top priority in terms of responding to this concern? >> they have been responsive senator. the new commissioner and i have had a long-term relationship

meaning we worked together in various capacities. he listens to the concerns that we provide. they don't agree with 100% of them but they agree with enough so that i feel secure or confident at least that some of the issues that we identified are addressed. i think it's a very important to know as the commission noted, they are under attack on a daily basis hundreds of times. fortunately, we have not yet detected any breaches to the tax system that would undermine it which obviously would be devastating to this nation. and so in that sense we feel confident. three limited resources and they're having to make difficult choices as to what to focus on is going to put some of what you

said to you possibly at risk or make it completely inaccurate depending upon what happens day to day. >> given the response to your concerns criticisms suggestions, what level of confidence you have that increased investment increased available resources in this area might actually result in a significant increase in the security of this vital bit of? >> there's no question if they had additional resources to devote to this it would enhance my confidence that they would be more secure. secure. >> have you identified in the acas the number two challenge and i i just wonder which her chief concerns about the capacity of the irs to meet their responsibilities, both for implementing rule writing and administering a new responsibility, and what recommendations have you offered on how to improve their response of? >> at the request of congress were now in the process of working both with the inspector

general of the department of health and human services will does with my people on this very important issue to this is unprecedented territory for the internal revenue service and so at this stage are not in position to give you a definitive answer. all i can say is we're monitoring it and we will be reporting out information in the very near future. >> and less because i don't want to impose too much on the chairman's kindness, the tax gaps estimated about 450 billion, about 17% noncompliance rate which is really striking. what are your views on the adequacies of the irs strategy to narrow the gap and what are the impediments that most need to be dealt with to attack this or to deal with this given the declining resources available to the irs of? >> first of all we believe that figure which is an irs produced figure is actually understating the problem. we believe that the

international aspect of the tax gap is not adequately included in that figure and there's no question that some of the many recommendations that we've made in this area and will continue to make include third party reporting. there is a figure, or if he figures, and i beg your indulgence because it's so important that i think people understand this and this is according to the internal revenue service there's such a high correlation between tax compliance and third party information reporting, and withholding of taxes. the irs estimates individuals whose wages are subject to withholding report 99% of their wages. self-employed individuals who operate nonfarm businesses are estimated to report only 68% of

their income for tax purposes. but the most striking figure is self-employed individuals operating on a cash basis are estimated to report just 19% of their income. so there's no question this is a tax policy question. if everyone were required to fill out a form when someone cut the lawn or painted their home this third party reporting would help increase the amount of money that is reported as income and ultimately taxes paid to the federal government. but this is just one aspect of what can be done to address the tax gap. >> thank you and i look forward to working with you this year and in the future to make sure that your recommendation are being responded to a properly by the irs. mr. chairman, i was going to ask consent there was a statement received i understand by the subcommittee form the president of the national public employees union, just that that be made

part of the record. >> without objection. >> thank you very much for your forbearance, allowing me to get to the classified briefing. >> good luck in your meeting. hopefully you will learn a lot. >> thank you. >> thank you very much mr. george, for being here. the earned income tax credit has previously been declared a high risk program. the irs estimates 24% of all payments made in fiscal year 2013, or are $14.5 billion paid in area. in addition the rs estimates it is the between 124 billion, and 148 billion in improper eitc payments, earned income a tax credit payments in fiscal years 2003-2013 to the irs to develop a strategy an attempt to reduce the improper payments and focuses on early intervention to ensure that individuals claiming the credit are in compliance

with the ardennes, tax credit rules. however, despite those efforts of the estimated improper payment rate has remained relatively unchanged since fiscal year 2003 and the amount of tax credit claims paid in error has literally grown. i guess the question is, the irs know they cannot fully address the art income tax credit noncompliance by simply auditing returns and must pursue alternative to traditional compliance efforts. have you made any recommendations to the irs as to how to combat the problem? ..