Thank you Mr. Chairman. I am pleased to join you today as we examine the Internal Revenue Service (IRS) strategic plan and fiscal year 2006 budget.

A constant challenge for the IRS is to strike the appropriate balance between taxpayer services and enforcement activities to ensure that taxes are collected in a fair manner. However, as the IRS moves forward with goals and modernization efforts reflected in the strategic plan and budget, it is leaving behind the most vulnerable---low-income taxpayers who depend on quality taxpayer services.

The IRS has failed low-income taxpayers by cutting essential services and facilitating the exploitation of families that earn the Earned Income Tax Credit (EITC) through its support of refund anticipation loans (RALs). Incredibly, interest rates on RALs can range from 97 percent to 2,000 percent. Given the limited risk and the relative bargaining positions of the taxpayers and the RAL providers, these loans are predatory.

The EITC was designed to help working families meet their food, clothing, housing, transportation, and educational needs. More than 4 million Americans were brought above the poverty level due to the EITC in 2002. Unfortunately, due to the prevalence of RALs, a significant amount of the EITC is lining the pockets of commercial tax preparers and affiliated banks.

The EITC was diminished by an estimated $1.75 billion intended to assist low-income families that, instead, went towards commercial tax preparers and affiliated national banks for tax assistance, electronic filing of returns, and high-cost refund loans in 1999. The excessive interest rates and fees charged on RALs are not justified because of the short length of time that these loans are outstanding and the minimal risk they present.

RALs carry little risk because of the Debt Indicator (DI) program, which is a service provided by the IRS that informs the lender whether or not an applicant owes federal taxes, child support, student loans, or other government obligations. This service assists the tax preparer in ascertaining the applicant's ability to obtain their full refund. The IRS should not be facilitating these predatory loans that allow tax preparers to reap outrageous profits by exploiting working families.

In 1995, the use of the DI was suspended because of massive fraud in e-filed returns with RALs. This caused RAL participation to decline. RAL prices were expected to go down as a result of the reinstatement of the DI in 1999. This has not occurred.

The Debt Indicator should once again be stopped. The DI is helping tax preparers make excessive profits of low- and moderate-income taxpayers who utilize the service. If the Debt Indicator is removed, then the loans become riskier and tax preparers will not aggressively market them among EITC filers. The IRS should not be aiding efforts that take the earned benefit away from low-income families and allow unscrupulous preparers to take advantage of low-income taxpayers.

In addition, the IRS must do more to restrict RALs by providing alternatives for consumers to receive their refunds directly in a timely manner. Simple bank or credit union accounts allow taxpayers to receive direct deposit refunds into an account without the need for a refund anticipation loan. Instead of expanding access to mainstream financial institutions, the Department of the Treasury has chosen to rescind previously appropriated funds that had been designated for the purpose of banking the unbanked.

Overall, I am also disappointed over the failure to provide sufficient resources for taxpayer services. The proposed cuts for taxpayer services and outreach are irresponsible. The tax code is complex, especially for low-income taxpayers who are eligible for the EITC and child tax credit. These cuts will unfairly deny access to taxpayers in need of assistance. Volunteer Income Tax Assistance (VITA) sites will not be able to replace all of the service centers, so more low-income taxpayers will be driven to paid tax preparers, many who ruthlessly peddle high cost refund anticipation loans and other products high fees.

In light of my comments, I am interested to hear today's discussion of the strategic plans and budget of the IRS and I thank our witnesses for joining us today. We must work together to restrict predatory RALs and expand access to mainstream financial institutions.

Mr. Chairman, I also want to applaud the National Taxpayer Advocate, Nina Olson, for all of her courageous work on behalf of taxpayers. In addition, I want to recognize the work done by National Taxpayer Representative in Hawaii, Don Williams, and the rest of his staff to help our taxpayers.

Thank you, Mr. Chairman.