Tax Debt Collection
IRS Is Addressing Critical Success Factors for Contracting Out but Will Need to Study the Best Use of Resources Gao ID: GAO-04-492 May 24, 2004Congress 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.
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Report to Congressional Committees:
May 2004:
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:
GAO Highlights:
Highlights of GAO-04-492, a report to congressional committees
Why GAO Did This Study:
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.
What GAO Found:
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, as illustrated below, 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.
Critical Success Factors Help Achieve Desired Results:
[See PDF for image]
[End of figure]
What GAO Recommends:
If Congress authorizes the use of PCAs, as soon as practical after
experience is gained using PCAs, the IRS Commissioner 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.
In commenting on a report draft, IRS said it would plan a study to
ensure that IRS is making the most effective and cost efficient use of
total resources available.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Objectives, Scope, and Methodology:
Five Factors Are Critical for a Successful PCA Collection Program:
IRS Has Taken Steps to Address Aspects of the Critical Success Factors
but Has Much Work Remaining:
Potential Study Design Would Provide Limited Information to Judge
Whether Contracting with PCAs Is the Best Use of Resources:
Conclusions:
Recommendation:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Trends in IRS Collections Programs, 1996-2003:
Appendix II: Actions IRS Has Taken to Address Critical Success Factors:
Appendix III: Comments from the Internal Revenue Service:
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Tables Tables:
Table 1: Critical Success Factors and Related Subfactors for Contracting
with PCAs for Tax Debt Collection:
Table 2: Examples of Key Actions IRS Has Taken to Address Critical
Success Factors and Examples of Major Tasks Remaining:
Figures:
Figure 1: Five Critical Success Factors Help Achieve Desired Results:
Figure 2: Annual Gap Between Collection Cases Assigned and Cases Closed
as a Percentage of Cases Assigned, Fiscal Years 1996 through 2003:
Figure 3: Number of Revenue Officers Working on Delinquent Accounts,
1996 through 2003:
Letter May 24, 2004:
Congressional Committees:
For the last several years, Congress, the Internal Revenue Service
(IRS), and others have been concerned that performance declines in
IRS's programs to collect known unpaid taxes due the
government[Footnote 1] might be affecting taxpayers' confidence in the
fairness of our tax system and voluntary compliance. In testimonies and
reports, we have highlighted such declines in the collection programs,
including a growing gap between the number of cases assigned for
collection action and the number of cases closed each year. Also, the
amount of potentially collectable known tax debt has grown. As of
September 30, 2003, IRS had an inventory of unpaid taxes with some
collection potential--including interest and penalties--of $120
billion,[Footnote 2] up from $112 billion the previous year. According
to IRS, the backlog of outstanding tax debt continues to grow 3 to 4
percent each year. Because of potential revenue losses and the threat
to voluntary compliance, we have designated collection of unpaid taxes
as a high-risk area for the federal government.[Footnote 3]
To help address the growing tax debt inventory, the Department of the
Treasury has proposed that Congress pass legislation to authorize IRS
to use private collection agencies (PCA) to help collect tax debts for
simpler types of cases, paying them out of a revolving fund of tax
revenues that they collect. IRS officials said that this proposal
arose, in part, because of the belief that Congress was not likely to
provide the increased budget to hire enough IRS staff to work on the
inventory of collection cases. Although the proposal has received
support, some have expressed concerns that it might be unsuccessful,
inefficient, or result in taxpayers being mistreated or having private
tax information compromised. In addition, some in Congress and
elsewhere in the tax community have said that increasing IRS collection
staff--instead of contracting out tax collection--could result in tax
debts being collected at less cost. A 1996 IRS pilot test to contract
with PCAs was discontinued, in part, because the revenue collected was
less than IRS's direct costs plus revenues lost from using IRS
employees to support PCAs rather than to collect taxes. Our review of
the pilot found that, among other limitations, IRS's computer systems
and inability to transfer data hampered efforts to send appropriate
cases to PCAs.[Footnote 4]
Due to congressional interest in the legislation being considered to
authorize IRS contracts with PCAs to collect simpler tax debts, we
reviewed, as part of our basic legislative responsibility for reviewing
federal programs and activities, various issues related to IRS's
preparations to implement the proposal, if enacted, and to report on
the role of PCAs in IRS's overall collections strategy. Specifically,
our objectives were to (1) identify the critical success factors for
contracting with PCAs for tax debt collection; (2) determine whether
IRS has addressed the critical success factors in developing the
proposed PCA contracting program and, if not, what is left to be done;
and (3) determine whether, if IRS receives authority to use PCAs, it
will do a study that will enable policymakers to judge whether
contracting with PCAs is the best use of limited federal funds to
achieve IRS's collection objectives.
To identify the critical success factors, we interviewed officials from
selected state revenue departments and federal agencies that use PCAs
and PCA contractors for government debt collection. We reviewed related
documentation from these sources. In addition, we analyzed our reports
on contracting practices. For our other objectives, we gathered and
analyzed PCA program development documents and interviewed IRS
officials responsible for developing the PCA program. We conducted our
work between June 2003 and March 2004 in accordance with generally
accepted government auditing standards. Our scope and methodology are
discussed in detail beginning on page 7.
Results in Brief:
Five broad factors are critical to the success of a program for
contracting with PCAs to collect tax debt. Although addressing these
factors does not guarantee success, together they can improve the
chances. First, the PCA program should have a results orientation,
including established PCA program goals and performance measures, such
as for the amounts of tax debt collected. Second, agency resources
needed to help achieve desired program results should be obtained and
deployed, such as computer systems to exchange data and staff to work
on cases that PCAs refer back to IRS. Third, PCAs' workload should be
carefully considered, such as selecting the type and volume of cases on
which PCAs work. Fourth, taxpayer issues should be addressed, such as
protecting taxpayer data shared with PCAs and ensuring that PCAs treat
taxpayers properly. Fifth, the agency should do evaluations, including
ongoing monitoring of PCAs, program results, and costs compared to
program goals.
IRS has taken a number of steps to address each of the critical success
factors. For example, IRS has (1) developed program performance goals
and measures, (2) been planning development of a computer system to
send cases and case data to PCAs, (3) been developing a method to
select PCA cases based on collection potential, and (4) drafted
contract provisions to govern the security of taxpayer data and PCA
interactions with taxpayers. As for the evaluation factor, IRS
officials have been developing approaches for monitoring and measuring
contractor performance, and said that they intend to start developing
an evaluation of whether the PCA program achieves its goals after they
receive legislative authority. The officials recognize that major work
needs to be done to sufficiently address each factor and have a project
plan to finish work on the factors. In January 2004, Congress approved
the IRS fiscal year 2004 budget, which would provide the funding to
further develop the PCA program, but IRS delayed spending the funds
until passage of the legislation appears to be more imminent. IRS
officials said that if authorizing legislation did not pass during
2004, IRS would suspend work on developing the program. IRS officials
estimated that it would take 18 to 24 months after the authorizing
legislation passes to finish the remaining work and send cases to PCAs.
Aware of concerns about the efficiency and effectiveness of using PCAs,
IRS officials also said that they intend to study the relative
performance of PCAs and IRS employees in collecting delinquent taxes.
However, the tentative study approach being considered would provide
policymakers limited information to judge whether or when the PCA
strategy is the best use of resources. This tentative approach--
comparing PCA and IRS performance for the same type of simpler cases
that would be sent to PCAs--does not recognize that IRS officials
believe that using employees on simpler cases would not be the best use
of these employees given the need to work on other, higher priority
cases. Various guidance on federal programs emphasizes that managers
are to ensure that resources are used efficiently and effectively to
achieve intended results, to consider benefits and costs in deciding on
program options, and to determine which program option is the most
realistic and cost effective.
If Congress authorizes IRS to use PCAs, we are recommending that the
Commissioner of IRS ensure that, after experience is gained using PCAs
to collect tax debt, a study be conducted that compares the use of PCAs
to another collection strategy, which might include hiring more IRS
employees, that officials determine to be the most efficient and
effective overall way of achieving collection goals.
In providing written comments on this report (see app. III), the
Commissioner of Internal Revenue agreed that IRS would need to analyze
the PCA program to determine its effectiveness and impact on the
overall collection of delinquent taxes. He said that IRS's plans for
evaluating the use of PCAs will include a study to ensure that IRS is
making the most effective and cost efficient use of total resources
available.
Background:
IRS has two major programs to collect tax debts: telephone collection
and field collection. If taxpayers become delinquent (that is, do not
pay their taxes after being notified of amounts owed), IRS staff
assigned to the telephone collection program may attempt collection
over the phone or in writing. According to IRS officials, IRS
collection staff who make phone calls have not been initiating many
calls to ask taxpayers to pay their tax debts but rather have been
responding to phone calls from taxpayers about mailed tax due notices.
If more in-depth collection action or analyses of the taxpayer's
ability to pay tax debt is required, telephone collection staff may
refer the case to field collections, where staff may visit delinquent
taxpayers at their homes or businesses as well as contact them by
telephone and mail. Under certain circumstances, the telephone or field
staff are authorized to initiate enforced collection action, such as
recording liens on taxpayer property and sending notices to levy
taxpayer wages, bank accounts, and other financial assets held by third
parties. Field staff also can be authorized to seize other assets owned
by the taxpayer to satisfy the tax debt.
As we have previously reported, in recent years IRS has deferred
collection action on billions of dollars of delinquent tax debt and IRS
collection program performance indicators have declined. By the end of
fiscal year 2003, IRS's inventory of tax debt with some collection
potential was $120 billion (up from $112 billion in the previous year).
As we reported in May 2002, from fiscal years 1996 through 2001, IRS
had almost universal declines in collection performance, including
declines in coverage of workload, cases closed, direct staff time used,
productivity, and dollars of unpaid taxes collected.[Footnote 5]
Although IRS's collection workload declined, the collection cases
closed declined more rapidly, increasing the gap between the number of
cases assigned for collection action and the number of cases closed
each year (see fig. 2 in app. I). As a result, in March 1999, IRS
started deferring collection action[Footnote 6] on billions of dollars
in delinquencies. By the end of fiscal year 2002, IRS had deferred
collection action on about $15 billion, and, as of May 2003, was
deferring action on about one of every three collection cases.
Furthermore, IRS's collection staffing has declined overall comparing
1996 to 2003 (see fig. 3 in app. I) despite IRS's efforts to increase
collection staffing in its budget requests since 2001. As we previously
reported,[Footnote 7] IRS officials have said that collection staffing
declines and delays in hiring have been caused by increased workload in
other essential operations (such as as processing returns, issuing
refunds, and answering taxpayer mail), other priorities (such as
taxpayer service), and unbudgeted cost increases (such as rent and pay
increases).
According to statements by the previous and current IRS commissioners,
IRS's growing workload has outpaced its resources. The former IRS
Commissioner's report to the IRS Oversight Board during September 2002
made a case for additional staff to check tax compliance and collect
taxes owed. The Commissioner recognized that IRS needed to improve the
productive use of its current resources, but also cited a need for an
annual 2 percent staffing increase over 5 years to help reverse the
trends. According to the Commissioner, IRS would require 5,450 new
full-time collection staff. IRS officials said that the PCA program
proposal was undertaken because it is unlikely that IRS will receive
funding adequate to handle the growing collection workload.
Since current law requires IRS to collect tax debts, legislation has
been proposed[Footnote 8] to authorize IRS to use PCAs to collect
simpler tax debts under defined activities--including locating
taxpayers, requesting full payment of the tax debt or offering
taxpayers an installment agreement if full payment cannot be made, and
obtaining financial information from taxpayers. Given the limited
authorities proposed for PCAs,[Footnote 9] IRS would refer those cases
that are simplest to collect and have no need for IRS enforcement
action, including cases in which (1) taxpayers filed a tax return
showing taxes due but that have not been paid and (2) taxpayers made
three or more voluntary payments to satisfy an additional tax assessed
by IRS but have stopped the payments.
In 1996, Congress directed IRS to test the use of PCAs, earmarking $13
million for that purpose. IRS canceled the pilot project in 1997, in
part, because it resulted in significantly lower amounts of collections
and contacted significantly fewer taxpayers than expected (about 14,000
of 153,000 taxpayers). IRS reported that through January 1997, this
program accounted for about $3.1 million in collections and about $4.1
million in expenses ($3.1 million in design, start-up, administrative
expenses, and about $1 million in PCA payments). IRS also reported lost
opportunity costs of about $17 million because IRS collection staff
shifted from collecting taxes to helping with the pilot.
The current proposal to use PCAs has some significant differences from
the 1996 pilot test of PCAs. First, PCAs in the current proposal will
actually try to resolve collection cases within certain guidelines. In
the 1996 test, PCAs only contacted taxpayers to remind them of their
outstanding tax debt and suggest payment options. Second, PCAs under
the current proposal will be paid a percentage of dollars they help
collect from a revolving fund of all PCA collections. In the 1996 test,
PCAs were paid a fixed fee for such actions as successfully locating
and contacting taxpayers, even if payments were not received. Third,
IRS will electronically transmit cases and data about the taxpayer and
taxes owed to PCAs. In 1996, IRS's computers were not set up to
electronically transmit the cases and data to PCAs. For the current
proposal, IRS intends to develop the capability to make secure
transmissions to PCAs and protect confidentiality.
Objectives, Scope, and Methodology:
To identify the critical success factors for contracting with PCAs for
tax debt collection, we used multiple sources. We reviewed three of our
reports on leading practices in contracting[Footnote 10] and
interviewed our staff that review government contracting. We also
interviewed parties with experience in contracting for government debt
collection, including both tax and non-tax debt, to identify any
factors common to both debt types. Specifically, we interviewed
officials from:
* 11 state revenue departments that, according to officials from the
Federation of Tax Administrators (FTA),[Footnote 11] represented a mix-
-in aspects such as amount of resources and PCA roles--of experience in
contracting with PCAs for tax debt collection and provided examples of
program practices in such areas as case selection and use of
performance data;[Footnote 12]
* the Department of the Treasury's Financial Management Service and
Department of Education--two federal agencies with large-scale, non-tax
debt collection contracting; and:
* the three PCA firms that IRS selected as subject matter experts to
assist in drafting the provisions of a contract for PCA collection
services.
To help corroborate the factors that others identified, we interviewed
officials from the IRS office that is developing the proposed PCA
program, the IRS Office of Taxpayer Advocate, and the National Treasury
Employees Union, which represents IRS employees.
To summarize and categorize the critical success factors identified, we
grouped together similar factors that were most frequently cited by the
officials with experience in government debt collection contracting. We
first grouped factors associated with the start of a program and with a
maturing program into two broad time-oriented factors, including topics
we identified as implicit in the interviews and documents cited above.
Between these two time-oriented factors, we categorized three other
factors according to the broad topics that were most frequently cited.
To validate our summarization and categorization, we asked for comments
on our draft list of critical success factors from those who we had
consulted to identify the factors as well as from officials at four
additional PCA firms that, according to interviewed officials from two
state revenue departments and the two federal agencies, had experience
in government debt collection. In commenting on the draft list of
factors, some officials stressed certain factors more than others or
elaborated on selected factors or subfactors, but generally did not
suggest factors beyond those encompassed in our draft list. We made
changes based on their comments where appropriate.
To determine whether IRS has addressed the critical success factors in
developing the PCA contracting program and, if not, what is left to be
done, we interviewed IRS program officials. We analyzed program
documents, including the draft PCA contract as outlined in IRS's
Request for Quotes (RFQ)[Footnote 13] and the Office of Management and
Budget (OMB) Form E-300[Footnote 14] budgetary document that describes
goals and plans for the program. We did not attempt to analyze how well
or to what extent IRS addressed the factors, or whether IRS made the
right decisions on issues such as the program goals or measures.
To determine whether, if IRS receives authority to use PCAs, it will do
a study that will enable policymakers to judge whether contracting with
PCAs is the best use of federal funds to achieve IRS's collection
objectives, we interviewed IRS program officials. We reviewed any
studies IRS had done to compare the use of PCAs with other strategies
and assessed IRS's intended approach for any future studies. We also
applied our knowledge of how to study the cost-effectiveness of options
to meet a desired result or benefit.
We did our work from June 2003 through March 2004 in accordance with
generally accepted government auditing standards.
Five Factors Are Critical for a Successful PCA Collection Program:
Our work identified and validated five broad factors that are critical
to the success of a proposed program for contracting with PCAs to
collect tax debt. A general description of each critical success factor
follows:
* Results orientation involves establishing expectations, measures, and
desired results for the program.
* Agency resources involve obtaining and deploying various resources.
* Workload involves ensuring that the appropriate cases and case
information are provided to PCAs.
* Taxpayer issues involve ensuring that taxpayer privacy and other
rights are protected.
* Evaluation involves monitoring performance and collecting data to
assess the performance of PCAs and the overall program.[Footnote 15]
As figure 1 illustrates, the factors are considered "success" factors
because each one, if adequately addressed, can help ensure that the PCA
program achieves desired results, such as in collecting tax debts.
Although addressing all factors during program design and
implementation does not guarantee success, doing so could improve the
chances.
Figure 1: Five Critical Success Factors Help Achieve Desired Results:
[See PDF for image]
[End of figure]
Table 1 further describes the critical success factors by showing their
related subfactors that we identified and validated.
Table 1: Critical Success Factors and Related Subfactors for
Contracting with PCAs for Tax Debt Collection:
Critical success factor: Results orientation;
Related subfactors:
* Determine expected program goals, costs, and overall results for
contracting with PCAs;
* Establish contract provisions and operational expectations,
measurable PCA performance evaluation standards, and PCA rewards and
disincentives based on performance and ensure that the government
agency and PCAs have a common understanding of these elements;
* Give PCAs as much freedom as practical on how to achieve performance
goals;
* Use a contracting process that will help ensure that PCAs selected
are able to meet operational and performance expectations.
Critical success factor: Agency resources;
Related subfactors:
* Provide sufficient staffs to do work associated with contracting with
PCAs, including administrative functions, contract oversight, and
working collection cases referred back by the PCAs;
* Have management commitment to using PCAs;
* Ensure that PCA employees receive appropriate training on such areas
as taxes and case handling procedures;
* Ensure that computer systems will allow data to be exchanged
electronically between PCAs and the government agency and that payments
will be tracked and accounts updated;
* Be aware of and control costs of functions related to contracting.
Critical success factor: Workload;
Related subfactors:
* Select the appropriate type and volume of cases for PCAs to work on;
* Ensure that contractors work on the range of cases that they are
assigned in terms of ease of collection and amounts due;
* Provide PCAs appropriate, accurate information on taxpayers and
accounts.
Critical success factor: Taxpayer issues;
Related subfactors:
* Ensure that taxpayers are treated properly by PCAs;
* Ensure the security of taxpayer information provided to PCAs.
Critical success factor: Evaluation;
Related subfactors:
* Perform ongoing monitoring of PCAs in various aspects of operations
and performance expectations;
* Measure PCAs' performance in light of performance standards and
distribute rewards/disincentives;
* Evaluate whether the program meets its goals and expectations and
adjust the program as needed.
[End of table]
Source: GAO analysis of selected GAO reports and interviews with
officials from selected state and federal agencies and PCA firms.
IRS Has Taken Steps to Address Aspects of the Critical Success Factors
but Has Much Work Remaining:
IRS has taken steps to address the critical success factors and
developed a project plan to help finish addressing the factors if
Congress authorizes use of PCAs. Officials recognize that much work
needs to be done to sufficiently address each factor, which they
estimate will take 18 to 24 months after any legislation passes. Table
2 shows examples of the key actions taken to address the critical
success factors and major tasks remaining. Discussion after table 2
elaborates on some of these major tasks.
Table 2: Examples of Key Actions IRS Has Taken to Address Critical
Success Factors and Examples of Major Tasks Remaining:
Critical success factor: Results orientation;
Examples of key actions taken:
* Developed performance measures and goals, spelling out desired
results for PCAs;
* Adopted a performance-based PCA compensation strategy, using
incentives and disincentives;
* Provided PCAs freedom to determine how to collect tax debts, but
imposed certain restrictions (e.g., taxpayer rights, privacy);
* Decided to use the list of approved federal contractors maintained by
the U.S. General Services Administration;
Examples of major tasks remaining:
* Finalize the goals, measures, and compensation system in the contract
to be put out for bids.
Critical success factor: Agency resources;
Examples of key actions taken:
* Identified an infrastructure to administer contracts, provide
oversight, and work on cases referred back to IRS;
* Identified initial staff needs;
* Received IRS management commitment to support the PCA program if
legislative authority is granted;
Examples of major tasks remaining:
* Complete the administration infrastructure;
* Verify that initial staffing is appropriate;
* Illustrate management commitment by providing resources;
* Develop a program to track resources and costs associated with the
PCA program.
Critical success factor: Workload;
Examples of key actions taken:
* Started to develop a risk-scoring model to identify the most
appropriate cases to be referred to PCAs;
* Established incentives to encourage PCAs to work on the full range of
simpler cases assigned to them;
* Started planning development of a computer interface system to ensure
that PCAs receive accurate data on taxpayer accounts;
Examples of major tasks remaining:
* Finish and test the case selection model;
* Use the model to annually determine the type and number of cases to
be referred to PCAs;
* Finish and test the computer interface system;
* Train IRS staff on working with PCAs on case selections/referrals and
data transfers.
Critical success factor: Taxpayer issues;
Examples of key actions taken:
* Established draft contract provisions on how;
* PCAs must treat taxpayers and protect data,;
* PCAs must follow federal laws, and;
* IRS will check PCA compliance in these areas;
Examples of major tasks remaining:
* Develop training courses and train PCA employees on taxpayer issues;
* Develop and finalize plans to monitor calls to taxpayers and survey
their satisfaction with PCAs.
Critical success factor: Evaluation;
Examples of key actions taken:
* Established draft contract provisions on monitoring and evaluating
PCA and program performance against program goals, performance
measures, and the performance-based compensation system;
Examples of major tasks remaining:
* Develop programs for monitoring PCA performance and evaluating
program performance against the goals;
* Train IRS staff on how to do the evaluations and monitoring;
* Use the results to manage the PCA program.
Source: Interviews with IRS officials and reviews of IRS documents.
[End of table]
IRS officials are aware of these major tasks that must be completed to
address the critical success factors and implement the PCA program. In
discussing their intent to address them, IRS officials elaborated on
some of the major tasks.
* Under "results orientation," IRS is aware that it has to clarify a
goal on how much it expects to collect. IRS had estimated originally
that the PCA program would result in $9 billion in tax collections and
produce $7.2 billion in net revenue over 10 years. The Department of
the Treasury estimated that $1.5 billion in net revenue would be
produced over 10 years. IRS officials said the differences arise
because each estimate was done differently. IRS acknowledged that its
original estimate may be too high and is reworking it in light of the
Treasury estimate.
* Under "workload," IRS officials said that they are aware of the
importance of selecting the right cases to send to PCAs for collection
and plan to use consumer credit history data on delinquent taxpayers to
identify those that would be more likely to pay if contacted. IRS
officials said that the new case collection system will extend beyond
selecting cases for PCAs, and that the experience and knowledge IRS
will gain would contribute to IRS's broader modernization program for
using data to improve how IRS does collection work. For example, IRS
officials said that, in the future, the case selection data might be
used to help determine which collection method--such as sending
notices, using PCAs, or making in-person contact--might be more
effective in attempting collection from a given taxpayer.
* Under "evaluation," IRS officials said that they were aware that they
had not developed plans or dates for evaluating the program to assess
how well the PCA program achieves its results. IRS officials said that
developing the evaluation was premature given the other work needed to
develop the program and lack of legislative authority. IRS officials
said they intend to start developing the evaluation plan after they
receive this authority and to finish it before sending cases to PCAs.
Evaluation plans developed before program implementation increase the
likelihood that the necessary data and resources for proper evaluation
will be available when needed.
* Many of the factors involve the development of an information system.
Testing of information systems being developed for the PCA program is
an important task left to do. Our interviews with IRS officials and our
reviews of IRS documents indicate that IRS plans on testing the
information systems to be used in the PCA program.
IRS officials informed us that they have slowed development of the
program due to funding constraints and uncertainty over whether and
when legislation will pass to authorize contracts with PCAs. Because
IRS's fiscal year 2004 budget was not passed until January 2004, IRS
officials said that, since September 2003, IRS slowed work on the PCA
program. These officials said that, because of various budgetary
procedures, the appropriated funds were not released to the PCA program
until March 2004. However, the officials explained that IRS, intending
to be fiscally prudent, is delaying spending of the funds until passage
of the legislation appears to be more imminent.
IRS officials stated that if legislation to authorize the program was
not passed during 2004, IRS eventually would suspend work on developing
the program. These officials said that they have been balancing and
managing their existing funds and the timing of their work given that
the authorizing legislation might not pass. If this legislation passes,
IRS officials said that they would need another 18 to 24 months
afterwards to complete the many tasks remaining, as shown in table 2.
IRS officials said that, if Congress passes authorizing legislation in
summer 2004, the estimated date for starting to send cases to PCAs is
July 2006.
Potential Study Design Would Provide Limited Information to Judge
Whether Contracting with PCAs Is the Best Use of Resources:
Although IRS officials intend to study the relative performance of PCAs
and IRS employees in collecting delinquent taxes, the study approach
under initial consideration would provide policymakers limited
information to judge whether and when the PCA strategy is the best use
of resources. The tentative idea for a design--comparing PCA and IRS
performance for similar types of simple cases that would be sent to
PCAs--does not recognize that IRS officials believe that using
employees on these cases would not be their best use given the need to
work on other, higher priority cases.
The Cost-Effectiveness of the Proposed Use of PCAs Has Been Questioned:
Among other issues concerning the proposed use of PCAs, policymakers
and others have questioned whether using PCAs to collect tax debts is
more efficient or effective than having IRS employees do so. During
consideration of IRS's proposal, some members of Congress questioned
whether IRS could collect the taxes that IRS plans to assign to PCAs at
less cost or whether IRS would be able to collect a higher portion of
the taxes that are due. During hearings, some witnesses raised similar
concerns.[Footnote 16]
IRS officials have said that IRS employees might be more effective than
PCAs in collecting delinquent taxes because IRS employees have greater
powers to enforce collections. These powers (such as tax liens and wage
levies) may enable IRS employees to collect a higher portion of the
taxes from the same types of cases on which PCAs would work.
IRS officials said that the proposal to use PCAs to collect simpler tax
debts was not based on a judgment that PCAs would necessarily be more
efficient or effective in collecting delinquent tax debt. Rather the
proposal was based on a judgment that Congress was unlikely to approve
a substantial increase in IRS's budget to fund additional staff for the
collection function. Officials believed that the growing inventory of
tax debts was not a good signal to taxpayers about the importance of
complying with their tax obligations. Given constraints in hiring
staff, IRS officials said that using PCAs was the only practical means
available to begin working on significantly more collection cases that
otherwise would not be worked on due to IRS staffing constraints.
Although this policy judgment served as the rationale behind the PCA
proposal, in March 2004, IRS provided us with projections of revenues
and federal government costs for the proposed PCA program compared to
projections for an alternative approach under which IRS would hire
additional staff to work on the same volume for selected types of cases
on which the PCAs would work.[Footnote 17] According to the analysis,
PCAs would generate $4.6 in revenue for every dollar in cost and IRS
employees would generate $4.1.
We did not review the data and assumptions that underlie these revenue
and cost projections because the comparison that IRS constructed did
not address the relevant economic question for policymakers seeking to
reduce the backlog of uncollected taxes--which is, what is the least
costly approach for reaching a certain revenue collection goal. IRS's
analysis did not examine other feasible approaches that IRS might be
able to use, if given additional resources, to collect the same amount
of revenue that the PCAs would bring in, but at lower cost.
Study Approach Being Considered:
Assuming IRS receives authority to use PCAs, IRS officials said they
would design a study to compare the performance of PCAs versus IRS
employees. However, the study approach under initial consideration
would provide policy makers limited information to help determine
whether the use of PCAs as currently proposed is the best use of
federal resources to collect tax debts. IRS's approach might show
whether PCAs or IRS employees are best at working on certain types of
collection cases, but would not show whether the use of PCAs as planned
would be the best use of resources to deal with the overall collection
workload.
IRS officials said that although they believe they should conduct a
study that compares PCA results to results achieved by IRS employees,
they have not designed such a study.[Footnote 18]They expect to design
the study after authorization to use PCAs is enacted and before sending
cases to PCAs. Although the study approach will evolve, officials said
that they are considering selecting a sample of the same type of
simpler cases that will be sent to PCAs and having such cases also sent
to a group of IRS telephone collection employees. The results generated
by these IRS employees and by PCAs would be compared to see which
option is more effective; how effectiveness would be defined and
measured would be determined in designing the study. This potential
design would help answer the relatively narrow--but important--question
of whether and when PCAs or IRS employees are a better choice for
working on the specific types of cases to be sent to PCAs.
However, IRS officials told us that using IRS employees on these
simpler cases would be less productive than assigning them to work on a
different mix of collection cases. These officials said that the
simpler cases IRS plans to assign to PCAs are generally not those cases
that IRS would assign to any additional collection employees, if hired.
IRS employees would work on more complex cases that fit their skills
and enforcement powers and that have a higher priority due to such
factors as the type and amount of tax debt or length of the
delinquency.
Generally, federal officials are responsible for ensuring that they are
carrying out their responsibilities as efficiently and effectively as
possible. Various federal and IRS guidance reinforces this
responsibility. For example, according to OMB Circular A-123 "the
proper stewardship of Federal resources is a fundamental responsibility
of agency managers and staff. Federal employees must ensure that
government resources are used efficiently and effectively to achieve
intended program results." OMB Circular A-94 states that agencies
should have a plan for periodic, results-oriented studies of program
effectiveness to, among other purposes, help determine whether the
anticipated benefits and costs have been realized and program
corrections are needed. IRS guidance states that in selecting among
course of action options, IRS managers should determine which is the
most realistic and most cost effective. Further, IRS has adopted a
critical job responsibility for its managers that specifies their
responsibility to achieve goals by leveraging available resources to
maximize efficiency and produce high-quality results.
A study that focuses on the least costly approach to collecting a
desired amount of tax debts would be more in line with federal guidance
than the study that officials anticipate performing. Such a study would
more likely answer the broader question of how IRS can be the most
efficient and effective in achieving its collection goals. One
alternative design might entail comparing the results of using PCAs to
the results from using the same amount of funds to be paid to PCAs in
an unconstrained manner that IRS determines to be the most effective
overall way of achieving its collection goals. Determining the most
effective and efficient overall way of achieving collection goals would
undoubtedly require some judgment. However, because IRS is developing a
new case selection model for its own use, after some experience is
gained both with using PCAs and with new IRS case selection processes,
IRS should have better data to use in determining the best way of
achieving its collection goals. If using PCAs as expected under the
current proposal meets IRS's collection goals at less cost than the
best unconstrained alternative, policymakers could be comfortable with
continuing their use. If not, policy makers would have information
available to consider whether changes in the use of PCAs would be
appropriate.[Footnote 19]
Regardless of the approach chosen, IRS would have to address several
challenges in designing a study to compare the use of PCAs and IRS
employees. For instance, contracting for PCA assistance may provide
flexibility over hiring additional IRS staff. To recruit, select, and
train the new staff, IRS could need many months or more and, if
experienced staff assists in training newly hired staff, the
experienced staff would not be able to handle normal workloads.
Further, if the collection workload were to decrease, IRS may be able
to reduce contract commitments more rapidly than it could reassign and,
if needed, retrain IRS staff. To some extent, the study would have to
account for similar types of direct and opportunity costs to hire,
train, assign, and release employees of the PCA contractor. Accounting
for these and other factors raises challenges to the design of a
comparative study.
Because IRS would not assign cases to PCAs for collection until 2006,
it will have time to take these challenges into account and to better
ensure that its study would be useful to policy makers. Further, in
designing the study, IRS would have time to identify the data that
would be needed for the study and develop systems or processes for
collecting the data.
Conclusions:
IRS has an inventory of over $100 billion dollars of tax debts that has
some potential for being collected. In recent years, IRS has deferred
collection actions on billions of dollars of debt because it lacked
collection staff to do the work. The growth in the backlog of unpaid
taxes poses a risk to our voluntary tax system, particularly as IRS has
fallen further behind in pursuing existing as well as new tax debt
cases. We have placed the collection of unpaid taxes on our high-risk
list since 1990 due to the potential revenue losses and the threat to
voluntary compliance with our tax laws.
Accordingly, we believe that effective steps need to be taken to
improve the collection of these unpaid taxes. Because we did not
analyze available options in this review, we are not taking a position
on whether the use of PCAs is a preferable option. However, doing
nothing more than has been done recently is not preferable. The
compliance signals sent to taxpayers from the backlog of delinquent tax
debts are not appropriate. When the majority of taxpayers receiving
phone calls from IRS are those who respond to written IRS notices,
taxpayers and practitioners may conclude that failing to respond to IRS
is an effective tactic for avoiding tax responsibilities.
If Congress does authorize PCA use, IRS's planning and preparations to
address the critical success factors for PCA contracting provide
greater assurance that the PCA program is heading in the right
direction to meet its goals and achieve desired results. Nevertheless,
much work and many challenges remain in addressing the critical success
factors and helping to maximize the likelihood that a PCA program would
be successful.
Although IRS did an analysis that suggests that using PCAs may be a
somewhat more efficient means to collect certain types of delinquent
debts, that analysis was not done in a manner that informs policymakers
whether the proposed use of PCAs is the least costly option to achieve
IRS's collection goals. Further, given the lack of experience in using
PCAs to collect tax debts, key assumptions are untested. Accordingly,
if Congress authorizes the use of PCAs, Congress and IRS would benefit
from a study that uses the experience gained with PCAs and by IRS
itself in using new case selection processes to better determine
whether and how the use of PCAs fits into an overall collection
strategy that is designed to most effectively and efficiently collect
delinquent taxes. Although IRS officials have preliminary plans to do a
study that compares the use of PCAs and IRS employees to work the same
type of cases, this study design would not help policymakers in
Congress and the executive branch judge whether using PCAs as currently
proposed is the best use of scarce federal resources.
Recommendation:
If Congress authorizes the use of PCAs, as soon as practical after
experience is gained using PCAs, the IRS Commissioner 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 Comments and Our Evaluation:
The Commissioner of Internal Revenue provided written comments on a
draft of this report in a letter dated May 14, 2004 (see app. III). In
the letter, the Commissioner said that our findings would help IRS
focus its PCA program development efforts on those areas most critical
to success of the program if Congress authorizes IRS's use of PCAs. He
agreed that IRS had taken actions to address the critical success
factors we identified and acknowledged that significant actions are yet
to be done, referring to several key PCA program project plan steps
that have not been completed.
In response to our recommendation that, if Congress authorizes IRS's
use of PCAs, IRS do a study 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, the
Commissioner agreed that IRS would need to analyze the PCA program to
determine its effectiveness and impact on the overall collection of
delinquent taxes. He said that the detailed design for evaluating the
PCA program will include a study to ensure that IRS is making the most
effective and cost efficient use of total resources available.
We are also sending copies to the Secretary of the Treasury, the
Commissioner of Internal Revenue, the Director, Office of Management
and Budget, and other interested parties. We will make copies available
to others on request. In addition, the report will be available at no
charge on the GAO Web site at [Hyperlink, http://www.gao.gov].
This report was prepared under the direction of Thomas D. Short,
Assistant Director. Appendix IV also lists major contributors to this
report. If you have any questions about this report, contact me at
[Hyperlink, brostekm@gao.gov] or Tom Short at [Hyperlink,
shortt@gao.gov], or either of us at (202) 512-9110.
Signed by:
Michael Brostek,
Director, Tax Issues:
List of Committees:
The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable William M. Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:
The Honorable Tom Davis:
Chairman:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
House of Representatives:
[End of section]
Appendixes:
Appendix I: Trends in IRS Collections Programs, 1996-2003:
Figure 2 below shows the annual gap between the number of cases
assigned to field and telephone collections and the number of
delinquent accounts worked to closure (excluding accounts for which
collection workload was deferred) expressed as a percentage of the
number of cases assigned.
Figure 2: Annual Gap Between Collection Cases Assigned and Cases Closed
as a Percentage of Cases Assigned, Fiscal Years 1996 through 2003:
[See PDF for image]
[End of figure]
Figure 3: Number of Revenue Officers Working on Delinquent Accounts,
1996 through 2003:
[See PDF for image]
[End of figure]
[End of section]
Appendix II: Actions IRS Has Taken to Address Critical Success Factors:
The following appendix provides some detail on various IRS actions to
address the critical success factors.
Critical Success Factor--Results Orientation:
IRS envisions that the PCA program will meet the following goals:
* Increase the collection of tax debts by $9.2 billion.
* Increase the closure of tax debt cases by 17 million taxpayers.
* Reduce the tax debt backlog; and:
* Increase taxpayer satisfaction by 12.5 percent.
To motivate PCAs to achieve these results, IRS is devising a balanced
set of measures--the "balanced scorecard"--and a related performance-
based compensation system. The performance scores on these measures
also are to be used in determining financial bonuses and future case
allocations to PCAs. Specifically, PCAs with above-average performance
scores are to be eligible for monetary bonuses if they meet minimum
thresholds for five of six performance measures. Also, the performance
score is to be translated into a value for each PCA that is to be used
to determine a proportionate allocation of cases for the next quarter.
IRS's intent is that the balanced scorecard will ensure that collection
efforts are balanced appropriately in providing quality service;
ensuring adherence to taxpayer rights; and complying with IRS policies,
procedures, and regulations. The performance measures are to include
the following.
* Collection effectiveness: Dollars collected as a percentage of
dollars assigned to be collected over the contract period.
* Case resolution: Resolving cases assigned through the payment of the
tax debts immediately or through installment payments over 3 years,
identification of bankrupt or deceased taxpayers, or identification of
hardships that affect the taxpayers' ability to pay.
* Taxpayer satisfaction: Satisfaction will be measured through random
surveys of taxpayers on the accuracy and quality of actions taken by
PCA employees and their adherence to various standards, and through
taxpayer complaints.
* PCA employee satisfaction: Satisfaction will be measured through
surveys of employees and their retention rates.
* Work quality: Quality will be measured through audits of PCA cases
and telephone monitoring of interactions with taxpayers.
* Validated taxpayer complaints: Financial penalties will be assessed
and points will be subtracted from PCA performance scores if taxpayer
complaints are validated.
Critical Success Factor--Agency Resources:
IRS has set up an infrastructure to:
* administer the PCA program,
* oversee PCA contractors, and:
* work on cases referred back to IRS from PCAs.
IRS has identified initial staffing needs for the PCA program. IRS has
estimated that 100 full-time equivalency positions (FTE) will be needed
to initially staff the three elements of the program. IRS estimates
that it will need 30 FTEs to administer the program and do oversight,
and 70 FTEs to work on the cases referred back to IRS from PCAs for the
first round of PCAs selected to work on cases. As IRS learns about its
staffing needs and sends cases to more PCAs over time, IRS plans to
adjust its staffing accordingly.
Critical Success Factor--Workload:
IRS has informed PCAs that the number of cases that they receive over a
set time period is to be based on their performance scores against
balanced measures. IRS plans to oversee the assigned workload to ensure
that PCAs work on the full range of simpler cases. To motivate PCAs to
work on the full range of cases, IRS plans to measure, among other
things, the extent to which PCAs resolve cases sent to them, including
those that PCAs refer back to IRS without resolving the tax debt. IRS
also is working on systems to help it identify the best cases to send
to PCAs and to help it transmit and manage those cases.
Critical Success Factor--Taxpayer Issues:
IRS has drafted provisions to ensure that PCAs know that they have to
treat taxpayers properly and make them aware of the consequences of not
treating taxpayers properly. Proper treatment of taxpayers is one of
the performance measures used to determine a performance score for use
in granting monetary bonuses and case allocations for PCAs. The
following provides examples of the draft provisions on proper taxpayer
treatment.
* PCAs shall comply with all applicable federal and state laws. The
principal federal statues and regulations currently governing
collection activities are to be followed. Further, IRS plans to monitor
PCA collection activities and treatment of taxpayers; any behavior that
is not in conformance with cited federal and state laws and regulations
will be considered a breach of contract.
* IRS has informed PCAs that it will be conducting customer
satisfaction surveys and that customer satisfaction is one of the key
components of the balanced scorecard to be used to determine financial
bonuses and future case allocation.
* IRS plans to require that PCAs inform taxpayers orally and in writing
on how to report improper treatment by PCA employees to IRS.
Critical Success Factor--Program Evaluation:
IRS has established preliminary plans for monitoring and measuring PCA
performance through such means as conducting site visits and
compensating PCAs according to their performance reflected in the
balanced measures scorecard. However, IRS has deferred doing much work
on evaluating program performance overall given the other work that had
to be done and the resources that were available.
[End of section]
Appendix III: Comments from the Internal Revenue Service:
COMMISSIONER:
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224:
May 14, 2004:
Mr. Michael Brostek
Director, Tax Issues
U.S. General Accounting Office
441 G Street, NW Washington, DC 20548:
Dear Mr. Brostek:
I am responding to your draft report titled, 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). I believe the
findings presented in your draft report will assist IRS to continue
focusing our development efforts in those areas most critical to
successful implementation of the Collection Contract Support (CCS)
program. This preparation will greatly assist us in implementation,
should Congress enact legislation authorizing IRS to contract with
Private Collection Agencies (PCAs).
As noted in your draft report, we have already undertaken a number of
actions to ensure success in the development of the PICA program, which
include: developing performance measures and goals; adopting a
performance-based PCA compensation strategy; identifying an
infrastructure to administer contracts, providing oversight and working
accounts not resolved by PCAs; drafting provisions on how taxpayer's
are to be treated by PCAs; drafting contract provisions for monitoring
and evaluating PICA and program results against goals, and developing
measures and the performance-based compensation system.
We acknowledge there are significant activities that still need to be
accomplished in order to successfully implement the CCS program, such
as: finalizing goals, measures, and the compensation system for the
final request for proposals; developing a program to track resources
and costs associated with the PICA program; completing development and
testing of the case selection and inventory management systems;
developing training courses for PCA and IRS employees and conducting
the training; and using results to manage the PICA program.
Your report recognizes we have a project plan in place to finish work
on the critical success factors associated with implementation of this
legislation. Along with the action items already mentioned, the project
plan includes: identifying and securing IRS and developing resources to
ensure all project activities are completed timely; managing the
technology phases of the project including
integration into current systems; coding and testing of applications;
reviewing, certifying and deploying systems security; developing policy
and procedures; identifying and selecting of PCAs; performing risk
management planning; and engaging stakeholders. We believe this
comprehensive and detailed project plan puts us on track to achieve
success.
Our comments concerning your recommendation follow.
Recommendation: If Congress authorizes the use of PCAs, as soon as
practical after experience is gained using PCAs the IRS Commissioner
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.
Comments: We agree with the need to perform analysis of the CCS
program, once data is readily available, to determine its effectiveness
and the impact on the overall collection of delinquent taxes. The GAO
has acknowledged we have preliminary plans to develop and conduct
program evaluation of PCAs after implementation of the CCS program. The
detailed design of this phase will include a study to ensure we are
making the most effective and cost efficient use of total resources
available. As part of those efforts we will evaluate the effectiveness
of the PCA program and how this program fits into the overall
Collection strategy.
I appreciate GAO's input and will continue to take the necessary steps
to ensure the success of the Collection Contract Support program.
If you have any questions, please contact me at (202) 622-9511 or Dale
F. Hart, Commissioner, Small Business/Self-Employed Division, at (202)
622-0600.
Sincerely,
Signed by:
Mark W. Everson:
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Michael Brostek, (202) 512-9110 Thomas D. Short, (202) 512-9074:
Acknowledgments:
In addition to those named above, Evan Gilman, Ronald Jones, John
Lesser, Cheryl Peterson, and Jim Wozny made key contributions to this
report.
(450222):
FOOTNOTES
[1] Known unpaid taxes due the government include delinquent taxes (as
well as penalties and interest) owed that IRS has attempted to collect
but has decided not to continue pursuing.
[2] U.S. General Accounting Office, Financial Audit: IRS's Fiscal Years
2003 and 2002 Financial Statements, GAO-04-216 (Washington, D.C.: Nov.
13, 2003).
[3] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of the Treasury, GAO-03-109 (Washington,
D.C.: January 2003). The collection of unpaid taxes high-risk area also
encompasses the amount of unpaid taxes that are due the government but
that IRS has not identified.
[4] U.S. General Accounting Office, Internal Revenue Service: Issues
Affecting IRS's Private Debt Collection Pilot, GAO/GGD-97-12R
(Washington, D.C: July 18, 1997).
[5] U.S. General Accounting Office, Tax Administration: Impact of
Compliance and Collection Program Declines on Taxpayers, GAO-02-674
(Washington, D.C.: May 22, 2002).
[6] In 1999, IRS's collection case selection system began forwarding
cases for collection only if they met certain dollar threshold, age,
and case characteristics. Those not forwarded were "deferred."
[7] See U.S. General Accounting Office, Compliance and Collection:
Challenges for IRS in Reversing Trends and Implementing New
Initiatives, GAO-03-732T (Washington, D.C.: May 7, 2003); and Internal
Revenue Service: Assessment of Fiscal Year 2005 Budget Request and 2004
Filing Season Performance, GAO-04-560T (Washington, D.C.: Mar. 30,
2004).
[8] See, e.g., S. 1637, 108th Cong. § 487 (2003) and H.R. 3967, 108th
Cong. § 521 (2004).
[9] According to IRS officials, decisions such as the adjustment of the
amount of tax debts and the use of enforcement powers to collect the
debts are inherently governmental functions that are to be made by
government employees rather than PCA employees.
[10] U.S. General Accounting Office, Information Technology: Leading
Commercial Practices for Outsourcing of Services, GAO-02-214
(Washington, D.C.: Nov. 30, 2001); Contract Management: Guidance Needed
for Using Performance-Based Service Contracting, GAO-02-1049 (Sep. 30,
2002); and Contract Management: Commercial Use of Share-in-Savings
Contracting, GAO-03-327 (Jan. 31, 2003).
[11] FTA is an organization whose membership includes the principal tax
collection agencies of the 50 states, the District of Columbia, and New
York City. According to its charter, FTA's mission is to improve the
quality of state tax administration by providing services to state tax
authorities and administrators.
[12] According to IRS data, about 40 state revenue departments and the
District of Columbia have used PCAs for the collection of delinquent
taxes.
[13] An RFQ is a solicitation to identify contractors willing to meet
the statement of work to be done.
[14] OMB Form E-300, Capital Asset Plan and Business Case, 2003.
[15] The purpose of program performance evaluation is to help assess
how well the program is achieving its goals, rather than whether
another program option would be a better use of agency resources to
achieve those goals.
[16] For example, see Subcommittee on Oversight, Committee on Ways and
Means, U.S. House of Representatives, Hearing on Use of Private
Collection Agencies to Improve IRS Debt Collection (Washington, D.C.:
May 13, 2003), http: //waysandmeans.house.gov/
hearings.asp?formmode=view&id=1043 (downloaded Apr. 6, 2004).
[17] The types of cases PCAs would work on include cases in which (1)
taxpayers filed a tax return showing taxes due but that have not been
paid and (2) taxpayers made three or more voluntary payments to satisfy
an additional tax assessed by IRS but have stopped making payments. The
total cost to the federal government included those paid from IRS's
budget as well as fees paid to PCAs.
[18] Given other work and limited staff, officials were deferring work
on the study design until the use of PCAs was authorized.
[19] As noted earlier in this report, IRS 's budget requests for more
collection staffing have not resulted in increased staffing because of
such factors as increased workloads in other areas and unfunded cost
increases. If IRS were to request more staffing to reduce the tax debt
inventory, and Congress wanted to be assured that funds would be used
for this purpose, Congress could dedicate the appropriation. Congress
has done this for selected other areas in which tax compliance has been
a concern, such as earmarking appropriated funds to address concerns
with overclaims for the earned income tax credit.
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