IRS Contracting With Private Firms To Collect Taxes

The U.S. Internal Revenue Service (IRS) needs to take additional steps to establish its plan to begin contracting with private collection agencies, a government watchdog says.

In 2005, the inventory of tax debt with collection potential had grown to $132 billion, according to a new report by the Government Accountability Office (GAO).

The IRS has not pursued some tax debt because of limited resources and higher priorities, says GAO, which is the nonpartisan investigative arm of Congress.

Congress authorized IRS to contract with private collection agencies (PCAs) to help collect tax debts. IRS has developed a Private Debt Collection (PDC) program to start with a limited implementation in September 2006 and fuller implementation in January 2008.

Although IRS officials indicated that a purpose of the limited implementation phase is to assure readiness for full implementation to up to 12 PCAs, IRS has not yet documented how it will identify and use the lessons learned to ensure that each critical success factor is addressed before expanding the program starting in January 2008, GAO says.

Because program success will be affected by how well IRS makes adjustments, assessing the lessons learned in limited implementation is critical, the GAO report says. Also, IRS has not documented criteria that it will use to determine whether the limited implementation performance warrants program expansion, it adds.

GAO recommends that IRS complete establishing for the PDC program: (1) results-oriented goals and measures; (2) reliable, verifiable costs, (3) evaluation plans, and (4) criteria and processes for assessing the program before deciding whether to expand it.

GAO also recommends that IRS ensure that its study reports all PDC costs and the best use of federal funds.