I have long been concerned about the reduction in taxpayer services provided by the IRS. Helping taxpayers who want assistance in filing their taxes correctly will help reduce the tax gap. In FY 2003, according to data from the Wage & Investment Operating Division, the IRS prepared 665,868 returns. However, the IRS has reduced the number of prepared returns each year. Plans for FY 2006 indicate that only 305,000 returns will be prepared by the IRS. This is a reduction of more than fifty percent in three years.

In my home state of Hawaii, I have seen the effects of the reduction. For years, the IRS and the Hawaii State Department of Taxation had made it an annual practice to help prepare returns on the island of Molokai, Hawaii. They typically helped more than a 100 taxpayers within two days. This service has been extremely helpful because there has been only one individual that provides paid tax preparation on the entire island. Then a few years ago, the IRS ended its participation in the partnership. AARP stepped in to help out for a year and, thankfully, the IRS again took part in the program this past filing season. However, it is uncertain whether the IRS will help out Molokai taxpayers for the upcoming filing season. In addition, the Hawaii Taxpayer Advocate’s office has seen a significant increase in the number of people seeking help with their tax questions because they have been unable to get the answers or assistance that they need from the IRS. Due to the complex nature of the tax code and the importance of voluntary compliance in helping reduce the tax gap, we must make sure that the IRS has the resources to provide assistance to those that seek out help. Reducing these services may result in a larger tax gap.

Mr. Chairman, I am also disappointed by the often poor quality of paid tax preparation services. Errors made by paid tax preparers contribute to the tax gap. Senator Bingaman and I have been advocates of legislation to regulate tax paid tax preparers for many years. I appreciate the contributions to this issue from Senators Grassley and Baucus, and I remain hopeful that one day we will be able to pass the taxpayer protection and assistance provisions found in the Finance Committee-approved Telephone Excise Tax Repeal and Taxpayer Protection and Assistance Act of 2006. This bill would also expand access to free tax preparation services for low-income taxpayers. In addition, the legislation includes my Free Internet Filing Act, which will empower individual taxpayers to file their taxes electronically through the IRS web site without the use of an intermediary, or with the use of an intermediary with which the IRS contracts to provide free universal access. If taxpayers take the time necessary to prepare their own returns, they must be provided with the option of electronically filing directly with the IRS. As the National Taxpayer Advocate has stated, nearly 45 million returns prepared using software are mailed in rather than electronically filed. With universal access to free e-file, this number could be substantially reduced. Electronic returns help taxpayers receive their refunds faster. This would also save the IRS resources and reduce possible errors that can occur when mailed-in returns are transcribed.

I look forward to a thorough discussion of these issues as part of today’s hearing on the tax gap. I thank the witnesses for appearing this afternoon.

Thank you, Mr. Chairman.