As part of its modernization efforts, the Internal Revenue Service (IRS) established a project office in 1998 to develop a high level redesign of the collecting process. One of the redesign team’s recommendations was to expand case resolution authorities for certain delinquent tax accounts that are currently not collectible due to taxpayer hardship (i.e., inability to pay), because the IRS was unable to locate the taxpayers or their assets, or because the IRS was unable to contact the taxpayers. Several benefits were envisioned from the redesign. First, customer burden would be minimized by resolving accounts at the earliest point of contact. Second, the redesign would leave Revenue Officers free to work cases that can be resolved only with their involvement. Other expected benefits were fewer cases would require re-work and fewer cases would be assigned to the automated holding file of unresolved cases.

This initiative would allow Customer Service function employees assigned to the Automated Collection System (ACS) or the toll-free telephone system to close significantly higher dollar accounts than they currently have authority to close. The initiative would also allow employees in the Examination, Appeals, and Taxpayer Advocate Service functions to close accounts up to the same higher dollar amount. Currently, employees in these functions have no authority to close accounts as currently not collectible.

In 1999, the IRS’ Collection Reengineering Program Office developed a prototype for testing the feasibility of expanding the case resolution authorities for currently not collectible accounts. At the present time, the expanded authorities are being tested in the Kansas City Customer Service Center and in selected Examination groups in the Kansas City metropolitan area. Employees in the Customer Service (both ACS and toll-free) and Examination functions began closing cases under their expanded authorities in July 1999 and October 1999, respectively. The test period is scheduled to end on October 30, 2000.

We conducted this audit to determine whether the prototype was effectively designed and is being effectively executed to provide IRS management with reliable decision-support information concerning whether the prototype model should be implemented, modified, or terminated.

The prototype for testing the expanded case resolution authorities for currently not collectible accounts may not provide IRS management with sufficient and reliable decision-support information for implementing the expanded authorities nationwide. The volume of cases closed under the expanded authorities in the Customer Service (both ACS and toll-free) and Examination functions has fallen significantly short of expectations. As of March 2000, testing of the expanded authorities in the Appeals and the Taxpayer Advocate Service functions had not been started due to insufficient resources.

At the time we completed our review in March 2000, the Collection Reengineering Program Office was planning, based on the test results to date, to partially implement the expanded authorities by allowing employees in the ACS function nationwide to close higher dollar accounts involving taxpayer hardship. The Program Office was also considering having employees in the toll-free areas accelerate the accounts to the ACS for resolution. The testing of the expanded authorities for closing currently not collectible cases in the Examination function was to continue.

The limited test results do not, as yet, clearly support a business decision to expand the case resolution authorities in the ACS. Additional testing, refinements to the measurement system, and access to national locator services at each call site are needed before implementing the expanded authorities. In addition, the volume of cases closed by the toll-free and Examination functions under the expanded authorities may not justify the training costs.

The sampling plan for the prototype required a test group of 2,500 cases closed currently not collectible by the Customer Service function (1,250 cases closed due to taxpayer hardship and 1,250 cases closed as unable to locate or unable to contact) and a control group of approximately the same size. Through the first 7 months of testing the expanded authorities, however, Customer Service function employees working in the ACS closed only 44 hardship cases; none were closed by Customer Service function employees working on the toll-free telephone system.

In January 2000, analysts from the Collection Reengineering Program Office reviewed these 44 cases and concluded that a proper currently not collectible determination had been made on each case. Based on this very limited testing, the Collection Reengineering Program Office is planning to allow ACS employees nationwide to close taxpayer hardship cases under the expanded resolution authorities.

In our opinion, it is not possible to make a reliable inference of case quality from such a small volume of cases. Since there are approximately 179,000 delinquent tax accounts totaling $8.4 billion that potentially could be closed by ACS employees under the expanded authority criteria, we believe that more testing needs to be completed before nationwide implementation is undertaken.

The action plan for the prototype contained several performance measures that were not fully developed during the testing of the expanded case resolution authorities. Although key data from the closed cases were being tracked to assist the Collection Reengineering Program Office in monitoring and measuring the prototype results, controls over the data collection process were not adequate to ensure that complete and accurate information was being captured. As a result, there is inadequate performance measurement data to conclusively show that the expanded case resolution authorities are achieving the desired outcomes in a cost-effective manner.

Collection procedures under the expanded authorities require verification of financial information before an account can be closed as currently not collectible. The verification can include a review of the taxpayer’s latest tax return and a check of motor vehicle records and local property (real estate and personal) records to verify the accuracy of the taxpayer’s financial statement and to locate additional sources from which to collect taxes owed.

Automated locator services provide access to information to locate taxpayers and their assets and can be used to assist IRS employees in collecting the proper amount of tax revenue at the least cost. In a telephone environment, on-line access to nationwide locator service information is essential for effective and efficient first point-of-contact resolution, since the IRS’ call-routing technology frequently sends incoming calls to call sites that are outside of the taxpayer’s local area where property records are located.

During the testing of the expanded case resolution authorities, Customer Service function employees had on-line access to a nationwide locator service. However, on-line access to locator services is not available in all IRS offices to enable employees to research motor vehicle and local property records to verify that all assets have been included on the taxpayer’s financial statement.

The IRS provided approximately 3 days of specialized training to the 12 toll-free employees and the 71 Examination function employees who were assigned to participate in the testing of the expanded case resolution authorities. The training covered obtaining and evaluating financial data, including allowable expenses, to determine the taxpayer’s ability to pay; locating and contacting taxpayers; and researching IRS computer files.

Between July 7 and December 31, 1999, only 8 of 24,886 incoming calls handled by the 12 participating toll-free employees involved taxpayers with delinquent tax liabilities that met the criteria under the expanded authorities. None of the 8 accounts was closed as currently not collectible. During the first 6 months (October 1999 - March 2000) of testing the expanded authorities in the designated Examination groups, only 3 of 185 cases were reported currently not collectible.

We are concerned that the potential benefits derived from expanding case resolution authorities in the toll-free and Examination functions may not justify the costs of providing training to all employees nationwide. We estimate the opportunity costs to train the Examination employees would exceed $12.7 million.

The Collection Reengineering Program Office should continue testing the expanded case resolution authorities in the ACS function. The expanded authorities for ACS employees should not be implemented nationwide until sufficient test data are collected and the measurement system is improved to more conclusively show that the intended program objectives are being effectively and efficiently accomplished. In addition, access to locator services needs to be available at each ACS call site prior to nationwide implementation. Due to the training costs involved, implementing the expanded case resolution authorities in the toll-free and Examination functions should be reconsidered, given the extremely limited volume of cases closed during the test period.

Management’s Response: Management’s response was due on August 7, 2000. As of August 10, 2000, management had not responded to the draft report.