Tax Debt Collection Contracts:

IRS Analysis Could Help Improve Program Results and Better Protect Taxpayers

GAO-19-193: Published: Mar 29, 2019. Publicly Released: Apr 29, 2019.

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IRS's new program pursues the tax debts that IRS's collectors aren't—by contracting with private collection agencies. This program raises concerns about effectiveness and taxpayer risk, as did similar programs in the past.

For example, IRS's private collectors recovered less than 2% of over $5 billion in debts. Analyzing these results could help IRS make the program more effective.

IRS also hasn't fully assessed potential taxpayer risks. It has documented 6 risks, including "imposter scams," in which scammers pose as private collectors. We identified 10 additional risks.

We recommended 12 ways to improve the program and protect taxpayers.

 

Sign in front of the IRS building

Sign in front of the IRS building

Multimedia:

Additional Materials:

Contact:

Jessica Lucas-Judy
(202) 512-9110
lucasjudyj@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

The Internal Revenue Service (IRS) documented objectives and proposed measures for its private debt collection (PDC) program for sending tax debt cases to private collection agencies, but the objectives are not clearly defined and their linkages with program measures are unclear. For example, one objective is to provide taxpayers an opportunity to understand and resolve their tax debts, but the proposed measure focuses on taxpayer satisfaction with collection agencies rather than taxpayers' understanding. The objectives also do not include some key program risks, such as scams. Without clearly defined objectives and measures, IRS will have limited ability to assess program results.

IRS's reports to Congress on the PDC program have not provided complete financial information. For example, as of September 2018, IRS reported program revenue collections of about $89 million and costs of $67 million, suggesting a positive balance of $22 million for the general fund of the Treasury (the Treasury). However, the report did not clarify that about $51 million collected went to the Treasury and the remaining $38 million were retained by IRS in two special funds to pay current and future program costs. Without this information, Congress has an incomplete picture of the program's true costs and revenues.

IRS has not analyzed PDC program results to identify the types of cases that should not be assigned to collection agencies because they do not result in collections. GAO's analysis of IRS data shows that between April 2017 and September 2018 about 73,000 of 111,000 cases closed by collection agencies had little or no revenue collected because the collection agencies were unable to contact the taxpayer or collect the debt, among other reasons. Given the costs associated with managing these cases, without such analyses, IRS may continue to use resources inefficiently and assign cases with little or no potential for revenue collection, or miss opportunities to assign other cases that could produce more revenue.

IRS has identified and taken steps to mitigate some PDC program risks that could harm taxpayers. However, IRS has not completed the process of identifying and documenting all risks nor has it fully assessed risks to taxpayers from the program or its response to these risks. Specifically, GAO found that

  • IRS identified and documented 6 taxpayer risks related to the PDC program, such as scammers impersonating collection agencies, but had not identified an additional 10 risks that GAO did, such as taxpayers agreeing to debt payments they cannot afford.
  • IRS had not consistently assessed the impact or likelihood of the identified risks. As a result, IRS's responses to mitigate risks were broad in nature, and were not prioritized or aligned to address specific risks.
  • IRS monitors a sample of collection agencies' telephone calls with taxpayers and reviews taxpayer complaints, but these methods do not provide information on whether IRS's responses to risks are effective.

Without addressing these risk management issues, IRS cannot ensure it has fully identified PDC program risks and effectively responded to protect taxpayers from them.

Why GAO Did This Study

IRS attempts to collect tax debts to promote tax compliance but does not have resources to pursue all debts. A 2015 law required IRS to contract with private collection agencies for certain tax debts. However, stakeholders such as the National Taxpayer Advocate have noted that safeguards are needed to protect taxpayers from risks, such as scammers impersonating collection agencies.

GAO was asked to review IRS's PDC program. This report assesses the extent to which IRS (1) documented program objectives and measures, (2) documented revenue collection and cost results data, (3) used data to improve the program and meet its objectives, and (4) addressed risks to prevent or address scams and other harmful effects on taxpayers. GAO analyzed IRS's documents on PDC program administration and planning; collections and costs reporting; and managing risks. GAO interviewed officials from IRS and external groups that represent taxpayer interests.

What GAO Recommends

GAO makes 12 recommendations, including that IRS improve PDC program objectives and measures, revenue and cost reporting, analysis to assign cases, and management of taxpayer risks. IRS agreed with nine recommendations, partially agreed with GAO's recommendation on improving objectives—which GAO clarified in response—and disagreed with two recommendations to include certain costs in reporting and analyze data to identify cases not collectible. GAO maintains the recommendations would more fully report PDC program federal costs and prevent waste.

For more information, contact Jessica Lucas-Judy at (202) 512-9110 or lucasjudyj@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: IRS partially agreed with recommendation. IRS said it would use consistent terms in developing measures that link to its PDC program objectives, but did not agree that program objectives are necessarily framed in terms of program risks. In December 2019, IRS provided new objectives linked with proposed measures to assess collection agencies. In February 2020, IRS said it intends to award new contracts in 2021 that will include performance measures linked to program objectives. To fully address GAO's recommendation, IRS also needs to identify targets for measures linked to program objectives.

    Recommendation: The Commissioner of Internal Revenue should finalize the PDC program objectives so that they are clearly defined in consistent terms, and assure that the key program risks, measures, and targets are linked with the objectives. (Recommendation 1)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Open

    Comments: IRS disagreed with the recommendation. In October 2019 IRS said that including TIGTA costs in reporting program costs would be inconsistent with legislative requirements that define program costs as IRS's costs and with IRS cost-accounting practices. However, we maintain that the FAST Act set minimum reporting requirements to which IRS can add more information. Also, the existing cost accounting standards and practices to which IRS refers govern IRS's accounting for and reporting of costs incurred by IRS, not to fuller reporting of the PDC program's costs to the federal government. We will continue to pursue this recommendation and update its status in response to any changes.

    Recommendation: The Commissioner of Internal Revenue should include the Department of the Treasury Inspector General for Tax Administration (TIGTA) costs in IRS's reporting of PDC program costs. (Recommendation 2)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Open

    Comments: IRS agreed with our recommendation and in October 2019 said it plans to report PDC revenue amounts going to the Treasury and to IRS's retained funds by February 2020. As of March 2020, we had not received documentation from IRS to demonstrate it had done so.

    Recommendation: The Commissioner of Internal Revenue should report the amount of collected revenue sent to the general fund of the Treasury and amounts retained by IRS to pay its costs. (Recommendation 3)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Open

    Comments: IRS disagreed with the recommendation and said such analysis is unnecessary due to a legal requirement to assign all such cases to collection agencies and because there is very little cost in doing so. Our report noted that IRS has the authority and responsibility for efficient program operations to not assign uncollectible debt cases. In February 2020, IRS said that the assignment and recall of cases add nothing to the cost. We disagree, noting that IRS has not supported this assertion. IRS incurred some portion of its PDC costs from assigning and recalling cases that collected no revenue. Even if these costs are minor, they would be greater than the amount collected. We maintain the importance of this recommendation because IRS has incurred tens of millions of dollars in costs with little or no revenue collected for most of the PDC cases that IRS has closed.

    Recommendation: The Commissioner of Internal Revenue should analyze PDC program results to identify the types of cases that are not potentially collectible and should not be assigned to collection agencies. (Recommendation 4)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Open

    Comments: IRS agreed and noted that it already had the recommended analyses built into the PDC case identification process. IRS also provided documentation to GAO in December 2019 and its comments in February 2020 repeated its view that its process already identified other inactive cases that have not been assigned to PDC. IRS's documentation during the review and provided in December did not show how IRS analyzes its debt inventory and PDC results to identify inactive cases that are not being assigned to PDC but may be worth pursuing.

    Recommendation: The Commissioner of Internal Revenue should analyze PDC program results and the cases not assigned to the PDC program to identify the types of inactive cases IRS will not pursue that could be assigned to collection agencies to improve PDC program results. (Recommendation 5)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Open

    Comments: IRS agreed with the recommendation. We will update the status after completing review of documentation IRS provided in December 2019, on actions taken to implement the recommendation. IRS actions included a risk register with related information on the analyses and response to the listed risks.

    Recommendation: The Commissioner of Internal Revenue should clearly document and distinguish the complete list of identified risks to taxpayers in the PDC program risk register, and align the risks with PDC program objectives. (Recommendation 6)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Open

    Comments: IRS agreed with the recommendation. We will update the status after completing review of documentation IRS provided in December 2019, on actions taken to implement the recommendation. IRS actions included a risk register with related information on the analyses and response to the listed risks.

    Recommendation: The Commissioner of Internal Revenue should clearly document the severity of impacts of the taxpayer risks, as well as the likelihood of each taxpayer risk after responding to it, in the PDC program risk register, and use this information to prioritize risks to address and guide selection of risk responses. (Recommendation 7)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Open

    Comments: IRS agreed with the recommendation. We will update the status after completing review of documentation IRS provided in December 2019, on actions taken to implement the recommendation. IRS actions included a risk register with related information on the analyses and response to the listed risks.

    Recommendation: The Commissioner of Internal Revenue should clearly document how each risk response aligns with specific taxpayer risks in the PDC program risk register. (Recommendation 8)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  9. Status: Open

    Comments: IRS agreed with the recommendation. We will update the status after completing review of documentation IRS provided in December 2019 on actions taken to implement the recommendation, such as outreach to FTC on its system to record the complaints.

    Recommendation: The Commissioner of Internal Revenue should document how IRS's monitoring of the PDC program provides information on specific taxpayer risks and how well specific responses are working to address each risk, and should supplement IRS's monitoring of taxpayer complaints with Federal Trade Commission (FTC) complaint data. (Recommendation 9)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  10. Status: Open

    Comments: IRS agreed with the recommendation. We will update the status after completing review of documentation IRS provided in December 2019 on actions taken to implement the recommendation, such as a system to record feedback received.

    Recommendation: The Commissioner of Internal Revenue should more fully seek and document feedback from external stakeholders representing vulnerable taxpayers to identify and appropriately respond to possible PDC taxpayer risks. (Recommendation 10)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  11. Status: Open

    Comments: IRS agreed with the recommendation and said that by June 2020, it would conduct a fraud risk assessment based on the Fraud Reduction and Data Analytics Act of 2015 and OMB guidance. We will update the status when we complete review of any documentation IRS provides on actions taken to implement the recommendation.

    Recommendation: The Commissioner of Internal Revenue should clearly document an assessment of fraud risks related to the PDC program. (Recommendation 11)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  12. Status: Open

    Comments: IRS agreed with the recommendation. We will update the status after completing review of documentation IRS provided in December 2019 on actions taken to implement the recommendation.

    Recommendation: The Commissioner of Internal Revenue should ensure that its printed guidance to PDC taxpayers includes information about reporting scams to TIGTA. (Recommendation 12)

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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