IRS should study the use of private tax collectors, GAO says

The IRS should consider the use of private collection agencies to reduce the $120 billion backlog of unpaid taxes, the General Accounting Office said in a report.

IRS has put off debt collections in recent years because it lacked the staff to do the work. 'The growth in the backlog of unpaid taxes poses a risk to our voluntary tax system,' said Michael Brostek, director of GAO Tax Issues.

The investigative agency did not analyze whether contracting out to private collection agencies was the best option. 'Doing nothing more than has been done recently is not preferable,' the report said. 'When the majority of taxpayers receiving phone calls from IRS are those who respond to written IRS notices, taxpayers and practitioners may conclude that failing to respond to IRS is an effective tactic for avoiding tax responsibilities,' the report said.

IRS determined in an analysis that private collectors may be somewhat more efficient in collecting simpler types of delinquent debts, but the analysis did not indicate whether private collectors were the least costly option overall. The study found that private collectors would generate $4.60 in revenue for every dollar in cost and IRS employees would generate $4.10. Also, private agencies lack experience in collecting tax debt.

IRS Commissioner Mark Everson said in response to GAO last week that if Congress authorizes it, the IRS would study how costly and effective private collection agencies would be in the overall collection of delinquent taxes.

Legislation that has been proposed to authorize private collection agencies has not passed yet. However, IRS should put in place components that would assure that contracting private collectors would be successful. Among those factors, IRS has been developing:
  • program performance measures and goals

  • plans for a computer system to transmit data to private collection agencies

  • a method to select cases for private collection agencies

  • contract provisions to govern data security and private collectors' interactions with taxpayers.

About the Author

Mary Mosquera is a reporter for Federal Computer Week.

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