IRS Case Selection: Automated Collection System Lacks Key Internal Controls Needed to Ensure the Program Fulfills Its Mission
Highlights
What GAO Found
The Internal Revenue Service's (IRS) Automated Collection System (ACS) has a multistep, automated process to prioritize and select cases of unpaid taxes and unfiled tax returns to pursue. ACS assesses cases to determine the order to work cases based on IRS's collection program priorities, the likelihood the case will be resolved, and the type of tax and amount owed. ACS also reviews cases to determine what action to take based on whether a levy source or contact information is known for taxpayers. ACS will then contact taxpayers according to its assigned priority and may issue a levy or lien against the taxpayer.
ACS managers balance cases worked to ensure ACS achieves its case closure and taxpayer service measures. These decisions include how many notification and enforcement actions to take and how many cases to assign to IRS staff so that cases are worked in a timely manner. About half of the cases closed in ACS in fiscal year 2014 were high priority, including such issues as employers not paying federal employment taxes. Of the 3.5 million cases closed or transferred out of ACS in fiscal year 2014, IRS collected almost $6.2 billion. IRS generally had more success in collecting from individual taxpayers than from business taxpayers. However, because IRS has not identified objectives for the collection program and ACS, it is difficult to assess the program's overall effectiveness.
ACS has processes for managing risk and reviewing performance, but has not implemented other key internal controls. This increases the risk that the collection program's mission of fair and equitable application of the tax laws will not be achieved. GAO identified deficiencies in the following internal control areas.
Collection program and ACS objectives, and key term of fairness are not defined: IRS officials responsible for the collection program and ACS were unable to produce documentation of collection program or ACS objectives. Although fairness is specified in the collection mission statement, IRS has not defined or operationalized it in any ACS or collection program documents. In the absence of clearly documented objectives and a clearly communicated definition of fairness, IRS cannot know how well ACS contributes to the collection program mission and ensure the case prioritization and selection process is fair. The lack of clearly articulated objectives undercuts the effectiveness of IRS efforts to assess risks and monitor ACS performance.
ACS case prioritization and selection process is not documented: IRS has little formal documentation that describes the ACS prioritization and selection process. Without adequate documentation, it is difficult for IRS to determine whether the ACS case prioritization and selection process effectively supports the collection program mission.
Effectiveness of ACS process is not periodically evaluated: IRS has no procedures for periodically evaluating the ACS case prioritization and selection process and has not acted on implementing recommendations from a recent ad hoc study. Given that key components of the ACS process have remained relatively unchanged since its creation, IRS may be missing opportunities to better prioritize its workload, which could improve collection results.
Why GAO Did This Study
IRS's ACS is one of the primary means for pursuing taxpayers who failed to fully pay their taxes or file their tax return in a timely manner. From fiscal years 2012 through 2014, ACS staff has declined 20 percent while the number of unresolved collection cases at year-end has increased 21 percent. Given these trends, IRS must make informed decisions about the collection cases it pursues to ensure the program is meeting its objectives and mission.
GAO was asked to review the ACS process for prioritizing and selecting collection cases. This report (1) describes the ACS process to prioritize and select collection cases and the results of that process for fiscal year 2014, and (2) determines how well the ACS case prioritization and selection process supports the collection program mission and objectives. GAO reviewed IRS guidance, processes, and controls for prioritizing and selecting collection cases, reviewed ACS data, assessed whether IRS's controls followed Standards for Internal Control in the Federal Government , and interviewed IRS officials.
Recommendations
GAO recommends that IRS take four actions to help ensure the collection program meets its mission, such as establishing, documenting, and implementing objectives for the collection program and ACS, and establishing, documenting, and implementing procedures to complete periodic evaluations of the ACS case prioritization and selection process. In commenting on a draft of this report, IRS said it generally agreed with all of GAO's recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should establish, document, and implement objectives for the collection program and ACS, and define the key term of "fairness" as it applies to collection activities, which can be communicated to IRS staff. |
In January 2017, IRS supplied documentation on how it had established a fairness policy statement, which is incorporated into the Internal Revenue Manual, communicated to staff in email, and provided via a powerpoint presentation to staff. IRS also established and documented collection program objectives as part of its FY2017 Collection Program Letter. In October 2017, IRS shared additional draft documentation with GAO that would align SB/SE objectives with objectives from its FY2017 Collection Program Letter as well as other information such as performance measures. Following our assessment and request for more information, in November 2017, IRS provided a document intended to define certain collection program objectives, but it did not clearly define fairness or collection program and ACS objectives. We provided IRS feedback on the document in November 2017, January 2018, and July 2018. In June 2019, IRS officials provided information on an ongoing IRS initiative to identify objectives for various programs, but the collection program with its automated case processes was not among the pilot programs. As a result, any actions to implement the recommendation will be stalled until the initiative's pilot programs are complete. As of September 2023, IRS had not provided a planned date when it expects to complete them. We will update the status of IRS's plans and actions to implement the recommendation after we complete review of any documents IRS provides.
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| Internal Revenue Service | To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should establish and implement clear guidance and documentation for the ACS case prioritization and selection process, including inventory, risk, and priority designations, as well as changes to those designations over time, and communicate them to appropriate IRS staff. |
In August and September 2016, IRS provided documentation showing that it has established and implemented guidance and documentation outlining the Automated Collection System (ACS) case prioritization and selection process in line with the recommendation. This documentation is included in the Internal Revenue Manual (IRM), which is available to staff and the public. In addition, ACS staff have to check the IRM on a daily basis to ensure they follow it for their work.
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| Internal Revenue Service | To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should establish, document, and implement procedures to complete periodic evaluations of the ACS case prioritization and selection process and structure. The evaluation should cover the composition of the risk categories, model thresholds, and dollar thresholds used to prioritize cases. |
In April 2017, IRS provided documentation showing that it had developed and implemented a process to annually review the current state of the prioritization and selection process of the Automated Collection System and could make changes if necessary.
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| Internal Revenue Service | To help ensure the IRS collection program meets its mission and selects cases fairly, the Commissioner of Internal Revenue should establish, document, and implement a plan and time frame to ensure follow-up for ad hoc evaluations of the ACS case prioritization and selection process. |
In April 2017, IRS provided documentation showing it had developed and implemented a process to annually review the current state of the prioritization and selection process for the Automated Collection System (ACS). As part of these annual reviews, IRS established a process to ensure follow-up in case changes need to be made to ACS's case prioritization and selection process in line with the recommendation.
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