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FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2013 HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS SECOND SESSION SUBCOMMITTEE ON FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS JO ANN EMERSON, Missouri, Chair RODNEY ALEXANDER, Louisiana JOSE´ E. SERRANO, New York JO BONNER, Alabama BARBARA LEE, California MARIO DIAZ-BALART, Florida PETER J. VISCLOSKY, Indiana TOM GRAVES, Georgia ED PASTOR, Arizona KEVIN YODER, Kansas STEVE WOMACK, Arkansas NOTE: Under Committee Rules, Mr. Rogers, as Chairman of the Full Committee, and Mr. Dicks, as Ranking Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. JOHN MARTENS, WINNIE CHANG, KELLY HITCHCOCK, and ARIANA SARAR, Subcommittee Staff PART 6 Page Office of Treasury Inspector General and Office of Treasury Inspector General for Tax Administration [TIGTA] ................................................................................... 1 Internal Revenue Service ...................................................... 79 Department of the Treasury [Secretary] ........................... 157 ( U.S. GOVERNMENT PRINTING OFFICE 74–465 WASHINGTON : 2012 COMMITTEE ON APPROPRIATIONS HAROLD ROGERS, Kentucky, Chairman C. W. BILL YOUNG, Florida 1 NORMAN D. DICKS, Washington JERRY LEWIS, California 1 MARCY KAPTUR, Ohio FRANK R. WOLF, Virginia PETER J. VISCLOSKY, Indiana JACK KINGSTON, Georgia NITA M. LOWEY, New York RODNEY P. FRELINGHUYSEN, New Jersey JOSE´ E. SERRANO, New York TOM LATHAM, Iowa ROSA L. DELAURO, Connecticut ROBERT B. ADERHOLT, Alabama JAMES P. MORAN, Virginia JO ANN EMERSON, Missouri JOHN W. OLVER, Massachusetts KAY GRANGER, Texas ED PASTOR, Arizona MICHAEL K. SIMPSON, Idaho DAVID E. PRICE, North Carolina JOHN ABNEY CULBERSON, Texas MAURICE D. HINCHEY, New York ANDER CRENSHAW, Florida LUCILLE ROYBAL-ALLARD, California DENNY REHBERG, Montana SAM FARR, California JOHN R. CARTER, Texas JESSE L. JACKSON, JR., Illinois RODNEY ALEXANDER, Louisiana CHAKA FATTAH, Pennsylvania KEN CALVERT, California STEVEN R. ROTHMAN, New Jersey JO BONNER, Alabama SANFORD D. BISHOP, JR., Georgia STEVEN C. LATOURETTE, Ohio BARBARA LEE, California TOM COLE, Oklahoma ADAM B. SCHIFF, California JEFF FLAKE, Arizona MICHAEL M. HONDA, California MARIO DIAZ-BALART, Florida BETTY MCCOLLUM, Minnesota CHARLES W. DENT, Pennsylvania STEVE AUSTRIA, Ohio CYNTHIA M. LUMMIS, Wyoming TOM GRAVES, Georgia KEVIN YODER, Kansas STEVE WOMACK, Arkansas ALAN NUNNELEE, Mississippi ————— 1 Chairman Emeritus WILLIAM B. INGLEE, Clerk and Staff Director (II) FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS FOR 2013 WEDNESDAY, MARCH 7, 2012. OFFICE OF TREASURY INSPECTOR GENERAL AND OF- FICE OF TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION WITNESSES ERIC M. THORSON, TREASURY INSPECTOR GENERAL J. RUSSELL GEORGE, TREASURY INSPECTOR GENERAL FOR TAX AD- MINISTRATION Mrs. EMERSON. The hearing will come to order. I would like to welcome my Subcommittee ranking member Joe Serrano and I would like to extend a special welcome to you all. Thank you very much for your patience in allowing us to change the hearing time. The thought of having you just sit there for an hour while we had to go vote is just not fair. So we really appre- ciate it very much. This is the first time in a long time that the Treasury Inspector General has appeared before this subcommittee. Welcome, Inspector General Thorson. And this is a return appearance for the Treasury Inspector Gen- eral for Tax Administration. We are very pleased to see you again, Inspector General George. Speaking of firsts, for the first time since 1947, the Federal Gov- ernment’s debt-to-GDP ratio will exceed 100 percent. That means that the Federal Government has mortgaged the value of all goods and services produced in the United States this year to pay for past and current Federal spending. This uncontrolled appetite for spending has landed the United States in the same elite group as Greece, Italy, Portugal, and Spain. Unless we make measurable reductions in spending now, we will be forced, perhaps suddenly and unexpectedly, to adopt drastic austerity measures later. Look at England, look at Greece. The cra- dle of Western civilization is mired in protests over cuts to govern- ment spending. The Appropriations Committee’s jurisdiction is limited to the dis- cretionary spending part of the debt equation. Over the last 2 years, this Subcommittee has reduced spending in its jurisdiction by 11 percent. I am committed to making further reductions. Decid- ing how and where to reduce spending is a Gordian knot, to say the least, but one that the Committee is determined to cut with de- liberate study and review. (1) 2 Inspector General Thorson oversees all Treasury Department programs and offices, with the exception of the IRS and TARP, and is requesting an appropriation of $29 million and a staff of 172. The Subcommittee is pleased that conditions will allow the IG to conduct more audits and investigations and fewer material loss re- views. We are depending on your work to help make Treasury more efficient. Inspector General George oversees the IRS, which is in its third year of implementing the healthcare act. Hard for me to believe, but I guess it is the third year—amazing. The Subcommittee is con- cerned that the sheer enormity and novelty of the changes required by the healthcare act introduces risks and uncertainties in the De- partment’s largest and most visible agency. Your work on all as- pects of the IRS has been critical to the IRS and this Sub- committee. Once again, welcome. We appreciate your service, and we look forward to your testimony. But now I would like to recognize my good friend, Mr. Serrano, for any opening statements he would like to make. Mr. SERRANO. Thank you, Madam Chair. I would like to join Chairwoman Emerson in welcoming both Eric Thorson, the Inspector General for the Department of the Treas- ury, and Russell George, the Treasury Inspector General for Tax Administration, although you keep reminding me you are a Mets fan. At least you are keeping it in New York, which is okay. Mrs. EMERSON. I know. But the Mets—did you all beat my Car- dinals yesterday? Mr. GEORGE. You know, I am not sure. I was preparing for this hearing. Mrs. EMERSON. Yeah, I know. I think you did, sadly. Mr. SERRANO. That is a great comeback line. Both of you have important jobs in making sure that our govern- ment is working in an effective and efficient manner. Inspector General Thorson, I understand that Dodd-Frank gave your office an important new responsibility as the Chair of the Council of Inspectors General on Financial Oversight. I am inter- ested to learn more about your role in this new entity. Additionally, I see that you have requested an approximately $1 million decrease for the Office of Inspector General for 2013. Hopefully, we will have a chance to discuss whether this funding level is sufficient for the office in the coming year. Inspector General George, thank you for once again appearing before this Subcommittee. I think we all found your testimony last year to be very interesting, and I look forward to hearing your views on the current challenges facing the IRS. In particular, I am interested in learning more about the impact that last year’s budg- et cuts had on the IRS and its efforts to close the tax gap. More- over, I hope you will be able to give us your sense of the impact on the IRS of the mandatory budget cuts that would be imposed if sequestration occurs. I thank you both for your service and look forward to your testi- mony. Thank you. Mrs. EMERSON. Thank you so much, Mr. Serrano. 3 I will now recognize Inspector General Thorson and then Inspec- tor General George to give his statement. If you could keep your comments to 5 minutes or less, I would be grateful that will give us more time for questions. Thank you so much. Mr. THORSON. Okay. Chairwoman Emerson and Ranking Member Serrano and Mem- bers of the Committee, I thank you for the opportunity to appear before you this afternoon with my friend and colleague Russell George. I appreciate that the Subcommittee is looking to us to help identify savings and promote efficiency, a goal that we certainly share with the Committee. I have served as the Treasury Inspector General since 2008. My office provides independent audit and investigative oversight of the Treasury, except for IRS and TARP, as you mentioned. I also Chair the Council of Inspectors General on Financial Oversight, or CIGFO. That council was established by the Dodd-Frank Act to, among other things, evaluate the effectiveness and internal oper- ations of the Financial Stability Oversight Council, FSOC. My office has three mission components: audit, investigations, and the Small Business Lending Fund program oversight, which is led by a Special Deputy Inspector General. Our 2013 budget request is $28.59 million. Although our request is $1 million less than our funding last year, I believe this request provides for an adequate oversight presence consistent with our re- sponsibilities under the IG Act. I would offer two observations about Treasury as you consider ways to improve efficiencies and to save funds. First, several bureaus within Treasury do not receive appro- priated funds for their operations: the Office of Comptroller of the Currency, OCC; Bureau of Engraving and Printing, BEP; and the Mint. The relatively new Office of Financial Research, OFR, and the FSOC will soon be funded by assessments of large financial companies. Second, Treasury’s fiscal year 2013 budget request at the appro- priated level, excluding IRS and the three IG offices, is about $35 million less than last year. This budget request supports an expan- sive and critical level of responsibilities that is carried out by about 4,800 full-time equivalent employees. Treasury, among many other things, leads the Nation’s fight against terrorist financing and money laundering.

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