Tax Debt Collection:

IRS Is Addressing Critical Success Factors for Contracting Out but Will Need to Study the Best Use of Resources

GAO-04-492: Published: May 24, 2004. Publicly Released: May 24, 2004.

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Congress is considering legislation to authorize IRS to contract with private collection agencies (PCA) and to pay them out of the tax revenue that they collect. Some have expressed concerns that this proposal might be unsuccessful, inefficient, or result in taxpayers being mistreated or having their private tax information compromised. This report discusses (1) the critical success factors for contracting with PCAs for tax debt collection; (2) IRS's actions to address these factors in developing the PCA program and actions left to be done; and (3) whether IRS, if it receives the authority to use PCAs, plans to do a study that will help policy makers judge whether PCAs are the best use of funds to meet IRS's collection objectives.

Based on our analysis of information from various parties, including officials from selected state revenue departments and federal agencies that use PCAs, five factors are critical to the success of a PCA collection program. Together, these factors increase the chances for success and help the program achieve desired results. Although incomplete, IRS has taken actions to address these factors. For example, IRS has been developing (1) program performance measures and goals, (2) plans for a computer system to transmit data to PCAs, (3) a method to select cases for PCAs, and (4) contract provisions to govern data security and PCAs' interactions with taxpayers. IRS officials recognize that major development work remains and have plans to finish it. Officials said they would suspend work if PCA authorizing legislation is not passed during 2004. If legislation passes, officials estimated that it would take 18 to 24 months to send the first cases to PCAs. Aware of concerns about the efficiency of using PCAs, IRS intends to study the relative performance of PCAs and IRS employees in collecting tax debts after gaining some experience with them. However, the initial idea for a study would provide limited information to judge whether or when the PCA approach is the best use of resources. The tentative idea--comparing PCA and IRS performance for the same type of simpler cases to be sent to PCAs--does not recognize that IRS officials believe that using IRS employees on such cases would not be the best use of staff. Federal guidance emphasizes efficiently and effectively using resources to achieve results and identifying the most realistic and cost-effective program option. Experience gained in using PCAs and a new IRS case selection process would help officials design such a study.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS has hired a contractor (Booz Allen Hamilton) to help design this study as the IRS finishes developing the private collection agencies (PCAs) program. The PCA program is scheduled to start on a limited basis by June 2006, with full implementation by the end of 2007. As of September 2006, our new report (GAO-06-1065) disclosed that IRS was still working on designing the study after we shared a number of comments on the direction it was taking (i.e., it was not fully meeting the intent of our recommendation). Our comments dealt with designing the study to account for all costs and to focus on the best use of federal funds to meet IRS's tax collection goals. IRS hopes to finish the design and testing of the study by fall 2006 to fully start the study during March 2007. IRS plans to have preliminary results by December 2007 after a full year of data is collected (September 2006 to September 2007), and to have the study report issued on August 1, 2008. Based on a meeting in June 2008 and subsequent discussions since then, IRS has finished the study but kept pushing back the report's issuance date to allow for independent quality reviews and IRS management reviews. Given all of the things going on, IRS decided to push back the report's release to mid November 2008, as of late September 2008.

    Recommendation: If Congress authorizes the use of PCAs, as soon as practical after experience is gained using PCAs, the Commissioner of Internal Revenue should ensure that a study is completed that compares the use of PCAs to a collection strategy that officials determine to be the most effective and efficient overall way of achieving collection goals.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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