Excerpts Available of House IRS Appropriations Bill Report

                       INDEX TO BILL AND REPORT

However, with the Federal debt expected to continue growing in excess of $17 trillion, the Subcommittee is committed to reducing the cost and size of government. The bill provides a total of $21,285,000,000 in discretionary budget authority for fiscal year 2015 which is $566,000,000, or 2.6 percent, below the fiscal year 2014 discretionary allocation. The bill is $2,256,698,000, or 9.6 percent, below the Administration's request.

                        TOTAL BUDGET AUTHORITY

• Prohibit funds for IRS employee bonuses and awards that do not consider the conduct and tax compliance of such employees;

• Prohibit funds for targeting groups for regulatory scrutiny based on their ideological beliefs;

• Prohibit funds for targeting citizens for exercising their First Amendment rights;

• Prohibit funds for conferences that do not comply with the Treasury Inspector General for Tax Administration's recommendations regarding conferences;

• Prohibit funds for the production of videos that have not been reviewed for cost, topic, tone, and purpose and certified to be appropriate;

• Require a report on the amount of official time used by IRS employees;

• Prohibit the White House from ordering the IRS to determine the tax-exempt status of an organization;

• Require extensive reporting on IRS spending; and

• Provide TIGTA with a $1,625,000 increase to enhance its audit and investigative oversight of the IRS.

The Committee continues to be concerned with the IRS' role in implementation of the Affordable Care Act and the individual mandate in particular. At a time when the IRS has demonstrated little ability to either self-police or self-correct, the IRS has even more authority over Americans' health coverage. The Committee finds this expansion of IRS authority to be unacceptable and, therefore, prohibits funding to implement the individual mandate and prohibits transfers from the Department of Health and Human Services to fund the IRS' implementation of the Affordable Care Act.

The Committee recommends providing $10,950,000,000 for the IRS which is $340,612,000 below current level and $1,526,527,000 below the request. This recommendation would fund the IRS below their fiscal year 2008 level. In addition, the Committee includes language to:

• Prohibit funds for IRS employee bonuses and awards that do not consider the conduct and tax compliance of such employee;

• Prohibit funds for targeting groups for regulatory scrutiny based on their ideological beliefs;

• Prohibit funds for targeting citizens for exercising their First Amendment rights;

• Prohibit funds for conferences that do not comply with the Treasury Inspector General for Tax Administration's (TIGTA) recommendations regarding conferences;

• Prohibit funds for the production of videos that have not been reviewed for cost, topic, tone, and purpose and certified to be appropriate;

• Require a report on the amount of official time used by IRS employees;

• Prohibit the White House from ordering the IRS to determine the tax-exempt status of an organization;

• Require extensive reporting on IRS spending; and

• Provide TIGTA with a $1,625,000 increase to enhance its audit and investigative oversight of the IRS.

The implementation of the Affordable Care Act (ACA) continues to vex the Committee. The IRS has also shared very little with the Committee about how it is currently administering the advance premium tax credits payments (APTCP) in 2014 and how it plans to reconcile those payments when 2014 tax returns are filed in 2015. The IRS is responsible for accounting for all APTCP on its 2014 financial statements, but the Centers for Medicare and Medicaid Services (CMS) obligates and disburses APTCP from an IRS account to insurance companies. This unorthodox administration of a tax credit has never been explained or justified to the Committee. Therefore, for fiscal year 2015, the Committee directs the IRS Commissioner to submit monthly status reports to the House and Senate Appropriations Committees, the Ways and Means Committee in the House, and the Finance Committee in the Senate on actions completed and planned for reconciliation, including coordination with CMS and the effects of missing or incomplete information as a result of the employer reporting and mandate delay. Furthermore, the Committee prohibits funding to implement the individual mandate and prohibits transfers from the Department of Health and Human Services to fund the IRS' implementation of the ACA.

A description of the Committee's recommendation by appropriation is provided below.

Identity Theft. -- Identity theft remains a persistent obstacle to accurate, fair, and efficient tax collection. Innocent taxpayers, who otherwise comply with their tax obligations, have their refunds delayed and are drawn unwittingly into the IRS examination process because their identity was stolen and misused. This problem is especially pernicious in the U.S. territories and possessions, where organized schemes fraudulently use the taxpayer identification numbers of territorial residents to obtain credits or refunds on tax returns filed with the United States, costing American taxpayers billions of dollars.

Last year, the Committee required a report from the IRS that covers the 2009-2013 period on: the number of taxpayers who have had their tax return rejected because their Social Security or taxpayer identification number was improperly used by another individual to commit tax fraud; the average time to resolve the situation and provide innocent taxpayers with their refund, when a refund is due; and the number of cases involving taxpayer identification numbers of residents of the territories. The report will also include a discussion on the effectiveness of IRS actions taken or plans to take to expedite resolution for these taxpayers, to prevent non-victims from becoming victims, to educate the public on the threat of identity theft, and to detect and prevent identity-based tax fraud and actions.

The Committee directs the IRS to submit an updated report to the House and Senate Appropriations Committees, reviewed by the National Taxpayer Advocate and the Federal Trade Commission, on the same information by June 17, 2015, for the 2014 time period.

Fraud Detection. -- The Committee strongly encourages the IRS to dedicate resources to replace its outdated fraud detection system and to develop robust, analytical systems that authenticate the identity of the taxpayer and to prevent fraud. It also especially important for the IRS to use data that is reported by taxpayers and third-parties, collected, and stored in the Individual Master File to recognize historical filing patterns, match deductions with corresponding income across taxpayers, and match certain contributions or withdraws to income and time limits.

Pre-Filled or "Simple" Tax Returns. -- The Committee believes that converting a voluntary compliance system to a bill presentment model would represent a significant change in the relationship between taxpayers and their government. The simple return model would also strain IRS resources and the data retrieval systems required would create new burdens on employers, particularly small businesses. In addition, a fundamental conflict of interest seems to be inherent in the nation's tax collector and compliance enforcer taking on the simultaneous role of tax preparer and financial advisor. The Committee expects that the IRS will not begin work on a simple tax return pilot program or associated systems without first seeking specific authorization and appropriations from Congress, and should instead focus on helping Congress and the Administration achieve real tax simplification and reform.

Free File. -- The Committee strongly supports the Free File program, which has allowed over 40 million people since 2003 to use their choice of name-brand Federal tax preparation software to securely e-file their tax returns at no cost for qualifying taxpayers. The program saves people both time and money, while promoting tax compliance. As such, the Committee is disappointed that the IRS abandoned multi-year agreements with the Free File Alliance, the group of private firms that provide the software, subjecting the program to modification or discontinuation from year-to-year. The current one-year memorandum of understanding (MOU) with the Free File Alliance expires on October 30, 2015. The IRS announced in May its intentions to enter into a multi-year agreement prior to the expiration of this one-year MOU. The Committee directs the IRS to report monthly on the status of negotiations until the next MOU is signed.

Tax Preparers. -- While most tax preparers provide a valuable and convenient service to their clients, other tax preparers range from incompetent to unscrupulous and either unwittingly draw their client into making improper claims or deliberately conspire with their clients in perpetrating fraud. The Committee encourages the IRS to use its existing authority to conduct on-site visits and preparer audits, and to investigate abusive or suspicious preparers.

Healthcare. -- Since 2010, the Department of Health and Human Services has transferred nearly $500,000,000 to the IRS for implementation of Affordable Care Act provisions. The Committee prohibits further such transfers during fiscal year 2015 in section 110 of this Act.

Reporting Interest Paid to Nonresident Aliens. -- On April 19,2012, the IRS issued final regulation TD 9584 requiring all banks in the United States to report to the IRS the amount of interest paid to non-resident alien individual depositors. The Committee directs the Government Accountability Office to conduct a study of the effect of the regulation on depository financial institutions.

Guidance on the Definition of Political Subdivision. -- The Committee is concerned that recent actions by the IRS have caused confusion concerning the definition of a political subdivision under the tax-exempt bond rules, including for entities long-recognized as political subdivisions, and have resulted in the inability to move forward with or the delay of economic development projects through-out the country. The Committee encourages the IRS to issue guidance to clarify the definition of political subdivision, to provide opportunity for public comments prior to any changes, and to make changes, if any, prospective.

Improper Payments. -- The IRS greatly strengthened the due diligence program to verify eligibility for Earned Income Tax Credit (EITC) for tax returns filed by paid preparers three filing seasons ago. The Committee believes a similar due diligence program for tax returns filed by self-preparers may further help to discourage erroneous EITC claims, provided that such requirements are not so burdensome as to discourage participation by eligible taxpayers. Not later than 120 days after enactment of this Act, the Office of Compliance Analytics shall develop and submit proposals for such a due diligence program to the House and Senate Appropriations Committees.

Official Time. -- Labor and management have a shared responsibility to ensure that official time is authorized and used appropriately for the ultimate benefit of the American people. The accounting for official time hours is the responsibility of the IRS' Official Time Program Unit. Not later than 90 days from the enactment of this Act, the IRS Official Time Program Unit shall submit a report to the House and Senate Appropriations Committees on the total number of bargaining unit employees, the number of bargaining unit employees who use official time, the number of hours of official time, the number of official time hours used per bargaining unit employee, the number of employees, if any, that use official time 100 percent of the time, and official time wage costs for fiscal years 2011-2014, including the year-over-year percentage change and a description of how the Official Time Program Unit monitors official time for compliance with the bargaining agreement on behalf of labor and management.

Obligations and Employment. -- Not later than 45 days after the end of each quarter, the Internal Revenue Service shall submit reports on its activities to the House and the Senate Committees on Appropriations. The reports shall include information about the obligations made during the previous quarter by appropriation, object class, office, and activity; the estimated obligations for the remainder of the fiscal year by appropriation, object class, office, and activity; the number of full-time equivalents within each office during the previous quarter; and the estimated number of full-time equivalents within each office for the remainder of the fiscal year.

The funds provided under this heading were at watershed amounts in recent years. While the Committee understands that IRS is building capabilities into the CADE2 system, such as linking historical returns with current returns and building a single interest and penalty calculator, the major costs of development and implementation are complete. The Committee expects funding requests to decline as the IRS realizes savings from retiring legacy systems and resumes funding levels closer to their historical average.

Section 102. The Committee continues a provision that requires the IRS to maintain a training program to include taxpayer rights, dealing courteously with taxpayers, cross-cultural relations, and the impartial application of tax law.

Section 103. The Committee continues a provision that requires the IRS to institute and enforce policies and procedures that will safeguard the confidentiality of taxpayer information and protect taxpayers against identity theft.

Section 104. The Committee continues a provision that makes funds available for improved facilities and increased staffing to provide efficient and effective 1-800 number help line service for tax-payers.

Section 105. The Committee continues a provision requiring videos produced by the IRS to be approved in advance by the Service-Wide Video Editorial Board.

Section 106. The Committee continues a provision that requires the IRS to notify employers of any address change related to employment tax payments.

Section 107. The Committee continues a provision that prohibits the IRS from targeting U.S. citizens for exercising their First Amendment rights.

Section 108. The Committee continues a provision that prohibits the IRS from targeting groups based on their ideological beliefs.

Section 109. The Committee includes a new provision that requires the IRS to comply with procedures and policies on conference spending as recommended by the Treasury Inspector General for Tax Administration.

Section 110. The Committee includes a new provision that prohibits funds made available in the healthcare reform act to the Department of Health and Human Services from being transferred to the IRS for implementing the healthcare reform act.

Section 111. The Committee includes a new provision that prohibits funds from being used to implement the individual mandate of the Affordable Care Act.

Section 112. The Committee includes a new provision that prohibits funding for bonus programs that do not consider conduct or Federal tax compliance in determining whether an employee should receive such a bonus. When considering Federal tax compliance, the Committee expects the IRS to focus on outstanding Federal tax debt, which has not been paid after an assessment of a tax, penalty, or interest, which is not subject to further appeal or petition.