Thank you Mr. Chairman for calling today's hearing which focuses on the $300 billion in taxes owed to the federal government but not collected. I wish to compliment you and Ranking Member Carper for assembling such distinguished witnesses, including IRS Commissioner Everson who I last saw at the Joint Taxation Committee's hearing in May. I agree with the Chairman and Ranking Member that regularly measuring compliance with our nation's tax laws and understanding why taxpayers fail to pay their taxes is needed now more than ever. Our witnesses today will touch on many reasons for noncompliance. I would like to start by clearing up a common misconception: that filing errors among low-income taxpayers are simply acts of fraud and contribute to the tax gap. The low quality of tax preparation services for the Earned Income Tax Credit (EITC) earner contributes significantly to the errors found in EITC-related returns.

The EITC helps working families meet their food, clothing, housing, transportation, and educational needs. Fifty-seven percent of EITC over-claims were made on returns prepared by paid tax preparers. Steps must be taken to improve the quality of tax preparation services, which is why I worked with our colleagues, Senators Bingaman, Smith, Baucus, Grassley, Schumer, and Pryor to develop S. 832, the Taxpayer Protection and Assistance Act. Our bill will provide the Department of the Treasury with improved authority to regulate individuals preparing federal income tax returns and other documents for submission to the Internal Revenue Service (IRS). The bill requires:

• examinations,
• education, and
• oversight of paid preparers, and urges citizens to utilize the services of an accredited or licensed tax preparer.

Enactment and implementation of this legislation would improve the quality of tax preparation services available to our citizens and reduce the error rate among return filed by EITC recipients. Only through stronger regulation of the tax preparation industry and by providing additional resources to help volunteer and community tax preparation programs, will error rates among low-income filers be reduced, which will help close the tax gap.

Mr. Chairman, I am also concerned about a problem that likely contributes to the tax gap -- business owned-life insurance (BOLI), which is insurance owned on the life of an employee that benefits the corporation or business. They benefit from the earnings on the policies' cash value building up tax-free, and are not taxed unless the policy is surrendered prior to the death of the insured. Because you are a proponent of fiscal responsibility, I believe you may be interested in this problem as well.

In response to a request from Senator Bingaman and myself, the GAO released a study in May 2004 on BOLI that found limited data is available on the use and prevalence of BOLIs. We simply do not have good data on the number and use of BOLIs, many of which exist for no other purpose than to shelter income from taxes. More needs to be done to understand the justification and costs of retaining the federal tax advantages of BOLI.

We are in a difficult fiscal environment which requires difficult choices, especially when there are calls for cutting essential health care programs, such as Medicaid or education programs. Imposing regulatory reporting requirements on BOLIs would provide needed information on the use and prevalence of these policies and would give Congress the data needed to evaluate whether or not these tax benefits are justified.

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.