IRS CASE 

SELECTION

Collection Process Is 

Largely Automated, 

but Lacks Adequate 

Internal Controls

Report to Congressional Requesters

July 2015

GAO-15-647

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-15-647, a report to 

congressional requesters.

July 2015

IRS CASE SELECTION

Collection Process Is Largely Automated, but Lacks 

Adequate Internal Controls

Why GAO Did This Study

IRS’s collection program pursues 

individuals and businesses that failed 

to fully pay their taxes or file returns.

Since 2009, the total tax debt inventory 

has increased 23 percent to $380 

billion, while collection staff declined 23 

percent. Given its large workload and 

declining resources, it is important that 

IRS make informed decisions about 

the collection cases it pursues to 

enhance compliance and confidence in 

the tax system.

GAO was asked to review IRS’s 

processes for categorizing and routing 

collection cases for potential selection. 

This report (1) describes collection

processes and trends in priority areas;

and (2) assesses how well controls 

support the mission, including applying 

tax laws with integrity and fairness to 

all. 

GAO reviewed IRS guidance, 

processes, and controls for 

categorizing and routing collection 

cases, reviewed data on results in 

priority areas, assessed whether IRS’s

controls followed Standards for Internal 

Control in the Federal Government, 

and interviewed IRS officials.

What GAO Recommends

GAO recommends that IRS take five

actions to improve collection controls, 

such as clearly defining and 

documenting program objectives and 

control procedures, and periodically 

evaluating the effectiveness of 

controls. In commenting on a draft of 

this report, IRS said it generally agreed 

with all of GAO’s recommendations.

What GAO Found

The Internal Revenue Service’s (IRS) collection program largely uses automated 

processes to categorize and route unpaid tax or unfiled tax return cases for 

potential selection. The automated Inventory Delivery System (IDS) categorizes

and routes cases based on many factors, such as type of tax and amount owed. 

Outside of IDS, collection managers set goals for closing cases in priority areas, 

such as delinquent employer payroll taxes and cases involving certain highwealth taxpayers. If goals are at risk of not being met, officials may take action to 

select additional priority cases. In recent fiscal years, the collection program has 

exceeded nearly all case closure goals for priority cases. However, because IRS 

has not identified objectives for the collection program, such as fairness, it is

difficult to assess the program’s overall effectiveness. 

GAO identified several areas where the lack of documented objectives and 

internal control deficiencies for categorizing and routing cases increase the risk 

that the collection program’s mission, including fair case selection, will not be 

achieved. Examples of key internal control steps and deficiencies follow.

Selected Key Steps in Internal Control

Program objectives and key terms are not clearly defined: Although fairness 

is specified in the collection mission statement and IDS processes can affect how 

collection cases are selected, management has not defined fairness or any other 

program or case selection objectives. IRS collection’s management referred to 

various documents as examples of program objectives. However, the documents 

were not specific enough nor codified in official IRS guidance to ensure proper 

control over the program. Without clearly defined objectives that can enhance 

program effectiveness, it is difficult for IRS to ensure it selected collection cases 

in a fair and unbiased manner.

Case categorization and routing procedures are not documented: According 

to management, case categorization and routing procedures were developed 

over several years as the result of incremental decisions and system changes. 

However, GAO found that the system and decisions were not documented, such 

as the selection of priority areas. Without documentation, it is difficult to 

determine whether processes are effective or consistently applied.

Effectiveness of processes is not routinely monitored: Despite some ad-hoc 

studies, IRS does not have procedures to periodically monitor IDS, including the 

dollar thresholds used to identify some cases for collection. Management could 

not provide GAO with justification for the thresholds because according to 

officials, they were set so long ago. Without periodic evaluations, out-of-date 

collection procedures could result in unnecessary costs or missed collections. 

Unadjusted dollar amounts could lead to inconsistent treatment of taxpayers over 

time as the real value of dollar thresholds decline over time due to inflation.

View GAO-15-647. For more information, 

contact James R. McTigue, Jr. at (202) 512-

9110 or mctiguej@gao.gov.
Page i GAO-15-647 IRS Case Selection

Letter 1

Background 3

Process for Categorizing and Routing Collection Cases Is Largely 

Automated, but Management Monitors Priority Cases to 

Achieve Program Goals 11

Insufficient Internal Controls for Case Selection Could Limit the 

Collection Program’s Ability to Carry out Its Mission 19

Conclusions 31

Recommendations for Executive Action 32

Agency Comments and Our Evaluation 32

Appendix I Objectives, Scope, and Methodology 35

Appendix II Comments from the Internal Revenue Service 38

Appendix III GAO Contact and Staff Acknowledgments 42

Table

Table 1: IRS Collections Priority Area Closures, Fiscal Years 2013 

and 2014 18

Figures

Figure 1: Small Business/Self Employed (SB/SE) Operating 

Division Organizational Chart after November 2014 

Realignment 4

Figure 2: Year-End Count of the Potentially Collectible Tax Debt 

Inventory Cases, Classified by Origin for Fiscal Years 

2009 through 2014 5

Figure 3: Cases Closed by Notice, Automated Collection System 

(ACS), and Field Collection (Field) Phases, Fiscal Years 

2012 through 2014 8

Figure 4: Collection Inventory Trends, Fiscal Years 2009 through 

2014 9

Contents
Page ii GAO-15-647 IRS Case Selection

Figure 5: IRS Full-Time Equivalents (FTEs) in the Field Collection 

and Automated Collection System, Fiscal Years 2009 

through 2014 10

Figure 6: Collection Processes for Categorizing and Routing 

Cases for Selection 12

Figure 7: Selected Key Steps in Internal Control 20

Abbreviations

ACS Automated Collection System

CSCO Compliance Services Collection Operations

ERM Enterprise Risk Management

FTE Full-Time Equivalents

GHW Global High Wealth

IDS Inventory Delivery System

IRS Internal Revenue Service

LB&I Large Business & International division

SB/SE Small Business/Self Employed division

TIN Taxpayer Identification Number

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-15-647 IRS Case Selection

441 G St. N.W.

Washington, DC 20548

July 29, 2015

The Honorable Paul Ryan

Chairman

Committee on Ways and Means

House of Representatives

The Honorable Peter Roskam

Chairman

Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

By pursuing taxpayers who either failed to fully pay taxes owed or file a 

return, the Internal Revenue Service (IRS) enhances compliance and 

confidence in the tax system. This also helps to address the tax gap—the 

estimated difference between the amount of taxes owed by taxpayers and 

the amount voluntarily paid on time. IRS estimated that for tax year 2006, 

the $450 billion gross tax gap included $46 billion in delinquent tax 

liabilities and an estimated $28 billion from unfiled tax returns.1 IRS refers 

to unpaid tax assessments of delinquent tax liabilities and unfiled tax 

returns that accumulate over time as the tax debt inventory. As of 

September 30, 2014, the total tax debt inventory was $380 billion 

(including interest and penalties), a 23 percent increase since 2009.2

During this same 6-year period, IRS’s collection staff declined by 23 

 1

This is the most recent estimate available. The most significant portion of the gross tax 

gap, $376 billion, comes from underreporting or not reporting the full tax liability on a 

timely-filed return. The $46 billion is the actual tax amounts that taxpayers reported on 

time, but did not pay on time.

2

See GAO, Financial Audit: IRS’s Fiscal Years 2014 and 2013 Financial Statements, 

GAO-15-173 (Washington, D.C.: Nov. 12, 2014). The tax debt inventory differs from the 

tax gap because the inventory is cumulative rather than annual and includes penalties and 

interest in addition to unpaid tax. Also, the debt inventory is of actual tax assessments 

while most of the tax gap—all except for the $46 billion—is an estimate of additional taxes 

owed as a result of underreporting or unfiled returns. The total tax debt inventory 

represents the cumulative amounts of unpaid tax assessments that IRS has a legal right 

to collect (i.e., the statutory 10-year limit on collections has not yet expired). Only a portion 

of the total tax debt inventory is in a status where IRS may attempt collection through 

telephone or in-person contact which, as of September 30, 2014, was $130 billion 

(representing about 17.8 million cases).

Letter
Page 2 GAO-15-647 IRS Case Selection

percent (from 10,546 to 8,139 full-time equivalents (FTE)).3 Given the 

collection program’s large workload and limited resources, IRS must 

make informed decisions about which cases to pursue for collection 

action.

Along with former Representative Dave Camp, in his role as Chairman of 

the House Committee on Ways and Means, you asked us to review the 

processes IRS uses to select collection cases for potential enforcement 

action.4 Our work focused on collections at the enterprise level and on the 

Inventory Delivery System (IDS), which is the primary system IRS uses to 

categorize and route cases to be worked in collection functions. This 

report (1) describes IRS’s processes for categorizing and routing 

collection cases, trends in priority areas, and key process changes for 

fiscal years 2012 through 2014; and (2) assesses how well the processes 

for case selection support the collection program’s mission, including 

applying tax laws with integrity and fairness to all.

For the first objective, to describe IRS’s processes for categorizing and 

routing collection cases, we reviewed IRS documents describing the 

processes and systems at the enterprise level, including program 

management reports and presentations prepared by IRS staff. We also 

analyzed system rules to determine how they affect case categorization 

and routing. We analyzed information about the collection program’s 

statistical methods and procedures used in the modeling process, a 

statistical method that predicts likely case outcomes. We also visited the 

IRS office in St. Paul, Minnesota, that is responsible for building and 

maintaining the models. We analyzed documents to learn how the models 

were used and how they affect case categorization and routing for case 

selection. To describe trends in priority areas, we analyzed IRS case 

priorities and closure data in management reports for fiscal years 2013

 3

These figures are for IRS staff in collection programs to contact taxpayers by telephone 

and in person, and do not include other collections FTEs.

4

In 2014, IRS closed 7.5 million cases in its telephone and in-person enforcement 

programs. In this report, we generally use the term “cases” when referring to the units of 

work for IRS’s collections process. IRS generally reports its collections data in terms of 

number of “modules.” A module is a record of tax data for a specific taxpayer covering one 

tax period (such as a year or quarter). For example, a module could be of an unpaid 

balance from one tax return or an unfiled return from one period. Some taxpayers may 

have only one module (such as one unpaid debt from one return) but other taxpayers may 

have several modules (such as balances due from multiple returns, or multiple unfiled 

returns). 
Page 3 GAO-15-647 IRS Case Selection

through 2014. To describe key process changes, we interviewed IRS 

officials, reviewed a study that resulted in process changes, and analyzed 

data on the application of various IDS business rules for calendar years 

2011 through 2014.

For the second objective, we compared the processes identified above to 

the relevant federal standards for internal control.5 We interviewed 

collection officials, including the Director of Collection, about the mission, 

objectives, and internal controls of the collection program and IDS. We 

also reviewed how case routing rules and models are managed, including 

the extent to which they were evaluated and revised. We then assessed 

whether the procedures met federal internal control standards on 

establishing objectives, identifying and assessing risks, establishing 

controls to address risks, and monitoring controls. For each objective, we 

interviewed IRS headquarters managers in the offices of Enterprise 

Collection Strategy, Campus Compliance Services, and Field Collection.

We determined that the data used in our analysis were sufficiently reliable 

for the purposes of this review. Our data reliability assessment included 

reviewing relevant documentation, interviewing knowledgeable IRS 

officials, and manual testing of the data to identify obvious errors or 

outliers. For additional details on our scope and methodology, see 

appendix I.

We conducted this performance audit from August 2014 to July 2015 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe the 

evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

The mission of the collection program is to collect delinquent taxes and 

secure delinquent tax returns through the fair and equitable application of 

 5

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999). GAO, Standards for Internal Control in the Federal 

Government, GAO-14-704G (Washington, D.C.: September 2014). The new standards 

are effective beginning fiscal year 2016. We did not use the new standards to evaluate the 

current collection program, but as context in preparing for an effective internal control 

system in the future. 

Background
Page 4 GAO-15-647 IRS Case Selection

the tax laws, including the use of enforcement tools when appropriate. 

The collection program’s mission also includes educating its customers to 

facilitate future compliance, thereby protecting and promoting public 

confidence in the American tax system.

In November 2014, IRS reorganized its collection program to produce 

greater efficiencies, reduce redundant efforts, streamline decision 

making, and improve customer service. Prior to the reorganization, the 

collections program was split between the Small Business/Self Employed 

(SB/SE) and Wage & Investment divisions. IRS’s collections operations 

are now organized under one manager, the Director of Collection in 

SB/SE, as shown in figure 1.

Figure 1: Excerpt of Small Business/Self Employed (SB/SE) Operating Division Organization after November 2014 

Realignment
Page 5 GAO-15-647 IRS Case Selection

The tax debt inventory generally originates from one of three sources: (1) 

a tax return with a balance due; (2) an IRS program to collect taxes from 

individuals or businesses that did not file a return (nonfilers); or (3) an IRS 

action on a tax return, such as an audit.6 As shown in figure 2, the source 

of assessments in the potentially collectible tax debt inventory has been 

roughly even among the three categories over the last 6 fiscal years.7

Overall, the total tax debt inventory has been trending upward.

Figure 2: Year-End Count of the Potentially Collectible Tax Debt Inventory Cases, 

Classified by Origin for Fiscal Years 2009 through 2014

 6

Other IRS actions include document matching processes where IRS compares 

information on a tax return to third-party information such as a Form W-2.

7

The potentially collectible inventory is tax debt that IRS identifies as having the most 

potential for successful application of collection tools and resources. As discussed further 

on, this inventory includes cases in the three phases of the collection process and 

selected shelved cases.
Page 6 GAO-15-647 IRS Case Selection

Notes: Data are counts of modules. A module is a record of tax data for a specific taxpayer covering 

only one tax period (such as a year or quarter). The figure excludes approximately 50,000 modules 

under the category of “other” since they would not be visible in the figure.

a

Balance due includes debts resulting from taxpayers filing a tax return, but not paying in full the 

amount due.

b

IRS action generally includes debts that were the result of an IRS action, such as an audit.

c

Nonfilers generally originate as a result of a taxpayer not filing a tax return and IRS preparing a 

substitute return that resulted in a balance due.

IRS has a three-phased process for collecting unpaid tax debts.8

• Notice Phase: IRS sends an automatically-generated series of letters 

to the taxpayer about unpaid debts or delinquent returns. The point of 

these letters is to prompt a payment by the taxpayer or a response if 

the taxpayer disagrees with the balance due or is unable to pay the 

amount owed.

• Automated Collection System (ACS): IRS’s system attempts to make 

telephone contact with the taxpayer. If successful, ACS staffs discuss 

the debt with the taxpayer to prompt a payment or set up a payment 

plan (which IRS calls an installment agreement). ACS staff may also 

take enforcement actions, such as levying financial assets or filing a 

lien against the taxpayer’s property.

• Field Collection (Field): IRS revenue officers attempt in-person 

contact with taxpayers to prompt a payment or take enforcement 

action such as those described above with ACS.

According to IRS officials, IRS designed the collection program to resolve 

taxpayers’s debt at the earliest possible time and to use the least costly 

process. We previously reported that the notice phase provides IRS with 

an opportunity to maximize collections while minimizing costs in pursuing 

tax debts.9 Notices are computer generated and mailed to taxpayers with 

little direct involvement by IRS employees. If taxpayers then take action to 

pay or otherwise resolve their debts, collections can occur with relatively 

little additional IRS investment. When individuals with tax debts do not 

respond to notices, IRS may route the case to either ACS or the Field for 

 8

We previously reported on the process in GAO, Tax Debt Collection: IRS Has a Complex 

Process to Attempt to Collect Billions of Dollars in Unpaid Tax Debts, GAO-08-728

(Washington, D.C.: June 13, 2008).

9

GAO, Tax Debt Collection: IRS Needs to Better Manage the Collection Notices Sent to 

Individuals, GAO-09-976, (Washington, D.C: Sept. 30, 2009).
Page 7 GAO-15-647 IRS Case Selection

collections. While both of these processes are more labor intensive and 

expensive than the notice process, costs for routing a case to ACS or the 

Field differ significantly. Based on data from fiscal years 2010 through 

2014, IRS’s Office of Cost Accounting determined that it cost roughly 

$200 to close a case in ACS and about $2,500 to close a case in the 

Field.10 According to IRS officials, Field case closures are more 

expensive, in part, because the cases are generally more complex and 

are handled by revenue officers who are at higher pay grades than ACS 

employees.

With few exceptions, every collection case goes through the notice 

phase. Of the total collections cases that were closed in fiscal year 2014, 

about 60 percent were closed in the notice phase (see figure 3). Closed 

cases are removed from the active inventory and may not include the 

collection of taxes. We reported on the notice phase in 2009.11

 10We did not assess the reliability of the cost data provided by the Office of Cost 

Accounting.

11GAO-09-976.
Page 8 GAO-15-647 IRS Case Selection

Figure 3: Collection Cases Closed by Notice, Automated Collection System (ACS), 

and Field Collection (Field) Phases, Fiscal Years 2009 through 2014

Note: Data are counts of modules and percentages are of modules closed. Not depicted are modules 

closed by Compliance Services Collection Operations (CSCO), which closed around 1 million to 2 

million annually. A module is a record of tax data for a specific taxpayer covering only one tax period 

(such as a year or quarter). Closed modules are removed from the active inventory and may not 

include the collection of dollars owed. Data are “net” module dispositions of balances due and unfiled 

returns, excluding any deferred or shelved modules.

Since fiscal year 2009, IRS’s year-end collection inventory has increased 

by 27 percent (14 million to 17.8 million cases). During the same period, 

IRS has closed fewer cases, 9.6 million closed in fiscal year 2009 

compared to 8.3 million closed in fiscal year 2014, a 13 percent difference 

(see figure 4). As previously noted, cases that are not resolved in the 

notice phase may be worked in ACS or the Field, in both functions, put on 

hold (known as a shelved case), or not worked at all. According to 

collection officials, shelved cases are generally not worked unless IRS 

later identifies additional tax debts or unfiled returns for a given taxpayer.
Page 9 GAO-15-647 IRS Case Selection

Figure 4: Collection Inventory Trends, Fiscal Years 2009 through 2014

Notes: Data are counts of modules. A module is a record of tax data for a specific taxpayer covering 

only one tax period (such as a year or quarter).

a

Closed modules are dispositions of balances due and unfiled returns, closed primarily by the 

Automated Collection System and Field Collection.

b

Shelved modules include unworked balances due or unfiled returns indefinitely set aside (subject to 

statute of limitations).

c

Ending inventory is the total number of modules assigned to the Automated Collection System or 

Field Collection, or awaiting assignment in the Field Collection queue as of September 30.

During the past several years, IRS’s collection staff has been reduced 

significantly. At the end of fiscal year 2014, IRS had 27 percent fewer 

collection staff in ACS and the Field than it had in fiscal year 2010 (from 

11,210 full-time equivalents (FTE) to 8,139 FTEs) (see figure 5).
Page 10 GAO-15-647 IRS Case Selection

Figure 5: IRS Full-Time Equivalents (FTEs) in the Field Collection (Field) and 

Automated Collection System (ACS), Fiscal Years 2009 through 2014
Page 11 GAO-15-647 IRS Case Selection

IRS uses an automated process to categorize and route most collection 

cases for potential selection. Figure 6 shows how the automated 

Inventory Delivery System (IDS) fits into the collection process. IDS’s key 

functions are to analyze cases to (1) identify and filter out cases that 

should not be pursued further (i.e., shelved), (2) categorize some cases 

as high risk,12 and (3) determine whether cases should be routed to either 

ACS or the Field to potentially be worked.13

 12As previously discussed, shelved cases are those that IRS sets aside and does not take 

further action to attempt collection, usually for an indefinite period (subject to the 10-year 

statute of limitations). However, such cases may later be reactivated or subject to 

systemic collection action, such as when IRS retains all or a portion of a taxpayer’s tax 

refund to help satisfy an unpaid tax debt. The various types of cases IRS shelves are 

discussed later. As it analyzes cases for routing, IDS assigns cases with a high-risk or 

nonhigh-risk designation, which influences how the case will be routed. In general, cases 

where taxpayers owe large dollar amounts or cases involving delinquent payroll taxes are 

high risk. Final case prioritization for selection takes place in ACS or Field inventory 

management systems, where cases are rank ordered in high-, medium-, and low-risk 

categories, or when Field group managers consider cases for assignment to revenue 

officers.

13IDS has several internal processes that support the three functions cited. For example, 

IDS “grades” cases. Grading determines the complexity of a case for potential assignment 

to a revenue officer in the Field. Revenue officers with higher skill levels and expertise are 

assigned more complex cases.

Process for 

Categorizing and 

Routing Collection 

Cases Is Largely 

Automated, but 

Management 

Monitors Priority 

Cases to Achieve 

Program Goals

Automated Inventory 

Delivery System 

Categorizes and Routes 

Cases to Potentially Be 

Worked Based on 

Numerous Factors
Page 12 GAO-15-647 IRS Case Selection

Figure 6: Collection Processes for Categorizing and Routing Cases for Selection

Note: The Field queue holds cases for potential selection in the Field for assignment to a revenue 

officer. Resolved cases are those that IRS has assigned to one of the collection phases, resulting in a 

filed return or debt being fully or partially paid (such as in an installment agreement or offer-incompromise), abated, or designated as currently not collectible because of circumstances such as 

taxpayer hardship or not being able to contact the taxpayer. Cases can also be resolved without IRS 

collections actions if, for example, the taxpayer pays the amount due or files the missing return while 

the case is in the notice phase or in the Field queue awaiting assignment.

IDS considers hundreds of factors about a case while carrying out two 

activities that facilitate closures, categorization, and routing:

• Modeling is a statistical process that analyzes the results of 

previously resolved cases to predict likely case outcomes. In IDS, this 
Page 13 GAO-15-647 IRS Case Selection

process helps determine if a case should be shelved if a model 

predicts it would not be collectible.14

• Risking determines whether a case is high risk and influences caserouting and shelving decisions. For example, cases where a taxpayer 

owes a large amount of money would be considered high risk and 

would be a priority for selection.

IDS uses the outputs from the risking process in conjunction with 

hundreds of routing rules to route cases for further collections actions in 

ACS or the Field. Some common factors considered in IDS routing rules 

include dollar amount owed, type of tax owed, type of taxpayer, and age 

of the accounts. Other factors are also considered and can lead to cases 

not being processed for further collection actions. For example, routing 

rules test whether the taxpayer is in bankruptcy. IRS suspends taking 

further collections actions (like levying a taxpayer’s wages or putting a 

lien on property) if the taxpayer is in bankruptcy or litigation.

If there is not enough information to contact or locate a taxpayer, IDS may 

route cases to the Locator Services System, which researches taxpayer 

addresses and telephone numbers. This may occur if taxpayer 

correspondence has been returned as undeliverable or if IRS does not 

have a valid telephone number for the taxpayer.

IDS routes cases for further collections actions to ACS or the Field, or 

shelves the cases for no action. Based on our analysis of IRS data, IDS 

routes most cases (about 70 percent) to ACS.15 About 25 percent of 

cases go to the Field, and nearly all of them are placed in the Field queue 

for potential assignment to a revenue officer; only a very small 

percentage are routed directly to the Field for immediate assignment. IDS 

shelves about 5 percent of cases based on certain characteristics 

described below.

The IDS system can shelve cases by removing them from the Field 

queue inventory and indefinitely suspending (subject to the 10-year 

 14ACS and, to a lesser extent, the Field inventory management systems also use IDS 

model outputs to prioritize cases routed to them.

15Based on discussions with IRS officials, it is not possible to calculate precise figures or 

percentages on IDS case routing decisions. See appendix I for further discussion of how 

we estimated these general percentages.
Page 14 GAO-15-647 IRS Case Selection

statute of limitations) them for further collection action. As previously 

noted in figure 4, IRS shelved about 2 million cases in each of the past 2 

fiscal years. Most of these cases were shelved by the IDS system.16 IDS 

shelves some cases upon receipt and others after they have been routed 

to ACS or the Field for potential collection action but were not been 

resolved.

Cases shelved by IDS generally fall into three categories:

• cases with a low dollar amount owed or where IRS is unable to 

contact the taxpayer or identify a levy source, or a combination of 

these factors;

• cases predicted as unproductive by IDS modeling; and

• cases that have not been assigned to a revenue officer after 52 weeks 

of waiting in the Field queue.

When a case is shelved, IRS posts a closing transaction code to the 

taxpayer’s account indicating that the case conditions noted above apply. 

However, these cases are not necessarily closed permanently. According 

to officials, IRS may reactivate these cases for collection actions if, for 

example, IRS later identifies another tax debt or unfiled return for the 

taxpayer.

IDS shelves the cases in the first and second categories as soon as they 

leave the notice phase, rather than routing them to a downstream 

collections function. Of shelved cases in the third category, some were 

originally assigned to the Field queue by IDS, and others were transferred 

there after ACS was unable to resolve them within a given period of time. 

IDS regularly reevaluates cases that have been sitting in the Field queue 

for 52 weeks. Provided there are no prohibitions on shelving that type of 

case, IDS shelves and removes the cases from active collections 

inventory.17

 16Other modules were shelved by collection functions such as ACS or the Field; for 

example, according to IRS Collection Activity Reports, ACS shelved approximately 

500,000 modules in fiscal year 2014. 

17Current IDS rules prohibit shelving cases identified by IDS as “high risk” (mostly large 

debts owed and payroll taxes) and cases involving federal employees or retirees. These 

cases will remain in active inventory until resolved. 
Page 15 GAO-15-647 IRS Case Selection

IRS’s executives set priorities for closing cases in certain priority areas. 

Since fiscal year 2012, IRS’s collection executives have developed work 

plans that establish which areas are priorities. IRS managers and 

executives establish goals for the number of cases to close, and then 

throughout the year, monitor progress toward the goals. Closures in 

priority areas account for roughly 17 percent of all collection case 

closures in recent years. Priority cases are identified in the collection 

program’s annual program letter, which communicate plans and priorities 

for the year.

Most collections cases in these priority areas are already categorized as 

high risk by IDS, ACS, and Field inventory management systems.

However, according to IRS officials, if periodic monitoring indicates that 

goals may not be met, collection headquarters and program staff 

collaborate to determine if they should take action to select and work 

priority cases in sufficient numbers to achieve case closure goals.

The seven priority areas for fiscal year 2015 are:18

• Delinquent employer payroll tax cases: Cases where employers have 

not complied with requirements to withhold and pay federal 

employment taxes imposed on wages paid to their employees.

• Large dollar account cases: Cases with high dollar amounts due. 19

• Global High Wealth (GHW) cases: IRS developed a list of GHW 

individuals who have histories of balance dues and wealth in the tens 

of millions of dollars. This list is developed by IRS’s Large Business & 

International (LB&I) division.

• Return preparer penalty cases: Cases where IRS has imposed certain 

civil penalties on a person or business that has violated laws related 

to preparing tax returns.

 18IRS identifies a total of eight case priorities in their annual work plan; however we are 

not including the Withholding Compliance (WHC) priority in this report. The WHC program 

establishes accurate tax withholdings between taxpayers and their employers. WHC 

cases are not balance due cases or processed by IDS routing rules. These cases are 

worked separately by CSCO, a division which primarily handles taxpayer mail 

correspondence and is outside the scope of our audit.

19We are not reporting the actual dollar amount that IRS uses to define cases as “large 

dollar cases” because IRS considers this information to be sensitive. 

Management Identifies 

and Monitors Cases in 

Priority Areas
Page 16 GAO-15-647 IRS Case Selection

• Federal employees and retirees (Federal Employee/Retiree 

Delinquency Initiative, or FERDI): FERDI cases were established to 

promote federal tax compliance among current and retired federal 

employees.

• High-income nonfilers taxpayers: These cases include taxpayers with 

estimated high incomes who have not filed tax returns.

• Large business taxpayers with delinquent accounts: LB&I operating 

division taxpayers, which may include corporations and partnerships 

with assets in the tens of millions of dollars.

IRS officials told us that delinquent employer payroll taxes and largedollar account cases have been priority areas for several years. IRS 

officials explained that nonpayment of employer payroll taxes can involve 

“pyramiding,” or instances where a business withholds taxes from its 

employees, but intentionally fails to remit them to IRS.20 Within the 

inventory management rules for ACS and the Field, payroll tax cases are 

assigned a high priority so that actions can be taken quickly to address 

noncompliance against payroll offenders to help prevent pyramiding.21

Other priorities like GHW and return preparers were recently added to 

align collections activities with other IRS strategic goals. For example in 

2009, IRS created a GHW industry group within LB&I to centralize and 

focus IRS compliance expertise involving high-wealth individuals and their 

related entities (we previously reported on GHW cases).22 LB&I requested 

that collections prioritize GHW cases because, if the unpaid tax debts 

 20According to a 2004 IRS alert on questionable employment tax practices 

(http://www.irs.gov/uac/IRS-Warns-Businesses,-Individuals-to-Watch-for-QuestionableEmployment-Tax-Practices), pyramiding often results from a lack of profit or capital for 

operating costs. So, the business owner uses payroll trust funds to pay other liabilities. 

The quarterly employment tax liabilities accumulate (or “pyramid”) until the employer has 

little hope of catching up. Businesses involved in pyramiding may shut down or file for 

bankruptcy and then start a new business under a different name, which restarts the 

cycle.

21In 2008, we reviewed IRS’s processes and procedures to prevent and collect unpaid 

payroll taxes. In that report, we recommended that IRS develop processes and 

performance measures to monitor collection actions against egregious payroll tax 

offenders. GAO, Tax Compliance: Businesses Owe Billions in Federal Payroll Taxes, 

GAO-08-617 (Washington, DC: July 25, 2008; corrected Dec. 19, 2008). 

22GAO, Tax Gap: IRS Can Improve Efforts to Address Tax Evasion by Networks of 

Businesses and Related Entities, GAO-10-968 (Washington, DC: Sept. 24, 2010).
Page 17 GAO-15-647 IRS Case Selection

identified in such programs are not effectively collected, the deterrence 

effect of the audits themselves could be greatly diminished. To track the 

number of GHW taxpayer cases that are closed as compared to goals, 

collection staff use a list of Taxpayer Identification Numbers (TIN) of 

GHW taxpayers developed by LB&I. According to IRS officials, collection 

staff compares the list of TINs to cases in active collection inventory to 

ensure all cases are worked and closed.

While IRS automatically prioritizes most of the cases that would be 

covered by the seven priority areas for selection, there are times when 

IRS managers take actions to manually prioritize cases to ensure the 

agency achieves its goals. Cases in four priority areas (payroll taxes, 

large-dollar accounts, high-income nonfilers, and return-preparer 

penalties) are generally identified as “high risk” by IDS and assigned high 

priority by ACS’s and the Field’s inventory management systems.

Similarly, IDS automatically routes all FERDI cases involving delinquent 

IRS employees directly to the Field. Non-IRS employee FERDI cases are 

automatically routed to a dedicated ACS unit, and the cases are assigned 

the highest priority within ACS’s inventory management system. In the 

remaining two areas—large business and GHW—IRS officials told us 

these taxpayers typically owe large dollars and would similarly be 

deemed high risk by IDS. However, IRS officials also said that they 

periodically search available collections inventory for large business or 

high-wealth individuals with unpaid balances when goals are at risk of not 

being met.

During fiscal years 2013 and 2014, IRS exceeded nearly all of its goals 

for collections in its priority areas. As shown in table 1, in fiscal year 2014, 

IRS exceeded its targets for closing payroll modules by 11 percent, and 

its targets for closing large dollar modules by 16 percent. Payroll cases 

account for most of the priority cases tracked. Other priority areas such 

as taxpayer cases involving large businesses, high-income nonfilers, and 

federal employees exceeded their respective targets by about 20 to 30 

percent. IRS collections management reports for the first 6 months of 

fiscal year 2015 also project that IRS will meet or exceed its targets for six 

of its seven collection priorities by the end of fiscal year 2015.

IRS Exceeded Case Closure 

Goals for Priority Areas
Page 18 GAO-15-647 IRS Case Selection

Table 1: IRS Collections Priority Area Closures, Fiscal Years 2013 and 2014

2013 2014

Priority areas cases Closures

Percent above or 

below plan Closures

Percent above or 

below plan

Delinquent employer payroll taxa 955,188 -2% 883,140 11%

Federal employee and retiree taxpayerb 88,905 -2% 86,892 33%

Large dollar amounta 62,043 18% 56,774 16%

High income nonfiler taxpayerb 40,984 -2% 44,859 33%

Large business taxpayerb 9,554 22% 9,793 24%

Global high wealtha 5,430 32% 5,088 -4%

Return preparer penaltya 603 -7% 595 16%

Source: GAO analysis of IRS data. | GAO-15-647

Note: IRS considers results up to -2.9% below the plan to still be “within plan.”

a

Data are dispositions of modules. A module is a record of tax data for a specific taxpayer covering 

only one tax period (such as a year or quarter). For the global high wealth category, data include 

closures during the notice phase. Where systems allow, data are “net” dispositions to generally 

exclude shelved cases.

b

Data are dispositions of taxpayers. Individual taxpayers in the collection process on average (both 

priority and non-priority) have two modules; business taxpayers on average have four modules.

In recent years, IRS made two key changes to IDS routing rules for two 

types of high-priority cases—(1) unpaid payroll tax debts and (2) what 

IRS calls “large-dollar cases.” As a result, significant numbers of these 

types of cases have been routed to ACS rather than the Field queue.

IRS changed payroll case routing rules in October 2011 after a 2010 

study, which found that about 1 million payroll tax cases were sitting 

unworked in the Field queue, and were unlikely to be selected to be 

worked by revenue officers. 23 At the time of the study, most payroll cases 

were assigned to the Field queue based on routing rules that tested the 

total dollar amount owed. Generally, only cases where the business owed 

less than a few thousand dollars were routed to ACS, and all other payroll 

tax cases were sent to the Field queue. The study recommended

increasing the dollar amount used for splitting payroll cases between ACS 

and the Field so more cases would be routed to ACS where they would 

be more likely to be worked. Once assigned to ACS, these payroll cases 

would then be assigned high priority within ACS’s inventory.

 23Internal Revenue Service, IRS Collection Process Study: Final Report (Sept. 30, 2010). 

IRS Changed Collection 

Processes to Route More 

of Two Types of HighPriority Cases to ACS
Page 19 GAO-15-647 IRS Case Selection

Regarding the second key change, in October 2012, IRS cancelled a 

large-dollar case routing rule that was sending all “large-dollar” taxpayer 

cases to the Field queue. IRS had previously decided to send all “largedollar” cases to the Field in response to recommendations in the same 

2010 study mentioned above.24 IRS officials told us they cancelled the 

rule because the Field did not have enough resources to work the new 

influx of large dollar cases. By cancelling this rule, IRS shifted many large 

dollar cases to ACS. Once assigned to ACS, these large dollar cases 

were generally assigned the highest priority in ACS’s inventory system. A 

much smaller number of very large-dollar cases were still reserved for the 

Field, and assigned the highest priority within the Field’s inventory.

IRS officials told us that it is not possible to quantify precisely how many 

collections cases were routed differently because of the rule changes. We 

analyzed IRS routing rule data and estimate that, as a result of the 

changes, several hundred thousand more payroll and large dollar cases 

were routed to ACS. IRS officials agreed with our estimate.

Having effective internal control is a fundamental component of managing 

an organization. As set forth in Standards for Internal Control in the 

Federal Government, also known as the “Green Book,” internal control 

comprises the plans, methods, policies, and procedures used to meet an 

entity’s mission, goals, and objectives.25 Internal control helps agency 

program managers achieve desired results and provide reasonable 

assurance that program objectives are being achieved through, among 

other things, effective and efficient use of agency resources. Further, an 

effective internal control system helps agencies adapt to shifting 

environments, evolving demands, changing risks, and new priorities.

Figure 7 illustrates selected key steps in internal control.

 24IRS’s 2010 Collection Process Study noted that high-dollar tax modules for delinquent 

business taxes (Business Master File) made up only 0.5 percent of all new modules in the 

notice stream; they represented 65 percent of the total value of new BMF inventory in 

fiscal year 2009. Although the study’s original recommendation was focused on 

businesses owing large-dollar amounts, IRS changes its routing rules in 2011 so that both 

business and individual large-dollar cases were routed to the Field queue.

25GAO/AIMD-00-21.3.1 and GAO-14-704G.

Insufficient Internal 

Controls for Case 

Selection Could Limit 

the Collection 

Program’s Ability to 

Carry out Its Mission
Page 20 GAO-15-647 IRS Case Selection

Figure 7: Selected Key Steps in Internal Control

Internal control standards can serve as tools to help IRS management 

meet the collections program’s mission of applying the tax law with 

integrity and fairness. IRS has an internal control framework in place. 

However, when we compared IRS’s processes to standards in the Green 

Book, we found that they were deficient in some areas, thereby 

increasing the risk that the collections program may not meet its stated 

mission.
Page 21 GAO-15-647 IRS Case Selection

Internal control standards call for management to set program objectives 

that align with an entity’s mission, strategic plan, goals, and requirements 

of applicable laws and regulations. Clearly defined objectives can 

enhance the effectiveness and efficiency of a program’s operations, and 

are a prerequisite for risk assessment. Documenting objectives allow 

agency officials and staff to understand the organization’s purpose 

consistently. IRS’s Chief Risk Officer agreed that clearly articulated 

program objectives are essential for effective risk assessments and 

should be documented. He provided us with documentation from IRS’s 

Enterprise Risk Management Office (ERM) that also outlined this process.

IRS has not defined clear objectives for the collection program, IDS, or 

any other parts of its enterprise collection case selection process. We did 

not identify any documented objectives, and collection officials had 

difficulty articulating the objectives of the program. When we questioned 

IRS officials about possible program objectives, we received multiple and 

conflicting answers.

During our discussion with IRS collection officials, they referred to the 

collection mission statement, contents of the annual program letter, and 

program performance measures as potential examples of program 

objectives. However, the mission statement, while summarizing the 

overall purpose and functions of collection, is not intended to provide 

direct program guidance or be used for internal control.26 Further, the 

annual program letter does not identify program objectives, but instead 

identifies distinct projects or activities (including the seven priority areas) 

grouped underneath IRS’s broad strategic goals. Performance measures 

do not serve as objectives, but rather should be derived from objectives. 

Having clear objectives, especially as they relate to the seven priority 

 26IRS Collection’s mission statement is: “To collect delinquent taxes and secure 

delinquent tax returns through the fair and equitable application of the tax laws, including 

the use of enforcement tools when appropriate, provide education to customers to enable 

future compliance, and thereby protect and promote public confidence in the American tax 

system.”

IRS Has Not Clearly 

Defined Objectives or Key 

Terms, Such as Fairness, 

for the Collection Program 

and Case Selection 

Process

Internal control standard: define objectives 

Program objectives are to be clearly defined in measurable terms to enable the 

design of internal control for related risks. Specific terms should be fully defined 

and clearly set forth so they can be easily understood at all levels of the entity.
Page 22 GAO-15-647 IRS Case Selection

areas, is important to support management decisions about high priority 

areas. For example, collection executives cited GHW and return preparer 

penalty cases as high priority areas to enhance the deterrent effect of the 

respective completed audits and other IRS compliance initiatives. Without 

clear objectives, it is difficult to know whether any other types of audits 

warrant priority oversight and attention in collection.

In reviewing IRS’s strategic plan, collection program documents, and the 

collection case selection processes, and in discussion with IRS officials, 

we identified language that IRS officials could consider using to articulate 

clear program objectives. Although we identified potential objectives 

language in various program documents, none of the documents 

identified them as such. Potential objectives include:

• collect the greatest amount of potentially collectible debt,

• ensure fairness by selecting cases to achieve “coverage” across all 

types of taxpayers and encourage voluntary compliance,

• act promptly to resolve taxpayer filing or payment compliance,

• make the best use of resources by matching cases with the 

appropriate IRS resources,

• reduce taxpayer burden, and

• support IRS’s strategic compliance initiatives, such as to collect on tax 

debts identified by audits intended to address particular compliance 

problem areas.

IRS also has not clearly defined important terms such as fairness.

Although fairness is in the collection mission statement and IDS 

processes may affect how collection cases are selected, collection 

officials had not defined fairness or established it as a program or case 

selection objective. A clear definition of fairness is needed because 

program managers provided us with differing explanations of how to 

achieve fairness in case selection. An IRS official responsible for case 

selection functions defined fairness as when taxpayers with similar case 

characteristics—such as the amount or type of tax owed—have an equal 

chance of being selected for collection action. However, it is not clear 

from this definition which case characteristics should be taken into 

consideration and which should not when selecting cases for collection. 

Others have suggested that fairness means ensuring that all taxpayers 

are pursued to the same degree.
Page 23 GAO-15-647 IRS Case Selection

Another collection official discussing fairness said that if the public had 

information on IRS’s methods for prioritizing and routing cases for 

selection, they would agree that the process was fair. This suggests that, 

in addition to comparing chances of selection, the public’s perception of 

fairness is an important consideration. Collection program managers 

stated that their processes were inherently fair and that they did not see 

the need to define fairness. These varying views illustrate that without 

fairness being clearly defined and established as a program or case 

selection objective, however, IRS management cannot adequately 

determine if the collection process is being implemented fairly or in an 

unbiased manner. Moreover, officials cannot systematically identify and 

address risks to help ensure that fairness is continually achieved, leaving 

the agency vulnerable to selecting taxpayer’s collection cases in an 

inconsistent manner.

Another important and widely used term—risk—is also missing a clear 

definition and officials we spoke with had a variety of ideas as to its 

meaning. Officials said that a key concept in IDS and other case selection

processes is to give higher priority to “high risk” or “high compliance risk”

cases. However, program managers have not clearly defined risk. As we 

attempted to clarify this, we asked if risk pertained to the amount of debt 

due. A program manager responded that risk does not just entail the 

amount due and noted that unfiled tax returns do not have a definite 

amount due, but IRS still considers them important. Another IRS official 

said “risking” included the concept of tradeoffs. A collection program 

manager explained that the term risking was established during the term 

of a previous IRS commissioner who had promoted the concept as used 

in the private sector, where it generally refers to decision making based 

on data analytics or modeling. However, the manager said IRS’s use of 

the term is not similar to the private sectors, but rather refers to using 

case variables and thresholds for prioritizing and routing cases. In 

reviewing the types of cases IRS gives high priority—including payroll tax 

cases—we found that the concept of compliance risk may also include 

the potential future revenue loss, the number of taxpayers affected, 

and/or the likelihood that tax debts, if allowed to accumulate, might not be 

collectible in the future. Further, risking at the enterprise level seems to 

be different than risking in ACS and the Field; IDS risking refers to 

processes that identify only high priority cases, whereas in ACS and Field 

risking refers to processes that rank order cases in high-, medium-, and 

low-priority categories. These various concepts of risk demonstrate that 

the term is not clearly or consistently defined or understood even though 

the term is widely used by program officials and program documents.
Page 24 GAO-15-647 IRS Case Selection

Without clear objectives for the program and case selection processes 

codified in official IRS guidance—including definitions for key terms like 

fairness and risk—IRS is hindered in its efforts to ensure the program is 

achieving its mission, including ensuring that taxpayers are treated 

fairly—should fairness become a program objective. Further, the lack of 

clear, widely understood objectives can complicate program 

management, as assessing risks, developing procedures to respond to 

risks, and monitoring program controls cannot be performed easily or with 

clarity.

Risk assessment is the identification and analysis of relevant risks 

associated with achieving program objectives and forming a basis for 

determining how risks should be managed. Once risks have been 

identified, they should be analyzed for their possible effect. Risk analysis 

generally includes estimating the risk’s significance, assessing the 

likelihood of its occurrence, and deciding how to manage the risk by 

determining what actions should be taken, if any.

The first and most critical step is risk identification. Management should 

have well-documented procedures for regularly identifying internal and 

external risks to program objectives and procedures, such as in shortand long-term forecasting and strategic planning. Procedures should 

include how internal risks are to be identified, such as risks resulting from 

downsizing of agency operations and personnel or redesigning business 

processes. Similarly, procedures should include how external risks—such 

as economic changes or changing needs or expectations of the 

Congress, agency officials, and the public—are to be identified.

Risk identification and assessments are not new to IRS. IRS has relied 

upon many long-standing processes and procedures, and conducted a 

variety of program reviews to identify and address risks. However, the 

agency’s overall approach to risk management became more focused in 

2013, when it established the Enterprise Risk Management Office (ERM) 

process. IRS implemented ERM, among other reasons, to serve as an 

early warning system to allow the agency to identify emerging challenges 

and address them before they affect operations. According to IRS’s Chief 

IRS Has Taken Initial 

Steps to Identify Risks, but 

Additional Guidance 

Needed to Address 

Program Vulnerabilities

Internal control standard: assess risks to program objectives

Management is to comprehensively identify internal and external risks and 

determine relative risk rankings on a scheduled and periodic basis. 
Page 25 GAO-15-647 IRS Case Selection

Risk Officer, the goal is to embed risk management principles and 

practices into the daily operations of the business units and integrate 

long-standing processes into the new, more holistic ERM approach.

Officials said the first year of ERM focused on enterprise-level risks that 

include potential major reputational risks to IRS. The second year of ERM 

has focused on risk at the operating division level. For example, in April 

2015, Small Business/Self Employed (SB/SE) (the operation division that 

includes the collection program) completed its first division-level risk 

register. A risk register is a list of risks and related information, including 

strategies for mitigating them. To provide input into the SB/SE risk 

register, collection officials told us that they decided to use a “bottom up”

approach whereby potential risks would be identified and elevated by 

frontline staff and other lower-level staff who may be aware of risks at an 

operational level. Future years of ERM will focus more on risks at the 

program level. Collection officials said they have started trying to integrate 

risk management into their program’s daily operations. They also noted 

that in recent months they have been developing processes and 

documentation for the program’s risk management strategy and 

establishing the infrastructure for its risk management process.

The risk management guidance collection used to provide input to the 

SB/SE risk register focused on how to assess risks identified at the 

employee and mid-management levels. Such methods of identifying risks 

would be useful for the bottom-up approach collection officials described 

to us. Although the guide encouraged managers and executives to selfidentify risks—ostensibly to their program objectives for which they are 

responsible—the guide did not have information on how managers are to 

identify such risks. Collection management would need such information 

when determining the priority areas for a given year. For example, if 

fairness was defined as a key program objective, then management 

would want to define the risk associated with ensuring the priority cases 

were selected in a fair way. This underscores that risk assessments 

should be based on program objectives. Without clear objectives, as 

discussed earlier, comprehensive assessments of risks are difficult to 

conduct.

Collection program officials said that they had identified risks using 

processes and guidance established by ERM. Although officials said that 

managers were involved in identifying risks, they did not have 

documentation or guidance on how management identified risks. In May 

2015, after the completion of the SB/SE risk register, ERM put forth 

guidance to help managers identify risks. While the guidance provides 
Page 26 GAO-15-647 IRS Case Selection

helpful information for management, further information would be useful 

so that managers better understand how to integrate IRS’s long-standing 

risk management processes with the new ERM approach. Officials said 

SB/SE is in the early stages of developing its own training for collection 

executives and managers, which may also provide useful information for 

management.

IRS’s ERM efforts are at initial stages and it is too early to determine their 

effectiveness. Management’s identification of risks is important because 

internal and external risks could affect the collection program and 

collection case selection in particular. For example, economic changes 

could affect the mix of complex cases that come into IDS and require IRS 

to consider making changes to case prioritization and routing. Similarly, 

downsizing of IRS operations—as discussed previously—has the 

potential for creating risks of greater imbalances between workload and 

resources, either overall or between ACS and the Field. Such risks could 

be better managed by IRS with guidance that helps to identify and 

manage them, particularly when changes occur to collection-wide case 

categorization and routing processes. Without risk identification and 

assessments linked to program objectives, vulnerabilities may go 

unaddressed, resulting in unfair case selection, decreased dollars 

collected, greater noncompliance, or other negative program effects.
Page 27 GAO-15-647 IRS Case Selection

Internal control standards require documented procedures to ensure that 

management’s plans to mitigate risks are carried out. Documentation is a 

necessary part of an effective internal control system and should clearly 

identify related objectives and control activities or procedures. Such 

documentation should allow agency officials and staff to understand the 

purpose of internal control procedures and be readily available for 

examination. Documentation provides a means to retain organizational 

knowledge and mitigate the risk of having that knowledge limited to a few 

personnel. Documenting procedures is evidence that the right controls 

are identified and that those procedures are capable of being 

communicated to those responsible for their performance, and capable of 

being monitored and evaluated.

Comprehensive documentation to describe IDS and the collection case 

selection processes was not available, and hinders managers’s ability to 

assure these processes are effective in addressing risks. Most of the 

documents we were provided to describe IDS and the case selection 

process were developed for purposes of our review or for training staff, 

rather than for management and control purposes. Further, the 

documentation provided contained some errors. For example, one 

document showed that IDS uses statistical model results along with 

business rules to make decisions on whether to route cases to either ACS 

or the Field. IRS officials later told us, and our analysis of routing rules 

confirmed, that IDS only uses model results in deciding whether to shelve 

cases and not for deciding to which function to route them. As another 

example, a different document showed that IDS routes and prioritizes 

cases by using a series of business rules and predictive model scores, 

which again misstated how IDS uses model scores. Also, IRS officials 

later clarified that IDS actually does not prioritize cases. ACS and Field 

inventory management systems accomplish this function. Other 

documentation, including one 154-page document describing detailed 

“risking” and routing rules, was very complex, using multiple acronyms 

and code references. IRS officials agreed this documentation could 

generally only be interpreted by employees with experience in collection 

case routing and selection. We were only able to summarize the key 

functions of IDS categorizing and routing (as described earlier) after 

IRS Has Not Documented 

Case Selection 

Procedures

Internal control standard: document controls to address risks to 

program objectives

Procedures should be clearly documented to ensure that management's plans, 

policies, and procedures are sufficiently and fully carried out.
Page 28 GAO-15-647 IRS Case Selection

conducting a detailed review of these documents and having multiple 

discussions with several IRS officials familiar with various parts of the 

process. According to IRS collection officials, documents identifying and 

describing IDS procedures and the case selection process are not 

available because they are the result of incremental decisions and system 

changes implemented over several years.

Similarly, we did not identify any guidance on how managers are to select 

high priority cases and little documentation exists as to how and why the 

priority areas were established, such as analyses of data to determine or 

demonstrate the relative benefits and costs of working priority areas as 

compared to others. Collection officials told us that management meets 

annually to determine what the priority areas should be. As described 

earlier, according to collection officials, some areas like delinquent payroll 

tax cases historically have been priority cases, in part, due to the 

pyramiding effect of the cases and therefore the need to address them 

quickly.27 When we asked officials how they identified GHW taxpayers as 

a priority area, they said the collections program had committed to work 

all such cases but could not provide additional information on why, such 

as analyses for working these cases as compared to others. IRS’s LB&I

division develops the list of GHW taxpayers for collection. When we 

asked LB&I and collection program staff about procedures used to 

develop the data and list of GHW taxpayers, the officials were not sure of 

the answers and said the procedures had been in place for a few years.

They stated that they thought they could get more information by reaching 

out to a recently retired person who had developed them. Program 

documents show that because the retired staff person did not leave 

instructions on how to develop the list, new staff had to recreate the 

process.

Without adequate documentation, it is difficult to determine whether the 

collection’s case selection procedures are effective in supporting program 

objectives. For example, IDS decisions on shelving or routing a case to 

either ACS or the Field could have important implications for whether and 

when a debt will be collected (timeliness of collection or compliance) and 

IRS’s costs (efficiency). According to IRS data, noted earlier, the costs for 

 27Program officials said they also consider payroll cases a priority because of their 

revenue risk. According to IRS officials, when employees file their individual tax returns, 

IRS must give them credit for tax amounts withheld and reported on the W-2 form even if 

the employer did not actually pay them.
Page 29 GAO-15-647 IRS Case Selection

sending cases to ACS versus the Field are significant. Similarly, routing to 

either ACS or the Field could affect how long it takes IRS to resolve a 

case, which could affect the collection result. A lack of documented 

procedures also increases the risk that they will be consistently applied. 

This is important, for example, when considering the seven priority areas.

Without documented procedures for how to select cases manually when 

goals are not being met, IRS risks ensuring fair selection to all taxpayers.

According to internal control standards, program managers should have a 

strategy and establish procedures to continually monitor and assure the 

effectiveness of its control activities. This strategy should trigger separate 

evaluations whenever monitoring identifies problems or improvement 

opportunities.

Although evaluations have been conducted from time to time, IRS does 

not have procedures to periodically monitor IDS categorization and 

routing rules, such as reevaluating dollar thresholds used for categorizing 

some cases as high priority and routing cases to one collections function 

instead of another (e.g., ACS versus the Field). IRS does not have any 

documentation showing when many rules were established, the rationales 

for them, or data supporting them because, according to IRS officials, 

most of the rules were established years before IRS starting keeping such 

records in 2009. Knowing the rules’s rationales would help managers 

evaluate the rules’s effectiveness. Most rules used to route or designate 

cases as high priority rely primarily upon tests of the dollar amount owed. 

But, IRS documentation does not show the rationale for using a specific 

dollar amount or any data to support the selection of the dollar amount. 

IRS has about 60 rules to categorize cases as high risk and more than 

half of these rules use the same dollar threshold. This same dollar 

amount is used to determine whether the case is high risk regardless of 

the type of tax owed; the amount owed is an actual current amount due or 

a previous amount from a prior return; or IRS has estimated an amount a 

taxpayer earned using third-party data.

Our prior reports indicate that the dollar thresholds IRS uses to classify 

some individual nonfilers as “high income” are the same as they were 20 

IRS Does Not Regularly 

Monitor the Effectiveness 

of Collection Routing 

Rules and Has Not 

Reevaluated Dollar 

Thresholds Used to 

Identify High Priority 

Cases

Internal control standard: monitor controls 

Internal control design should assure that ongoing monitoring of controls occurs in 

the course of normal operations
Page 30 GAO-15-647 IRS Case Selection

years ago.28 Our analysis of IRS Statistics of Income information 

concluded only 5 percent of individual taxpayers had adjusted gross 

incomes that exceeded this threshold about 20 years ago. By contrast, in 

2012 (the most recent data available), 14 percent of taxpayers had 

adjusted gross incomes exceeding the threshold.29 Assuming that 

nonfiling rates for “high income” taxpayers have remained constant, more 

nonfilers’s incomes would be exceeding this dollar threshold as overall 

taxpayer incomes increased over time.

IRS officials were unable to provide analyses or justification on why the 

threshold was chosen, as opposed to a higher or lower amount. IRS 

officials told us they did not have documented rationales for thresholds in 

most cases because many routing rules were established long ago.

Officials said that, rather than focusing on evaluating the rules, IRS had 

decided to dedicate its limited resources to improving other aspects of its 

case selection processes, such as modeling.30

IRS has evaluated business rules on an ad-hoc basis. For example, as 

previously noted, a 2010 study of IRS collections evaluated the routing 

rules being used to split the assignment of delinquent payroll tax cases 

between ACS and the Field. The study estimated that about 1 million 

delinquent payroll tax modules (with a total amount owed of $8 billion) 

were sitting in the Field queue and not being worked. The study 

recommended that the dollar threshold used to assign payroll tax cases to 

collections functions be adjusted so that more cases would be sent to 

ACS instead of the Field.

 28GAO, Tax Administration: IRS Does Not Investigate Most High-Income Nonfilers,

GAO/GGD-91-36 (Washington, D.C.: Mar. 13, 1991.

29 The margin of error for the total number of returns estimates is less than 500,000 

returns and for the percents is less than 1 percentage point.

30IRS has conducted regular, periodic evaluations of the models it uses to determine what 

cases not to work and, according to IRS officials, plans to continue to regularly conduct 

such evaluations.

For example, in 2013 IRS evaluated the effectiveness of its models in 

predicting the types of cases that would have likely closed as currently not collectible 

(CNC) if IRS had attempted to work them. Through evaluations of their models, IRS 

determined that working some of these predicted CNC cases could actually result in some 

revenue being collected. In April 2014, IRS adjusted these predictive models to better 

distinguish between likely CNC cases that will result in at least some revenue collected 

and those that will result in no revenue collected.
Page 31 GAO-15-647 IRS Case Selection

If the rules are not periodically evaluated, over time they could lose their 

value and usefulness. Moreover, without adjusting the thresholds, more 

and more cases are selected, increasing collection’s already very large 

workload. We previously recommended that Congress require IRS to 

regularly adjust the dollar amounts of penalties for taxpayer 

noncompliance. We found that because IRS penalty amounts had not 

been adjusted for decades in some cases, the real value of the fixed 

dollar amounts of penalties has decreased.31 We also reported that not 

adjusting these penalties for inflation could lead to inconsistent treatment 

of otherwise equal taxpayers over time because taxpayers penalized 

when the amounts were set could effectively pay a higher penalty than 

those with the same noncompliance pay years later. Since we made our 

recommendation, IRS has indexed almost all of the penalties to inflation.

Another risk is that without systematic monitoring, collection procedures 

could result in unnecessary costs or missed collections. Given increases 

in taxpayer incomes and taxpayer debts over time, it is likely that more 

delinquent taxpayer accounts are exceeding the unchanged dollar 

amount limits and, as a result, being prioritized within IRS collections 

processes regardless of whether their cases are truly high risk. Not 

adjusting dollar amounts used to make collections case routing decisions 

could lead to inconsistent treatment of taxpayers over time as the real 

values of the dollar amounts declined due to inflation.

IRS’s collection program is the federal government’s primary enforcement 

tool for compelling noncompliant taxpayers to file their tax returns and pay 

taxes, encouraging voluntary compliance and thereby helping address the 

tax gap. The amount of tax debt cases is an ongoing and growing 

problem. With recent declines in collections staffing and a growing 

caseload, the problem is now more acute. With fewer resources available 

to work cases, proper case selection is more important than ever in 

ensuring IRS’s ability to achieve compliance and other goals including 

that cases are selected fairly. We identified some internal control 

weaknesses that leave the collection program vulnerable to unfair case 

selection and inefficient use of resources, among other things. Without 

effective internal controls, the program may not achieve desired results 

 31GAO, Tax Compliance: Inflation Has Significantly Decreased the Real Value of Some 

Penalties, GAO-07-1062 (Washington, D.C.: Aug. 23, 2007). 

Conclusions
Page 32 GAO-15-647 IRS Case Selection

and lacks reasonable assurance that program objectives will be met. 

These basic management tenants are fundamental in promoting 

confidence in the tax system.

To help ensure the IRS collection program meets its mission and selects 

cases fairly, we recommend that the Commissioner of Internal Revenue 

take the following five actions:

1. Establish, document, and implement clear objectives for the collection 

program and enterprise-wide case categorization and routing 

processes, and define key terms, such as “fairness” and “risk.”

2. Build upon existing Enterprise Risk Management (ERM) guidance to 

help managers identify internal and external risks to collection 

program objectives, and better understand how long-standing risk 

processes integrate with new ERM approaches; incorporate this 

guidance into existing or future ERM or collection program risk 

assessment processes.

3. Clearly establish, document, and implement case categorization and 

routing procedures—such as those for IDS, high priority case 

selection, and any other important processes—to support collection 

program objectives and IRS goals.

4. Establish, document, and implement procedures for the periodic 

evaluation of the efficiency and effectiveness of collection-wide case 

categorization, routing rules, and case selection processes.

5. Establish, document, and implement procedures for periodic updates 

of dollar thresholds for categorizing case selection, including those 

identified as “high risk.”

We provided a draft of this report to the Commissioner of Internal 

Revenue for review and comment. The Deputy Commissioner for 

Services and Enforcement provided written comments dated July 16, 

2015, which are reprinted in appendix II. IRS stated that it generally 

agreed with our recommendations and it appreciated our insights as it 

strives to continue to strengthen its processes and programs. According 

to IRS, it is identifying the actions to be taken to effectively implement our 

recommendations and plans to provide a detailed description of them in 

response to our final report.

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 33 GAO-15-647 IRS Case Selection

The comments also included an elaboration on the operations of IDS and 

case selection processes. Although IRS said our report described the 

case selection process as designed to be automated with no 

management discretion on choosing individual accounts or taxpayers, our 

report did not provide such a description. IRS’s comments went on to 

discuss factors managers use to assign the “identified next best case” 

and variables managers consider in assigning work at IRS campuses and 

call sites. However, the issues of prioritization and discretion in functionlevel case selection processes were not in the scope of our report since 

we focused on collection at the enterprise level and on IDS.

IRS also stated that it agrees with the importance of internal controls and 

affirmed its commitment to making needed improvements in the areas we 

pointed out. To that end, IRS noted actions that it has taken to improve 

collection performance in fiscal years 2014 and 2015, including updates 

of analytical models and the realignment of the collection program to be 

entirely within SB/SE. IRS further noted that in some cases its 

documentation has not kept pace with these changes and committed to 

bringing these policies and procedures up-to-date.

Lastly, IRS noted that our report did not identify any instances where the 

selection of a case was considered inappropriate or unfair. However, as 

described in our scope and methodology, we did not design our study to 

look for cases of inappropriate selection but rather to assess the internal 

controls that help safeguard the fairness of the case selection processes. 

By evaluating the collection program’s enterprise-level internal control 

framework for selection, we were able to determine whether IRS had 

processes in place that help provide reasonable assurance of fair 

selection not just of cases selected in the past but also on an ongoing 

basis. IRS also provided us with technical comments, which we 

incorporated into the report as appropriate.

We are sending copies of this report to the Chairmen and Ranking 

Members of other Senate and House committees and subcommittees that 

have appropriation, authorization, and oversight responsibilities for IRS. 

We are also sending copies to the Secretary of the Treasury, 

Commissioner of Internal Revenue, and other interested parties. In 

addition, this report is available at no charge on the GAO website at 

http://www.gao.gov
Page 34 GAO-15-647 IRS Case Selection

If you or your staff have any questions about this report, please contact 

me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix III.

James R. McTigue, Jr.

Director, Tax Issues

Strategic Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-15-647 IRS Case Selection

Our objectives were to (1) describe the Internal Revenue Service’s (IRS) 

processes for categorizing and routing collection cases, trends in priority

areas, and key process changes for fiscal years 2012 through 2014; and 

(2) assesses how well the processes for case selection support 

collection’s mission, including applying tax laws with integrity and fairness 

to all.

To describe IRS’s processes for categorizing and routing collection 

cases, we interviewed IRS officials and obtained available documents on 

how cases flow through the collection process after the collection notice 

phase for potential selection in the Automated Collection System (ACS) 

and Field Collection (Field). We interviewed IRS headquarters managers 

in the offices of Enterprise Collection Strategy, Campus Compliance 

Services, and Field Collection. To better understand background and 

context for these processes, we reviewed information on the processes 

ACS and the Field use to prioritize cases for selection. To better 

understand processes results, we reviewed general program 

management documents, including regular management reports on IRS’s 

collections operations for fiscal years 2009 through 2014. We also 

reviewed Collections Pipeline Reports (CPR) and Monthly Monitoring 

Report (MMR) data on the inflows and outflows of collections inventory, 

as well as data on collections workforce levels (full-time equivalents). 

Most of the CPR and MMR data that we used in this report were originally 

from IRS Collection Activity Reports (CAR). We previously used CAR 

data to report on the IRS notice phase process in 2009.1 At that time, we 

interviewed IRS officials with knowledge about CAR data about the steps 

taken to ensure data accuracy. We determined that the CAR data were 

sufficiently reliable for our purposes. The CPR also contained data 

prepared by the IRS Chief Financial Officer on the sources of assessment 

in potentially collectible inventory (PCI). We compared the PCI data to 

data from other collection reports and interviewed IRS officials 

knowledgeable about the PCI source of assessment data. We reviewed 

information on the Inventory Delivery System (IDS) and its various 

functions that prioritize and route cases to include functions that either 

exclude or include cases from potential selection by ACS or the Field, 

affect potential IRS costs (as in the costs to route a case to use ACS 

versus Field resources), or reflect how ACS and the Field rank order 

 1

GAO, Tax Debt Collection: IRS Needs to Better Manage the Collection Notices Sent to 

Individuals, GAO-09-976 (Washington, D.C.: Sept. 30, 2009. 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 36 GAO-15-647 IRS Case Selection

cases for selection. Our review of available documents on IDS and 

discussions with program officials focused on the various factors IDS 

takes into account in deciding how to prioritize and route cases. We 

reviewed IRS documents describing the factors considered in routing and 

flowcharts illustrating how cases can flow from IDS to ACS and the Field, 

or be shelved and not actively pursued further. We also visited IRS offices 

in St. Paul, Minnesota, responsible for building and maintaining IDS 

models. We interviewed officials and reviewed documents to learn how 

the models were used and how they affect case routing and prioritization 

for case selection. In addition, we analyzed information about the 

collection program’s statistical methods and procedures used in the 

modeling process, a statistical method that predicts likely case outcomes.

To describe trends in priority areas, we interviewed IRS officials and 

reviewed IRS documents and data, including MMR data on priority case 

closures during fiscal years 2013 and 2014, and the first six months of 

fiscal year 2015.

To describe key routing process changes, we interviewed IRS officials 

about recent changes that had significant impacts on case routing and 

reviewed a study that resulted in process changes. We also reviewed IRS 

records of routing rule changes from calendar years 2011 to 2014, and 

we evaluated available data showing how frequently business routing 

rules were applied (“rule firings”) each calendar year from 2011 to 2014. 

Based on further discussions with IRS officials, we determined that the 

available data on routing rule firings was insufficiently reliable to report 

precise figures on how many cases were routed to different collections 

functions, or not pursued further, as a direct result of IDS routing rules. 

However, the rule firings data were sufficiently reliable to describe 

generally how recent routing rule changes have shifted significant 

portions of the collection inventory between ACS and the Field.

To assess the reliability of the data we analyzed for our first objective, we 

interviewed knowledgeable IRS officials, and conducted manual data 

testing for missing data, outliers, or obvious errors. We also reviewed 

relevant documentation on management reports and case routing data.

To assess how well the processes for case selection support collection’s 

mission, we compared the processes identified above to selected 

standards in the Standards for Internal Control in the Federal Government

(GAO/AIMD-00-21.3.1, November 1999). In regard to internal control 

standards on establishing program objectives, we interviewed various 

collection officials, including the Director of Collection and other IRS 
Appendix I: Objectives, Scope, and 

Methodology

Page 37 GAO-15-647 IRS Case Selection

headquarters managers in the offices of Enterprise Collection Strategy, 

Campus Compliance Services, and Field Collection, concerning their 

understanding of the mission, objectives, and internal controls of the 

collection program and IDS processes. We also and reviewed IRS and 

collection program guidance in which objectives could potentially be 

stated or implied, including the Internal Revenue Manual (which includes 

the mission statements of various collection program subunits and policy 

statements on collections), annual collection program letters for fiscal 

years 2013 through 2015, and potentially collection-program-related 

objectives in IRS Publication 3744, Internal Revenue Service Strategic 

Plan FY2014-2017.2 In regard to internal control standards on assessing 

program risks, we reviewed the information on IRS’s objectives discussed 

above, interviewed collection program officials, and reviewed documents 

on the collection program’s identification of risks. This included input into 

the Small Business/Self Employed division’s April 2015 risk register and 

guidance, and procedures officials used to identify risks. In regard to 

internal control standards on establishing and documenting control 

activities to address risks, we interviewed IRS officials and reviewed 

available documentation on the processes for categorizing and routing 

collection cases as gathered to answer our first objective. In regard to 

internal control standards on monitoring controls, we interviewed IRS 

officials and reviewed documents on procedures to evaluate IDS models 

in general and specifically those models used to shelve cases, including 

the Inventory Delivery System Model Evaluation study and Collection 

Workload Optimization Project study documents. We also interviewed 

IRS officials and gathered any available documents and plans on 

evaluations of rules and dollar thresholds used for IDS decisions to 

shelve cases, designate cases as high priority, and route cases to one 

collection function instead of another.

We conducted this performance audit from August 2014 to July 2015 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

 2

http://www.irs.gov/pub/irs-pdf/p3744.pdf (downloaded February 2015). 
Appendix II: Comments from the

Internal Revenue Service

Page 38 GAO-15-647 IRS Case Selection

Appendix II: Comments from the

Internal Revenue Service
Appendix II: Comments from the

Internal Revenue Service

Page 39 GAO-15-647 IRS Case Selection
Appendix II: Comments from the

Internal Revenue Service

Page 40 GAO-15-647 IRS Case Selection
Appendix II: Comments from the

Internal Revenue Service

Page 41 GAO-15-647 IRS Case Selection
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 42 GAO-15-647 IRS Case Selection

James R. McTigue, Jr., (202) 512-9110 or mctiguej@gao.gov

In addition to the contact named above, Libby Mixon (Assistant Director), 

David Dornisch, Robert Gebhart, Raheem Hanifa, Ted Hu, Ronald Jones, 

Mark Kehoe, Albert Sim, Justin Snover, and A.J. Stephens made key 

contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(451115)
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