budget environments. our return prayer program supp and running. to date more than 40,000 paid prepares have registered with the irs, and both the testingnd education requirements are well under way. this is going to be one of the most important initiatives in the tax system in several decades. weave also made significant progress in our battle against offshore tax evasion. we've collected more than $4.4 billion to date through our offshore voluntary disclosure program. we're getting people back in the system through this and other offshore initiatives. and i think we've made significant progress, as i said, we cut a billion dollars out of our core operating budget through the 2013 budget statement -- budget proposal that we've given. let me conclude my opening statement with one concern that i want to emphasize for this

subcommittee, and i think it's quite important for the ways and means committee as a whole. in recent years it seems taxpayers increasingly face uncertainty about what the tax law will be for the next filing season. this year we at the irs are very concerned with the status of the amt and so-called extenders. if the amt and extenders are not dealt with in a timely fashion, we may have to declay the start of filing season for many millions of taxpayers as we have done in prior years. and i've written to this committee before, that it is imperative that whatever action congress decides to take on amt and extenders, that this action happen by the end of the year which would still be late from an operational perspective, but

not longer than that in order to prevent even more widespread disruption of next year's tax filing season. >> thank you, commissioner schulman. i think we will turn to questioning now. we will alternate between sides with five minutes being given to every member. last year you testified to the committee that enforcement and customer service are not an either/or proposition. providing quality taxpayer service, especially during the filing season is important to help taxpayers avoid unintentional errors, inadvertent noncompliance and reduce other burdensome post filing interactions with the ira. so far this filing season access to live irs assisters is down to 65%, and taxpayers are waiting an average of 18 minutes to talk with an irs assister. the rate of taxpayers getting busy signals or that are

disconnected from the irs have roughly doubled, yet this is not a new problem, but rather seems to be just a bad trend. since '04, the percentage of answered calls has dropped from 7% to 70% in 2011. last year the average wait time was 12 minutes. in '07 it was five minutes or less. personally i have heard from kansas cpas that it's not uncommon to be on hold for 30 minutes. according to gao, this decline in customer service has occurred despite the number of full-time equivalents dedicated answering the phones having increased f m from,000 in fiscal year 2007 to,800 in 2011. despite greater use of automated answers and self service website operations. it seems to me the irs has placed greater emphasis on

enforcement at the expense of service, yet adds you told us last year, the lack of service for those who have questions will only lead to greater noncompliance than if those questions had been answered. so can you help me better understand a few things. first, what actions are being taken to ensure that taxpayers are able to reach a live irs assister? secondly, given your belief that the irs must deliver both enforcement and customer service, do you think that this budget request focuses too much on enforcement while sacrificing customer service. finally, does the irs consider this to be an acceptable level of service? >> thanks for bringing up a set of important issues. first, let me repeat what i told you last year and what i talked about a lot with our employers and members of congress and everyone involved in the tax

system which is that it is not an either/or proposition. we need to run service operations and compliance operations to make the nation's tax system work. let me put in context the resources that we have this year to put towards both e enforcement and customer service. we had a $300 million budget cut which was $1.2 billion less than the president had requested for service and enforcement last year. we also had to absorb for rent and other kinds of increase about $200 million of inflation and $66 million was put into our technology accounts which we're very appreciative of. if you take 300, 200, 66, we had a $566 million reduction in our core services and enforcement accounts. what we're trying to do is do

the best we can with the resources we were given. last year, our phone level of service was about 70%. this year it's running at about 66% even though we had predicted about 61%. and the reason for that is we really squeezed efficiency, routed calls, more people are using automated answering systems, and people are using our website. as you said, the wait is longer because at a certain point we can squeeze as many efficiencies out of technology and other efficiencies as we can. it comes to how many people do we have answering phones. volume is up. so the numbers you gave that said we have more people, we also have much more volume. we have more taxpayers. we have a more complicated tax code right now. another number that's interesting to look at is how many people hang up in the first couple minutes because we added a feature to tell them how long to wait. we say if you want to either use the web, use our automated phone or call back when there's less

time, then our phone level of service this year is 77% if you take away the people who hung up in the first couple of minutes. so i guess my view of this is we've taken a whole bunch of actions. at a certain point, we need money to invest because you need people to answer phones for live service that i'm pretty proud that while service is down, it hasn't degraded to a point where it could have gone given the cuts. and the answer to your last question which is do we think it's acceptable? i want everyone who contacts the irs to get what they need from the irs. this year everyone is not getting everything they need from the irs but i think we're doing a pretty good job given the resources we were give sglen thank you, commissioner. i'm looking at data and the budget cuts compared at the level of service aren't

always -- they don't always follow given this information from the gao. so we just encourage you to continue to work on that and we'd be delighted to work with you anyway we can. with that i would recognize mr. lewis for five minutes. >> thank you very much, madam chair. mr. commissioner, the gao notes there had been a 34% increase in a number of calls for this filing season and about a 50% increase in calls answered by the automated form service. could you tell us what are the taxpayers calling snabt what are the nature of the calls? >> you know, calls can be anything from people want to set up a payment plan to people are curious, i'm filling out my return and i'm going to take this deduction. how does that work? just general tax law questions to questions about where is my

refund. i filed last friday and my prayer told me i would get a refund on and and i haven't gotten it. so calls vary. so we can get you a specific breakdown of what the calls are. >> thank you very much. we understand irs is requesting a cap adjustment of about $700 million for next year's budget to fund the enforcement program. what are your plans, if any, if the agency does not receive these resources? >> well, we're still early in the congressional budget and appropriations cycle. and so we're quite hopeful, and in the past we've had broad bipartisan support for cap adjustments. the most recent cap adjustment was 2006 and 2007 with a republican president and a democratic controlled congress. so we actually think this is a bipartisan proposal.

it reflects the administration's belief that prudent investments in the irs is good for deficit reduction and so there should be cap adjustments for our budget and that investments for us is good for the long term for the tax system. and so right now i think our position is that this this budget program integrity cap adjustments are good for the system. the people should agree with it. we've had good productive conversations in both the house and the senate about them. >> mr. commissioner, could you tell members of the subcommittee how has the $300 million budget cut impacted taxpayer service this year and what taxpayer service have been reduced? >> for ms. jenkins, i walked through the notion of there's $300 million at the top. but the impact is greater given

where the resources were put in our budget. i think we have a slight dip in number of taxpayers served in walk-in centers. but we've had a corresponding increase in number of taxpayers served in volunteer, vita sites where we encourage them to go because we work in partnership with community organizations. our phone level of service is down by about 4% compared to last year, although automated calls are up, and the wait times are longer. so there's been -- i guess the way i characterize it is there's been a predictable effect because of less resources. with that said i'm quite proud that we've been able to mitigate some of that effect by making sure we work smart and we really drive efficiencies as hard as we can. >> thank you very much, mr.

commissioner. i yield back, madam chair. >> thank you, mr. lewis. now we will give five minutes to the representative from minnesota, mr. paulson. >> thank you, madam chair. thank you commissioner for being here today. i just wanted to follow up on a letter i sent to you not too long ago. in the last year you've been talking a lot or a great deal about this concept of a realtime tax system and have had a number of actually public meetings on the issue as well. i know there are benefits to receiving realtime verification and having that information up hand. i am concerned that the cost could outweigh the benefits, particularly in the sense that having this filing system could lead to a burden very similar to the 109 provision that was being rolled out as a part of america's new law which would have been a nightmare. if the irs is going to make this realtime system work, i'm sure you'll want to spr all the data

earlier than is required today. you'll probably want more 1099 data as well. looking at what's been discussed today, it seems compressing this reporting timeline will make it more challenging for reporting requirements for a very onerous and burdensome process right now. let me ask you this, what are you doing right now to work with existing stakeholders with the business community to kind of get their feedback, their buy-in as a part of this. there's no doubt that increased regulatory and compliance costs are a big deal now for employers. it's one of the reasons that i think the level of uncertainty, that this is a factor as well. have you conducted any studies of the increased costs to businesses of changing deadlines, for instance, for reporting informational returns or increasing reporting requirements? would you agree to an independent study as a part of that process? would that make sense? >> thank you, mr. paulson. great questions and an important set of issues. let me give you perspective on

it. i view one of my jobs as commissioner to make sure i'm helping prod the tax system forward so it works better for the american people 10 years and 20 years from now than it does today. the combination of consumer expectations of us working better and quicker and more timely with taxpayers with the advances in technology, clearly there's room for us to think about a future that works better for people. what really struck me is the average taxpayer, if they have an interaction with us beyond just filing, that interaction is -- they have their economic activity one year. they file their return the next year. it can take us a year to two years to reach out to them. so by the time we go back to them, they've either spent their refund or they've -- their records and all the memory is gone, whether it's a small business or an individual. i think the current system

actually adds a lot of burden to people, and we've heard that. i laid out this vision that said, what if we could clear everything up rather than coming back to them on the back end at the time they filed which is the simplest way to think about this. but i also recognized all the things you said which is this is something that would affect all of the stakeholders in the tax system from taxpayers to tax prepares to information return filers. the way we went about this is the way i think a public agency should go about this, which is we held a series of public meetings which i hosted with stakeholders, the broad range of stakeholders to get their input. what we heard universally is basically, makes sense. we'd all love to have everything work faster in the tax system, but we need to make sure we work through the details together in a constructive fashion so we

don't add burden in the process. so what we're doing now is taking the next step and really developing detailed vision about what this would mean. i think there's been some misunderstanding. we've never suggested speeding up or adding more information reporting. we've asked questions about what do people have now? when is it ready and when could they get it to us, not is there more or would they have to start doing what they already do faster. we've asked ourselves internally, how do our systems work and when could we do this kind of matching. >> let me just ask you this before time is kind of running out here. how much will an upgraded system cost, to encapsulate this and run this type of system? how many years would it take to build and test? you're here justifying the budget in terms of the request congress would give to the president or the administration to run your operations. >> way too early. this is a vision we're having conversations with stakeholders.

the first step is laying out exactly what it would mean. there's a bunch of things we can do right away which is just process things through our system quicker so we could have quicker engagement. and so i can't tell you, there's no blueprint right now. we've laid out a vision. we've had a broad set of stakeholder engagement and now moving in to have the next round of stakeholder engagement. >> would bit safe to say you plan to have an actual proposal from congress to have feedback at part of your provision? >> i think for sure we'll have public proposals. we'll have plenty of time for interaction. >> thank you. >> thank you. we will recognize representative desarah for five minutes. >> thank you, madam chair. commissioner, always good to see you. by the way, thank you for the work you're doing given the budget tear constraints you're facing. if you'll pass on to each of your employers who are doing

yeoman's work, i can't imagine the stress they're under given the fact that you've go got thousands of americans waiting to connect with them on the phone who are waiting, 10, 20 minutes and many of them very unhappy they have to wait that long. i think after two or three minutes most americans tend to hang up on any phone call where they're having to be put on hold. i hope we'll get this done in a smart way. i don't believe that the last -- the first thing we want to do is short change the agency which already has a tough task. that's asking americans to voluntarily pay their taxes. when we have responsible americans to do so to watch as others don't, it's very sfrus streeting. we don't want to undermine the voluntary compliance rates we have in this country by americans who pay their taxes. please share with all the folks that you work with that we thank them very much. tell that gentleman over there, mr. williams, that we thank

floyd williams for all his years of service. we're going to miss him. he's been a tremendous asset to not just the congress but to the american people because of the service he's provided to the irs as the go-between between your agency and the congress. we want to say, floyd, thank you for all the service you've provided over the years. one more thing. your initiative on tax prepares. that universe of people out there who were representing themselves as competent, qualified to prepare american tax returns and get paid to do it. we know there's some great ones. but we know there have been some that have just ripped off the american public. it's hard to believe that you need a license to cut someone's hair, but in america you don't need a license to prepare someone's perhaps most important financial document. so i thank you for the initiative to try to bird dog

that industry and make sure competent folks are the ones that are preparing our taxes. i am distressed. as i said and listen to what you're saying, you've lovett 5,000 employees, your butt was cut $300 million. we know the dollar you spend to have the investigator and the folks who follow through to make sure folks are complying with the payment of the taxes they owe, that you return $6.00 for every dollar we invest in you doing that. for us to-ku $300 million from your budget, it's distressing. the last thing we want is the stories of lau some overzealous tax agent goes and busts someone door down to try to collect taxes. the truth is, for the most part, you have employees who do just yeoman's work to try to help their fellow americans prepare their taxes. i hope you will sound the alarms, if they are alarms, ton

ability for us to pay our taxes the right way voluntarily. my understanding is, and correct me if i'm wrong, that we now estimate that some $385 billion annually is not paid in taxes that are either avoided or intentionally not paid in this country. $35 billion. is that the estimate? >> that's the estimate for tax year 2006. >> so that's more money -- that's more money that we would fund you for how many years? >> a lot. >> it's just incredible. we have americans who are voluntarily paying their taxes. you've got a whole bunch of other americans who unfortunately aren't doing what they should or at the level they should. so the responsible taxpayers in this country are having to cover for those who aren't. and you can go out and figure

out who they are if you just had the compliance money, the enforcement money to go out there and find them. many of them make errors, simple errors. i think most of those americans are ready to pay their fair share. others aren't. others are trying to send their money overseas and do things that they shouldn't. we should make them pay for their fair share. i just hope that we go out there and do this the right way. is there any hope that with the funding that you're getting that you can fulfill everything that we're asking you to do? >> well, look, one is it's very much the prerogative of congress to fund us. and whatever congress ends up giving us, we'll do the best that we can. i'm quite proud of this agency delivering on multiple fronts over the last several years and especially this year in a decreased budget environment and truly trying to balance compliance and service. i think we're doing a good job.

>> thank you. the time has expired. ms. black is recognized for five minutes. >> thank you, madam chair. thank you mr. schulman for being here. we're all talking about limited dollars. we need to spend our dollars in the best way we possibly can. i was reading a report just recently from the treasury inspector general for tax administration who found billions of dollars in federal education credits that were issued in error. what i'm really trying to get to here is number one to save. to make sure we're giving the money to the final that really deserve the money so we can use it in the budget tear process to fund those places such as yourself that can continue to do a good job. but it's very disturbing when i see here how much money this represents that was potentially given to those who don't deserve it. i just want to read a couple of things out of that report.

$1.7 million taxpayers receive $2.6 billion in education credits for students for whom there was no supporting documentation in the irs files that they even attended an educational institution. almost 380,000 of these individuals claimed the students were not eligible because they didn't attend the required amount of time or were postgraduate students resulting in an estimated $550 million in erroneous ed skags credits. 64,000 of those taxpayers erroneously received $88 million in education credits for students claimed as a dependent or a spouse on the other one's return. so it was a double payment. 250 prisoners erroneously received over $255,000. and then it says here that it was identified that a valid social security number is required for federal student

aid, but not for these educational credits. now that just blows me away. i know when we were talking about the child tax credit at one of the other hearings, that was told to us, that there wasn't a requirement that they have a social security number. so i'm not sure how you track that when you don't have a social security number being used. but i want to go to trying to find ways to help you. what we can do, what kind of tools we can do and give you so you can have the authority to say we're not going to process this return. it doesn't have the proper information on there. the social security number just seems like an easy thing for me. not sending it to a prison would seem like an easy thing as well as making sure that they attended the classes or at least attended a college. so perhaps maybe a valid school ein number would also help to

make sure that when those credits are being processed, that you have all the information to verify that truly they qualify for those. can you help me out with that? >> thanks for bringing it up. i appreciate the offer for help. we can always use help. a couple of things, one is we've significantly stepped up our effort to crack down on fraud. last year we stopped $14 billion in potentially either fraudulent or mistaken credits from going out the door. the specific report that you reference, i just want to point out a couple of things. there was an inspector general report a couple years earlier that showed that there was huge error rate on the 1099 -- 1098s which are the education reports we get. while that report said there could have been that level of fraud, there's also a recognition that the documents they were using to match might

not have been accurate documents. meaning the education institutions often don't send in the right information. so it's not always clear that the student wasn't there, even though it came up. with that said, the answer to what we can get to help, if we want to block a credit because we think there's not right documentation, if we don't have math error authority, we have to go through a full-fledged audit which is resource intensive and it comes to people. even if we see an issue, if we don't have people who will follow up, answer the phone, engage with the taxpayer, we can't block it because we can't change their return. if we have math error authority tied to certain provisions, then we can block it and change the return without going through a full-fledged audit. so we requested in this budget math error authority for a couple of things. the second is you mentioned prisoners. authorization for us to share information with prisons so there can be a real punishment

for a prisoner like losing privileges or putting them in solitary confinement if they try to defraud the system, our authorization in congress to actually share information back with prisons so we can have that kind of dialogue expired at the end of last year. so re-upping that authorization is another thing you could do to help. >> this math error authority, you need to be given that, is that by law? >> yes. >> so we do have to change the law. do you already have the authority to require that there be a social security number on that form? do you have that? >> that's a whole different issue because certain tax credits you have to have a social security number. certain tax credits you don't. the ones you're mentioning, you don't. it's not a requirement. so people bring it up. if congress decides that only people with social security numbers can get that credit, then that would have to be up to congress. we can't stop it because it's not a requirement at this point. >> okay. i know so ways we can help you. thank you. >> thank you.

>> commissioner schulman, good to see you. i apologize for arriving very late to this hearing. before i recognize mr. reid for his questions -- no, i'm going to recognize you. i also want to take a moment to recognize floyd williams for his 15 years of service at the irs. i think it's a total of, what, 35 years of government service? sir, we want to thank you as you move on to what i hope is a good retirement? thank you for your service. mr. reid, you're recognized for five minutes. >> thank you very much, mr. chairman. thank you, commissioner for being with us here today. commissioner, i'd like to explore -- i really tried to rely on data. when we make decisions here in congress. one thing i have a concern with is on the enforcement initiatives, you have certain projections on the return of investment for those enforcement initiatives. i'm sure you're familiar with the issue we're going