TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

PRIVATE DEBT COLLECTION WAS IMPLEMENTED DESPITE RESOURCE CHALLENGES;
HOWEVER, INTERNAL SUPPORT AND TAXPAYER PROTECTIONS ARE LIMITED

Final Report issued on September 5, 2018

Highlights of Reference Number:  2018-30-052 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The 2015 Fixing America’s Surface Transportation (FAST) Act required the IRS to begin using private collection agencies (PCA) to collect inactive tax receivables.  The PCAs may contact taxpayers to collect delinquent taxes.

WHY TIGTA DID THE AUDIT

The Joint Committee on Taxation estimated that private tax debt collection (PDC) would yield approximately $2.4 billion in additional revenue through Fiscal Year 2025.  Two prior IRS attempts at using the PCAs did not succeed.  This audit was initiated to evaluate the IRS’s planning and implementation of the PDC program as well as initial program results.

WHAT TIGTA FOUND

The IRS deployed the PDC program on time and met many key program milestones.  IRS personnel developed policies and procedures for the PCAs, as well as program metrics to gauge performance of the PCAs.

As of May 31, 2018, total program revenue ($56.62 million) was approximately $1.3 million more than costs ($55.33 million).  However, as of June 2018, the four PCAs collected just 1 percent of the $4.1 billion assigned.  A study commissioned by the collection industry trade association showed the national collection average for Calendar Year 2016 was 9.9 percent.  A possible cause of the low collection yield is the age of the cases being assigned.  TIGTA determined the average age of cases assigned to the PCAs was 3.97 years.  Such aged accounts are generally thought to be nearly uncollectible.  Also, some IRS policies may be harmful to taxpayers, such as:

·       A complaint process that is dependent on private debt collectors reporting on themselves.

·       The absence of a significant coordinating function, i.e., a referral unit, to ensure that only appropriate cases are sent to the PCAs.

·       A PDC program communication strategy that conflicted and contradicted other IRS communications regarding tax scams.

·       Authentication procedures that needlessly expose taxpayers to risk.

Other IRS policies may present risks to tax compliance, such as:

·       Some taxpayers who can pay only a portion of what they owe will be ignored by the IRS.

·       There are no consequences for taxpayers who appear to have willfully failed to pay.

·       The PCAs are being left to address subsequent noncompliance, and 73 percent of taxpayers whose accounts were assigned to the PCAs had not filed a 2016 tax return.

·       Some payment terms do not comply with the letter of the law.

·       Inventory assignment practices do not fully consider case characteristics, such as taxpayers’ income.  For example, 54 percent of taxpayer accounts assigned to a PCA had low‑income indicators on their accounts.

·       The IRS and the PCAs do not share taxpayer contact information. 

WHAT TIGTA RECOMMENDED

TIGTA made several recommendations to improve program efficiency and protection of taxpayer rights.  Although the IRS took some corrective actions during the audit, IRS management disagreed with most of the recommendations.  TIGTA believes the IRS’s lack of responsive actions will lead to increased taxpayer burden and negatively affect taxpayer service, rights, and program revenue.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2018reports/201830052fr.pdf.

 

Phone Number   /  202-622-6500

E-mail Address  /  TIGTACommunications@tigta.treas.gov

Website             /  http://www.treasury.gov/tigta