TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

FISCAL YEAR 2019 BIANNUAL INDEPENDENT ASSESSMENT OF PRIVATE COLLECTION AGENCY PERFORMANCE

Final Report issued on December 31, 2018

Highlights of Reference Number:  2019-30-018 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 from taxpayers. 

WHY TIGTA DID THE AUDIT

This audit satisfies reporting requirements of the FAST Act, which requires an independent biannual assessment of PCA performance.

WHAT TIGTA FOUND

As of September 2018, the IRS has assigned more than 700,000 taxpayer accounts to private collectors.  The PCAs collected approximately $88.8 million (2 percent) from the balance owed on these accounts.  The PCAs also established more than 21,000 payment arrangements, but taxpayers later failed to make payments on more than half of them.   

Both the IRS and the PCAs monitor performance using various attributes such as procedural accuracy and professionalism.  All of the PCAs performed well under these attributes.  However, the performance attributes focus almost entirely on the PCAs’ telephone conversations with the taxpayers and do not measure other important aspects of case management, such as returning cases to the IRS when required and the accuracy of payment arrangements. 

TIGTA learned that PCA payment calculators do not calculate interest and penalties accurately.  The IRS reviews and approves payment arrangements over 60 months because the PCAs are prohibited by law from establishing agreements longer than 60 months.  As of June 2018, the PCAs sent 2,547 such proposed payment arrangements to the IRS for approval.  The PCAs’ calculation of payment terms for 92 percent of the arrangements were inconsistent with IRS payment calculators.  Payment terms were different than IRS calculations by an average of over four months, and some differed by more than four years.  The inaccuracies included arrangements that the PCAs computed as both too long and too short.  Most PCA payment arrangements are 60 months or shorter, and the IRS does not check shorter arrangements.  TIGTA sampled 100 such arrangements and determined that 65 percent differed by at least one month.

The IRS also conducts quarterly and targeted quality reviews of PCA performance.  These reviews identified various problems, such as mishandling of aged accounts and procedural errors on payment arrangements.  The IRS made more the 60 recommendations to the PCAs to address these issues; however, these issues are not reflected in PCA quality scores. 

In addition, the IRS supported one PCA’s practice of encouraging taxpayers to borrow money from friends and family, which the law does not appear to allow because the practice involves collecting financial information about persons other than the taxpayer.  

PCA customer satisfaction scores were high, routinely in the low– to mid–90 percent range.  However, customer service is just one of several performance criteria, and high customer satisfaction scores may not be entirely reflective of high overall performance.

TIGTA determined that improving the payment process could increase PCA revenue and reduce the number of defaulted agreements.  Taxpayers expressing a willingness to pay were unable to do so because of technical problems with the IRS’s various payment options.

WHAT TIGTA RECOMMENDED

TIGTA made 13 recommendations to improve program efficiency and protect taxpayer rights.  IRS agreed or partially agreed with nine of the recommendations and plans corrective actions.

READ THE FULL REPORT

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

https://www.treasury.gov/tigta/auditreports/2019reports/201930018fr.pdf.

 

Phone Number   /  202-622-6500

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

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