Washington (May 28, 2004) -- The General Accounting Office this week issued its report on a plan being considered by Congress that would authorize the Internal Revenue Service to contract with private collection agencies for tax debt collection and to pay them out of the revenue they collect.

The GAO didn't take a position on whether the use of PCAs for tax collection is preferable to other methods, but its report noted that, "doing nothing more than has been done recently is not preferable."

Congress is considering legislation to authorize the IRS, which is faced with a growing backlog of unpaid taxes, to use PCAs to collect simpler tax debts that don't need enforcement action. According to data provided to the GAO by the IRS, PCAs would generate $4.6 in revenue for every dollar in cost, while IRS employees would generate $4.1.

Back in 1996, Congress earmarked $13 million for the IRS to test the use of PCAs, but the IRS canceled the pilot in 1997, in part because it resulted in significantly lower amounts of collections and contacted significantly fewer taxpayers than expected, the GAO report noted.

The GAO noted that the current proposal to use PCAs differs from the 1996 pilot test in several ways. Under the current proposal, PCAs would try to resolve collection cases within certain guidelines, while in the 1996 test, they only contacted taxpayers to remind them of their outstanding tax debt and suggest payment options. Under the current proposal, PCAs would be paid a percentage of dollars they help collect. Previously, they were paid a fixed fee for actions such as successfully locating and contacting taxpayers, even if payments weren't received. In addition, the IRS will electronically transmit cases and data about the taxpayer and taxes owed to PCAs, whereas in 1996, the IRS’s computers weren't set up to transmit the data.

The GAO noted that the IRS has been developing program performance measures and goals; plans for a computer system to transmit data to PCAs; a method to select cases for PCAs; and contract provisions to govern data security and PCAs’ interactions with taxpayers. IRS officials said they would suspend work if PCA authorizing legislation isn't passed during 2004. If legislation passes, officials estimated that it would take 18 to 24 months to send the first cases to PCAs.

In its report, the GAO recommended that if Congress authorizes the IRS to use PCAs, the IRS should, after it gains experience using PCAs, conduct a study that compares the use of PCAs to another collection strategy, which might include hiring more IRS employees, that officials determine to be the most efficient and effective overall way of achieving collection goals.

-- WebCPA staff

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