The Internal Revenue Service took the right steps when it shut down its controversial private debt collection program last year, a government report concluded.

The report, by the Treasury Inspector General for Tax Administration, addressed some of the concerns when IRS Commissioner Doug Shulman decided last year not to renew the IRS's contracts with the private debt collection contractors, Pioneer Credit Recovery and the CBE Group, the agency had been using (see IRS Nixes Private Collection Contracts).

The private contractor program had been widely criticized, including by National Taxpayer Advocate Nina Olson and the National Treasury Employees Union. The IRS found in a cost-effectiveness study last year that the work was best handled by IRS employees.

The new report on the closure of the program found that the IRS had taken appropriate actions to conclude the work of the contractors on the program.

The IRS conducted a final close-out review at each of the private collection agencies’ work sites, and the IRS verified that the contractors returned or destroyed all federal tax information, according to the report. Information technology resources used by the contractors to work on the program contract were sanitized, destroyed, or returned to the IRS as necessary, said the TIGTA report. The IRS also conducted a physical search of the work sites and ensured that all the related paper files were removed.

The IRS ensured that the contractors continued to comply with procedures during the recall period by conducting quality reviews on cases assigned to the contractors and through its quarterly on-site reviews of the contracting agencies’ operations. Also, TIGTA found that the contractors followed procedures related to taxpayer rights.

All accounts were properly recalled from the contractors. The IRS monitored the recall process on a weekly basis, inventoried accounts and reconciled data with the contractors, verified that all the accounts were released from control of the program, and took actions as necessary on accounts to ensure they were properly handled after they were recalled from the contractors. In addition, TIGTA’s review of a statistical sample of accounts showed that the contractors properly notified taxpayers that their accounts were recalled by the IRS.

TIGTA also found that the IRS took the appropriate steps to ensure proper retention of the program records by establishing a team to develop and implement a record retention plan with the assistance of its service-wide records officer.