Tax Debt Collection Contracts: IRS Analysis Could Help Improve Program Results and Better Protect Taxpayers
Fast Facts
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
Highlights
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.
Recommendations
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.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | 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) |
IRS partially agreed with GAO's March 2019 recommendation and has taken steps needed to implement it. In December 2019, IRS provided new program objectives that were stated consistently in program documentation. The objectives addressed broad topics such as taxpayer protections, satisfaction, and experience; and to apply tax laws consistent with IRS collection practices. IRS used the objectives in its PDC program risk register to identify key risks and take steps to mitigate them, including education of taxpayers to address risks of scammers impersonating PCAs. Another key risk considered PDC program collections and costs to project them to effectively manage the program. IRS also linked the objectives to measures and target scores it began using to assess the performance of collection agencies under the new contract that started in September 2021. For example, IRS linked the objective for taxpayer protections with quality attributes such as clear, professional communications and effective listening when PCAs contact taxpayers by telephone and set an acceptable quality level target of 95 percent for these and related attributes. In April 2023, IRS provided documentation affirming this approach to measuring program performance against objectives.
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| Internal Revenue Service | 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) |
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, GAO maintains 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. Without complete reporting on TIGTA's costs to administer the PDC taxpayer complaint system, Congress is not informed of the program's full costs. IRS has indicated it does not intend to take action to implement this recommendation, which it confirmed in January 2024.
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| Internal Revenue Service | 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) |
IRS agreed with our recommendation and in October 2019 said it planned to report private debt collection (PDC) revenue amounts going to the Treasury and to IRS's retained funds. In July 2020, IRS provided a copy of its PDC Fiscal Year 2019 Annual Report to Congress with a new reporting format to show these detailed data. Specifically, it reported annual and total amounts of revenue collected since the program started in fiscal year 2017 through September 2019, including a total $357.6 million collected, of which IRS retained $137.8 million to pay costs and sent the remaining $219.8 million to the general fund of the Treasury. This change will better inform Congress of the amounts of collected revenue sent to the general fund of the Treasury and amounts retained by IRS to pay costs.
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| Internal Revenue Service | 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) |
IRS disagreed with the recommendation and has taken no action to implement it. IRS said analysis to identify the types of cases that are not potentially collectible is unnecessary because the law requires IRS to assign all such cases to collection agencies. IRS also noted assigning cases poses minimal cost to IRS. However, GAO's report noted that IRS has the discretion to define cases that are potentially collectible and those that are not. IRS has responsibility for efficient program operations, which includes not assigning uncollectible debt cases. IRS reaffirmed its position in March 2021 that the assignment and recall of cases adds little to its costs. However, IRS has not supported this assertion as of January 2024. 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 collecting no taxes owed for cases not referred to collections agencies. GAO maintains 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. Without data analyses to guide the types of cases sent to collection agencies, IRS may continue to use resources inefficiently. IRS has indicated it does not intend to take action to implement this recommendation, which IRS officials confirmed in January 2024.
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| Internal Revenue Service | 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) |
No executive action taken. IRS agreed with GAO's March 2019 recommendation and noted that it already had the recommended analyses built into the PDC case identification process. In March 2021, IRS repeated its view that its process already identifies the inactive cases eligible by statute that have not been assigned to PDC. IRS provided documentation on this view. However, as of March 2023, none of the documentation showed how IRS analyzes its debt inventory or PDC results to identify inactive cases beyond those eligible by statute that are not being assigned to PDC but may be worth pursuing. Without such analyses, IRS may miss opportunities to improve collections by, for example, assigning cases sooner than eligible by statute or cases that collect more revenue than those that collection agencies return with little or no revenue collected. IRS has indicated it does not intend to take action to implement this recommendation, which IRS officials confirmed in January 2024.
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| Internal Revenue Service | 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) |
IRS agreed with the recommendation and provided documentation in December 2019, showing actions taken to implement it, including a more comprehensive risk register that identified over 30 distinct risks to taxpayers and aligned them with PDC program objectives to operate consistently with IRS collection practice in areas of taxpayer protections and taxpayer satisfaction/experience. These actions will help IRS have reasonable assurance that it has fully identified and addressed all taxpayer risks from the PDC program.
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| Internal Revenue Service | 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) |
IRS agreed with the recommendation and took steps to address it. Specifically, IRS provided documentation in December 2019 on actions taken to implement the recommendation, including a risk register with clear information on the impact severity and likelihood of each taxpayer risk. In response to our question on how IRS uses this information to prioritize risks, in June 2020, IRS officials said it is unnecessary to prioritize them because IRS reviews all risks (existing and newly identified) to adjust and implement risk responses as deemed appropriate throughout the year, such as when new laws are enacted, procedures change, and when identified by stakeholders. Based on our review of IRS documents in March 2021, we determined that IRS' additional actions to clarify its use of the severity and likelihood impacts to determine priority met the intent of our recommendation. We concluded that the risk register for the program had matured enough and was reviewed on a regular basis for determining which risks merited mitigation. These actions will help IRS prioritize risks and select appropriate responses to mitigate the potential impacts.
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| Internal Revenue Service | 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) |
IRS agreed with the recommendation and provided documentation in December 2019, on actions taken to implement it, including a risk register with more complete information on identified taxpayer risks. This and other improvements allowed specific taxpayer risks in the register to be aligned with their responses including, for example, taxpayer protection responses to assure that collection agency employees are not paid based on how much they collect and to use information from the Treasury Inspector General for Tax Administration to protect taxpayers from fraudsters. These actions will help IRS have reasonable assurance that it has properly selected risk responses for each taxpayer risk.
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| Internal Revenue Service | 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) |
IRS agreed with the recommendation and provided documentation in December 2019 on actions taken to implement it, including a revised risk register and plans for outreach to FTC on its system to record the complaints. IRS subsequently provided documentation showing that it had developed procedures to monitor the FTC complaint data and, in June 2022, documented implementation of ongoing monitoring of the complaint data, as GAO recommended. IRS also provided documentation of procedures to monitor how well specific responses worked. IRS officials said that they monitor how well specific taxpayer risk responses are working in regularly scheduled risk management meetings. In June 2022, IRS provided a document to show implementation of this practice to demonstrate ongoing monitoring of risk responses. IRS officials explained that it showed that some risks are "closed" when risk responses have been deemed sufficient, which demonstrates that risks are monitored to assess the effectiveness of responses taken to address them. In April 2023, IRS provided documentation affirming this monitoring approach.
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| Internal Revenue Service | 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) |
IRS agreed with the recommendation and provided documentation in December 2019 on actions taken to implement it, including a communication plan. However, the plan did not show procedures and plans for seeking feedback from stakeholders representing vulnerable taxpayers. Nor did IRS provide documentation of actions taken to identify and respond to any risks identified. In response to GAO's questions on the issue, in June 2020, IRS officials said they did not have such documentation. In March 2021, GAO determined that IRS documented seeking feedback from the Treasury Inspector General for Tax Administration, but not from other types of external stakeholders. In April 2022, IRS officials said that they had implemented a system that allows taxpayers to leave IRS voicemails. GAO reviewed a document that IRS subsequently provided to describe the system, which showed that IRS had implemented a generally available telephone number that relies on taxpayers and their representatives to call and leave messages about problems they actually experienced with debt collectors, not risks to vulnerable taxpayers. This does not offer clear opportunities for external stakeholders that represent taxpayer interests to provide feedback to support identifying and responding to risks to vulnerable taxpayers. Similarly, external communication channels IRS described in April 2023, were with general stakeholder groups, not targeted outreach from IRS to gain feedback representative of vulnerable taxpayers. As of May 2024, IRS indicated it does not intend to take further action to implement this recommendation. GAO maintains that the recommendation is valid. Without ensuring that it has fully solicited feedback and conducted outreach to stakeholders, IRS does not have assurance that it has identified specific risks to vulnerable taxpayers and appropriately responded to them.
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| Internal Revenue Service | The Commissioner of Internal Revenue should clearly document an assessment of fraud risks related to the PDC program. (Recommendation 11) |
IRS agreed with the recommendation and said it would conduct a fraud risk assessment for the PDC program based on the Fraud Reduction and Data Analytics Act of 2015 and OMB guidance. In June 2020 IRS provided documentation of its formal fraud risk assessment following leading practices to combat fraud in a strategic, risk-based manner. For example, the documents included clear information about consideration of, and responses to, fraud risks not previously addressed, such as risk mitigations designed to prevent collection agency employees inappropriately accessing taxpayer information and using it for fraudulent purposes. These actions will help IRS have assurance it is effectively managing fraud risks to taxpayers and the program.
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| Internal Revenue Service | The Commissioner of Internal Revenue should ensure that its printed guidance to PDC taxpayers includes information about reporting scams to TIGTA. (Recommendation 12) |
IRS agreed with the recommendation and provided documentation on actions taken to fully implement it, including the November 2019 revision of Publication 4518 which IRS mails to all taxpayers in the PDC program. IRS revised the publication to provide taxpayers the TIGTA hotline telephone number for reporting any allegations of scams. These actions will help keep IRS and TIGTA informed of scams so they can appropriately respond to them.
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