TIGTA Declares Private Debt Collection a Success

Despite continued controversy over whether the use of private debt collectors is a direction the Internal Revenue Service should be moving in, a new federal report gave high marks to the first phase of the agency’s pilot program.

The Treasury Inspector General for Tax Administration Office said that the program was effectively developed and implemented, but did allow for the possibility that some follow-up action may be necessary.

The 2004 American Jobs Creation Act authorized the IRS to hire private firms to collect federal tax debts. The law included a number of limitations to ensure the private firms will be subject to the same taxpayer protection and privacy rules that IRS employees work under.

The report found that:

• The IRS took appropriate steps to ensure contractor employees received sufficient training on applicable laws and regulations before allowing them access to federal tax information;
• The IRS required all contractor employees assigned to undergo background investigations;
• The IRS established adequate oversight through telephone call monitoring, case action reviews, taxpayer satisfaction surveys and other methods; and,
• The IRS took appropriate steps to ensure implementation of the program was effective, meeting regularly with contractors to address concerns and issues, testing contractor systems for readiness and accuracy, and evaluating contractor computer and physical security.

TIGTA also said that it had become involved in the pilot program at the IRS’ request -- creating a training video for contractors, participating in on-site contractor training and reviewing a number of security issues.In mid-February, the IRS announced that contracts for two of the private collection agencies had been extended through March 2008, and said only that both the agency and the third collection agency agreed that its contract would not be extended.
In the second phase of the project, scheduled for 2008, the IRS plans to contract with up to 10 firms. TIGTA’s report outlined a number of recommendations for the agency to include as part of its next request for quotation for collection agencies interested in what could prove to be extremely lucrative contracts  -- over the course of 10 years, the IRS expects that the private firms will help it collect an additional $1.4 billion in outstanding taxes, with each of the firms earning a percentage of that amount.

Among the recommendations were that private collectors:

• Maintain federal tax information on a separate computer server and resolve other specified computer and physical security concerns;
• Update telephone monitoring and case action review procedures to ensure consistency and completeness;
• Provide a copy of scripts for all telephone contacts with taxpayers to the IRS, which will be responsible for reviewing them; and,
• Continue updating and modifying the revenue model to ensure that the IRS appropriately accounts for the impact of taxpayers who opt out of the program, the age of the balance due and the actual collection rate achieved.

A number of politicians, as well as National Taxpayer Advocate Nina Olson, have voiced concerns about the pilot program -- questioning whether taxpayer rights might be compromised by turning to outside help, and whether it would make more sense to simply expand the IRS’s own collection efforts. And last fall, a Government Accountability Office report said that the Internal Revenue Service needed to put a much better system in place to evaluate the results of the program.TIGTA’s full report is available at www.ustreas.gov/tigta/auditreports/2007reports/200730066fr.pdf.