Tax Administration

If the Internal Revenue Service (IRS) is to compete successfully with private collection companies and state governments for payments from debtors, it must adopt more effective strategies for collecting delinquent taxes. IRS has traditionally followed a lengthy and rigid three-stage collection process beginning with a series of written notices, or bills; followed by telephone calls; and culminating in visits to delinquent taxpayers. Because of legal restrictions, IRS handles all aspects of delinquent tax collections itself and does not evaluate or reward its collection staff on the basis of collection performance. Because of inadequate information, IRS pursues delinquent accounts without knowing whether the amounts recorded in the accounts are valid receivables and with only limited knowledge of the characteristics of delinquent taxpayers. In contrast, many state tax departments and private sector collectors stress early telephone contact. In addition, private collectors routinely use collection performance statistics in determining pay and bonuses for collectors. These firms are also increasingly using debtor profiles to customize their debt collection procedures. For IRS to be a successful competitor, it will have to adopt more effective collection strategies and expand its use of cooperative efforts with state governments.

GAO found that: (1) IRS accounts receivable inventory has outpaced its ability to collect delinquent taxes; (2) IRS could benefit from initiating early telephone contact with delinquent taxpayers in conjunction with sending bills for delinquent taxes; (3) detailed information about delinquent accounts is critical to customizing IRS collection strategies; (4) IRS should use collection performance as a criterion in determining compensation and rewards for individual collectors; (5) IRS is planning to conduct a pilot program using private collection companies to contact delinquent taxpayers about their tax debts; and (6) IRS should explore ways of increasing cooperation with state governments to collect delinquent taxes.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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