Johnson Announces Hearing on
Internal Revenue Service Budget Proposal for
Fiscal Year 1996 And 1995 Tax Return Filing Season

Congresswoman Nancy L. Johnson (R-CT), Chairman of the Subcommittee on Oversight of the Committee on Ways and Means, today announced that the Subcommittee will conduct a hearing on the Internal Revenue Services' budget proposal for fiscal year 1996 and the 1995 tax return filing season. The hearing will be held on Monday, February 27, 1995, in room B-318 Rayburn House Office Building, beginning at 10:00 a.m.

This hearing will feature invited witnesses only. In view of the limited time available to hear witnesses, the Subcommittee will not be able to accommodate requests to testify other than from those who are invited. Those persons and organizations not scheduled for an oral appearance are welcome to submit written statements for the record of the hearing.

BACKGROUND:

The fiscal year 1996 budget request for the Internal Revenue Service totals $8.2 billion and will support the activities of almost 115,000 employees. These resources will support the IRS's operations in collecting nearly $1.3 trillion in revenue and in administering the federal tax laws. The $8.2 billion budget request includes $830 million to process the tax returns which taxpayers will file in 1996: 51.6 billion to examine tax returns; $909 million for collection activities; and $1.9 billion for information systems.

The 1995 tax return filing season refers to the period of time between January and April 15th when American taxpayers are expected to file 116 million tax returns. Approximately 82 million taxpayers are expected to receive an average refund of over $1,100 in 1995.

The Subcommittee on Oversight held two hearings last year on the subject of income tax refund fraud. The Subcommittee learned that criminals were exploiting the tax system to receive fraudulent refund payments from the IRS. Two factors appear to have fueled a rapid expansion of refund fraud schemes. First, the refundable nature of some tax credits, such as the earned income tax credit (EITC), make them particularly susceptible to refund fraud. The U.S. General Accounting Office has said that the EITC is a factor in over 90 percent of fraudulent refund claims. Second, the advent of the electronic filing of tax returns has led some tax return preparers and banks to provide what are generally called "refund anticipation loans" (RALs) to taxpayers who file electronically. With RALs, banks lend money to a taxpayer based on his or her anticipated tax refund and not on the credit worthiness of the person as a borrower. Criminals sometimes can exploit the rapid turn-around time of a RAL to receive a refund before the IRS can complete its cross-checks and identify a fraudulent refund claim. At an October 6, 1994, Subcommittee hearing, Ronald K. Noble, the Under Secretary for Enforcement at the Department of the Treasury, testified that the refund fraud problem could be as high as $5 billion.

The Administration has taken several steps to curb income tax refund fraud during the 1995 filing season.

WAYS AND MEANS COMMITTEE:

In October 1994, the IRS announced that it would suspend the issuance of direct deposit indicators (DDIs) to tax return preparers who file returns electronically. The DDI informs the tax return preparer that the taxpayer's refund is not subject to offset for delinquent government loans or child support. In the past, the receipt of a clean DDI often was a pre-condition for a bank to issue a refund anticipation loan.

The IRS also has increased its scrutiny of EITC claims. In particular, it is performing extensive cross-checks of all names and social security numbers to determine whether or not they match. A taxpayer's failure to supply accurate social security numbers could result in a delay of the person's tax refund.

DISCUSSION:

The IRS fiscal year 1996 budget request represents an increase of 888 employees and $726 million over the comparable levels in fiscal year 1995. The Subcommittee will review how these resources will be applied to carry out the mission of the IRS. In particular. it will review the status of the Tax System Modernization (TSM) program which is earmarked to receive over $1 billion in fiscal year 1996. TSM is the program to upgrade the computer and information handling capability of the IRS.

The Subcommittee also will review the status of the 1995 tax return filing season. Special attention will be paid to the steps which the IRS is taking to curb refund fraud. It will review the consequences of the decision to suspend the issuance of DDIs and the closer scrutiny of EITC claims. It also will examine ways to reform the EITC to reduce fraud.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) copies of their statement by the close of business. Monday, March 13. 1995. to Phillip D. Moseley. Chief of Staff, Committee on Ways and Means, U.S. House of Representatives. 1102 Longworth House Office Building, Washington. D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Oversight office, room 1136 Longworth House Office Building, at least one hour before the hearing begins.

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