Tax Debt Collection: IRS Needs to Better Manage the Collection Notices Sent to Individuals
Highlights
According to the Internal Revenue Service (IRS), $23 billion in unpaid individual income tax debt existed in 2001, its most recent estimate. The notice phase is the first of IRS's three-phase process to collect unpaid debt. IRS annually sends notices to millions of individual taxpayers about billions of dollars of unpaid tax debt. Congress and others have questioned IRS's collection process's effectiveness. As requested, GAO is reporting on (1) how well IRS has established objectives, performance measures, and responsibility for reviewing notice-phase performance, and (2) how well IRS's business rules for sending notices to individuals help assure that the collection notice phase is achieving desired results at the lowest costs. To address these objectives, GAO compared the evidence obtained from IRS documents and responsible IRS collection officials to applicable guidance for internal control standards.
Although the notice phase is a key part of IRS's approach and strategy for resolving billions of dollars of individuals' unpaid tax debt, IRS lacks certain internal controls to assure that notices to individuals are achieving the most benefits--such as debt collected or unpaid debt cases otherwise resolved-- with the resources being used. Management controls like clearly defined objectives, performance measures, and clear responsibility for reviewing program performance help provide reasonable assurance that the objectives of an agency are being achieved effectively and efficiently. However, IRS has no documented objectives for the notice phase and no performance measures to indicate how well the phase is performing in resolving debt cases or achieving other potential desired results. Further, IRS has not established responsibility for reviewing the performance of the complete notice phase. IRS lacks documentation for and evaluations of its business rules for notices to individuals to assure that the collection notice phase is achieving desired results. According to IRS officials, to make the best use of collection resources, IRS uses its business rules to--based on certain dollar thresholds and individual tax debt case characteristics--vary the number and types of notices sent to taxpayers and determine whether unresolved cases will be sent for further collection action or further action will be deferred. However, as shown in the table, in almost all cases, for the five business rules that IRS identified as affecting the most taxpayers, IRS did not have information on the date the rules were established, the rationale for the rule, or data supporting the rationale. IRS collection officials also lacked documentation describing the business rules and how they operate. Further, even though IRS officials estimated that the business rules had been established for years, IRS had documentation for an evaluation of only one of the five business rules. Without relevant evaluations IRS lacks assurance that the notice phase achieves desired collection results at the least cost.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To better ensure the notice phase is achieving desired results at the lowest costs, the Commissioner of Internal Revenue should establish objectives and performance measures to reflect the desired results for the notice phase. |
Closed – Implemented
The IRS established and documented objectives and performance measures for collection notices for individuals as part of a collection notice effectiveness assessment which IRS plans to do annually, the first of which was completed in April 2012. The notice objectives included to resolve debts through payments, generate taxpayer telephone calls in response to notices, and to have fewer debts be sent on for further IRS collection actions, which generally are more costly than resolving debts with notices. The management review included related performance measures to assess notice effectiveness.
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| Internal Revenue Service | To better ensure the notice phase is achieving desired results at the lowest costs, the Commissioner of Internal Revenue should establish responsibilities for reviewing the performance of the notice phase to help ensure accountability throughout IRS. |
Closed – Implemented
IRS established responsibility for reviewing notice phase performance in the context of the multiple divisions, units, and functions that administer parts of the phase. As part of its planned annual study of notice phase effectiveness, the first of which was completed in April 2012, IRS documented the responsibilities of offices involved, including the Office of Taxpayer Correspondence, Small Business/Self-Employed Division, Collection Policy, and Collection Governance Council. Clear management responsibilities for performance review help ensure the efficiency and effectiveness of the notice phase and that opportunities for cost savings or better collection results will not be missed.
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| Internal Revenue Service | To better ensure the notice phase is achieving desired results at the lowest costs, the Commissioner of Internal Revenue should document the rationales for the key notice-phase business rules in terms of efficiency, effectiveness, or other desired results. |
Closed – Implemented
IRS stated that it would document the rationale for business rules for the highest volume Collection notices (501,503, 504) in terms of efficiency and effectiveness. Documentation of the business rules and rationale for the highest volume collection notices has been completed and ratified via the Collection Governance Council. Both the process and the justification for any variation has been documented. Additional reports are being planned in order to compile the measures for efficiency and effectiveness, which will be presented in conjunction with the final set of corrective actions that revolve around establishing performance measures and objectives for the notice process, as well as annually reviewing the measures.
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| Internal Revenue Service | To better ensure the notice phase is achieving desired results at the lowest costs, the Commissioner of Internal Revenue should provide IRS collection managers and executives accessible, reliable information on what the business rules are. |
Closed – Implemented
IRS has better documented business rules for the notice phase of its collection process and the agency's rationales, as GAO recommended in September 2009. In August 2017, IRS provided documentation of plans to periodically share with appropriate staff business rules information, along with related results of periodic evaluations of the business rules for the four highest-volume collection notices. However, IRS documents in December 2020, were not clear in showing that collection managers and executives had access to information on the business rules. In March 2021, IRS provided documentation to demonstrate that managers and executives have information available for them to understand what the business rules are and how the rules operate. This information is useful for IRS managers to exercise their responsibilities to ensure efficient and effective operations.
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| Internal Revenue Service | To better ensure the notice phase is achieving desired results at the lowest costs, the Commissioner of Internal Revenue should periodically and regularly evaluate the business rules in terms of efficiency and effectiveness or other results and ensure the results are available to managers so the data and methodologies can be used or considered in future evaluations. |
Open
IRS originally agreed with GAO and planned to regularly evaluate the business rules. However, in March 2021, IRS told GAO that it no longer planned to do such evaluations. GAO asked IRS for more information on its rationale for not conducting periodic reviews of the dollar thresholds of the rules to meet the intent of the recommendation, which is to determine whether the existing thresholds are still appropriate. In January 2022, IRS responded that it was reconsidering potentially taking steps to implement GAO's recommendation. IRS provided documentation in November 2023, but it was not fully responsive to the full scope of our review, which covered the four collection notices and the dollar levels that determine which notices are sent and whether further collection is deferred. In December 2023, we told IRS we still need further documentation, including information on how often IRS will conduct reviews, the review methodologies, and criteria IRS will use to determine if the dollar amounts are appropriate or should be revised. As of February 2024, IRS officials said they were still working on a response and did not have an expected date to provide it. We will update the status of this recommendation after we review any documentation IRS provides in response to our request. Until it establishes such periodic evaluations or reviews, IRS cannot provide reasonable assurance that the notice phase is achieving desired collection results at the lowest cost.
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