United States Government Accountability Office

GAO Report to the Committee on Finance, 

U.S. Senate 

TAX DEBT 

COLLECTION 

IRS Needs to 

Complete Steps to 

Help Ensure 

Contracting Out 

Achieves Desired 

Results and Best Use 

of Federal Resources 

September 2006 

 

GAO-06-1065 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2006

TAX DEBT COLLECTION 

IRS Needs to Complete Steps to Help 

Ensure Contracting Out Achieves Desired 

Results and Best Use of Federal 

Resources 

Highlights of GAO-06-1065, a report to the 

Committee on Finance, U.S. Senate 

In 2005, the inventory of tax debt 

with collection potential had grown 

to $132 billion. The Internal

Revenue Service (IRS) has not

pursued some tax debt because of 

limited resources and higher 

priorities. Congress has authorized 

IRS to contract with private 

collection agencies (PCA) to help 

collect tax debts. IRS has 

developed a Private Debt

Collection (PDC) program to start 

with a limited implementation in 

September 2006 and fuller

implementation in January 2008. 

As requested, GAO is reporting 

whether (1) IRS addressed critical 

success factors before limited

implementation, (2) IRS will assess 

lessons learned before fuller 

implementation, and (3) IRS’s 

planned study will help determine

if using PCAs is the best use of 

federal funds. 

What GAO Recommends

GAO recommends that IRS 

complete establishing for the PDC 

program: (1) results-oriented goals 

and measures; (2) reliable, 

verifiable costs, (3) evaluation 

plans, and (4) criteria and

processes for assessing the 

program before deciding whether

to expand it. GAO also

recommends that IRS ensure that

its study reports all PDC costs and

the best use of those federal funds. 

In commenting on a report draft,

IRS agreed with GAO’s

recommendations and outlined

some actions it has initiated to 

respond to some of them. 

IRS made major progress in addressing the 5 critical success factors and 17

related subfactors for the PDC program before sending cases to PCAs. GAO 

reviewed program documents and interviewed officials to identify IRS’s 

approaches and steps taken to address the factors. Taken together, IRS’s 

actions were intended to ensure that the PCAs will be able to do the job and 

work the range of cases assigned, IRS will have the necessary resources and 

caseload ready, and taxpayer rights and data will be protected. Even with 

this progress, IRS has not completed work for three subfactors—setting 

results-oriented goals and measures, determining all PDC program costs, and 

evaluating the program based on the results-oriented goals and measures, 

once they are established. As a result, IRS risks not providing complete 

information that decision makers would find useful. Finishing work on the 

factors could help achieve but cannot guarantee program success, which 

also depends, in part, on how IRS addresses the factors and identifies and 

resolves any problems in the limited implementation phase. 

Although IRS officials indicated that a purpose of the limited implementation 

phase is to assure readiness for full implementation to up to 12 PCAs, IRS 

has not yet documented how it will identify and use the lessons learned to 

ensure that each critical success factor is addressed before expanding the 

program starting in January 2008. Because program success will be affected 

by how well IRS makes adjustments, assessing the lessons learned in limited 

implementation is critical. Also, IRS has not documented criteria that it will 

use to determine whether the limited implementation performance warrants 

program expansion. IRS officials indicated that they are considering criteria

that could trigger a go/no go decision, such as the amount of taxes collected 

and indications of PCAs abusing taxpayers or misusing taxpayer data. IRS 

has not decided on whether these targets will include comparing the taxes 

collected to program costs, which was a key reason for canceling a 1996 

PCA pilot program. Finally, IRS will have a little more than a half year to 

identify the lessons learned before incorporating them into the next contract 

solicitation, which IRS intends to release in March 2007. 

Related to such decisions on expansion is IRS’s planned comparative study 

of using PCAs. That study is to compare using PCAs to investing IRS’s PDCrelated operating costs into having IRS staff work IRS’s “next best” 

collection cases. Under the documented study design, IRS would exclude 

the fees paid to PCAs from the costs and subtract those fees from the tax 

debts collected by PCAs. While such a study might produce useful 

information, it will not compare the results of using PCAs with the results

IRS could get if given the same amount of resources, including the fees to be 

paid to PCAs, to use in what IRS officials would judge to be the best way to 

meet tax collection goals. Adequately designing and implementing the study 

is important to ensure policymakers are aware of the true costs of 

contracting with PCAs and know whether PCAs offer the best use of federal 

funds. 

www.gao.gov/cgi-bin/getrpt?GAO-06-1065.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Michael 

Brostek at (202) 512-9110 or 

brostekm@gao.gov. 
Contents 

Letter 1

Background 2

Results 7

Conclusions 9

Recommendations for Executive Action 10 

Agency Comments and Our Evaluation 11 

Appendix I Briefing on the IRS Private Debt Collection 

Program 14 

Appendix II Scope and Methodology 47 

Appendix III Selected Data Related to IRS’s Expectations for 

Elements of the Private Debt Collection Program 49 

Appendix IV Proposed Private Debt Collection Program 

Performance Measures and Goals for Fiscal 

Year 2007 50 

Appendix V Comments from the Internal Revenue Service 52 

Appendix VI GAO Contact and Staff Acknowledgments 59 

Tables 

Table 1: Critical Success Factors and Related Subfactors for 

Contracting with PCAs for Tax Debt Collection 5 

Table 2: Extent to Which IRS Has Taken Steps to Address the 

Critical Success Factors and Related Subfactors for 

Contracting for Tax Debt Collection as of September 15, 

2006 7 

Page i GAO-06-1065 Tax Debt Collection
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Page ii GAO-06-1065 Tax Debt Collection
United States Government Accountability Office

Washington, DC 20548 

September 29, 2006 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

Each year, the federal government does not collect billions of dollars of 

delinquent taxes. At the end of fiscal year 2005, the Internal Revenue 

Service’s (IRS) inventory of delinquent tax debt with some collection 

potential was $132 billion (up from $122 billion in the previous year). 

Because of inadequate resources to deal with the workload and the need

to work higher priority cases, IRS has shelved or delayed collection on 

billons of dollars of delinquent taxes due since 1999. In addition, voluntary 

compliance may be undermined to the extent taxpayers become aware 

that IRS is unable to collect taxes due. 

Because of concerns about, and congressional consideration of, proposals 

that IRS use private collection agencies (PCA) to help collect more of the 

growing tax debt inventory, in May 2004 we issued a report on IRS’s efforts 

to plan for a Private Debt Collection (PDC) program.1 We identified 5 

critical success factors and 17 related subfactors that should be addressed 

to help ensure that a PDC program achieves desired results and 

recommended that after gaining some experience with PCAs, IRS do a 

study to compare the use of PCAs to another collection strategy that IRS 

officials determine to be the most effective and efficient overall way of 

achieving collection goals. 

In October 2004, Congress authorized PDC contracting authority in the 

American Jobs Creation Act of 2004.2

 Based on that authority, IRS has 

contracted with 3 PCAs as part of a planned limited implementation phase

that started with delinquent tax cases being turned over to the PCAs on 

 1

GAO, Tax Debt Collection: IRS Is Addressing Critical Success Factors for Contracting 

Out but Will Need to Study the Best Use of Resources, GAO-04-492 (Washington, D.C.: 

May 24, 2004). 

2

 Pub. L. No. 108-357 (2004). 

Page 1 GAO-06-1065 Tax Debt Collection
September 7, 2006, and has plans to expand the program, beginning in 

January 2008, eventually to up to 12 PCAs. However, members of 

Congress, the National Treasury Employees Union, the National Taxpayer 

Advocate, and others continue to raise concerns about IRS using PCAs, 

such as the potential for misuse of taxpayer data, taxpayer mistreatment, 

or higher costs and lower effectiveness when compared to hiring more IRS 

employees. 

Given our 2004 report and these concerns, you asked that we answer these 

questions: 

• To what extent will IRS have addressed the critical success factors before 

turning over collection cases to PCAs for the limited implementation 

phase? 

• How will IRS use the lessons learned from the limited implementation 

phase to assess critical success factors and program performance before 

full program implementation? 

• Is the design of IRS’s planned study of using PCAs adequate to provide 

useful information to help determine whether contracting is the best use 

of federal funds for achieving tax collection goals? 

To answer these questions, we reviewed available IRS documents and 

interviewed responsible IRS officials to identify the steps taken. For 

example, to determine the extent to which IRS has addressed the critical

success factors before sending cases for the limited implementation phase, 

we sought documentation on IRS’s steps taken to address each of the 17 

subfactors. For areas such as the contracting process, information 

systems, and cost tracking, we used generally accepted criteria. We 

focused on whether IRS would complete the steps to address each 

subfactor. We did not test or otherwise evaluate how well IRS’s actions 

would work or address the factors. Appendix I summarizes the results of 

our work for each of the subfactors as well as the results of our work on 

the other two questions through a series of briefing slides. Appendix II 

offers more details on our scope and methodology overall. We did our 

work from August 2005 to September 2006 in accordance with generally

accepted government auditing standards. 

IRS has two major programs to collect tax debts. First, IRS staff in the 

telephone function may attempt collection over the phone or in writing. 

Second, if more in-depth collection action is required, field collection staff

may visit delinquent taxpayers at their homes or businesses as well as 

contact them by telephone and mail. Under certain circumstances, IRS 

Background 

Page 2 GAO-06-1065 Tax Debt Collection
staff can initiate enforced collection action, such as recording liens on 

taxpayer property and sending notices to levy taxpayer wages, bank 

accounts, and other financial assets held by third parties. Field collection 

staff also can be authorized to seize other taxpayer assets to satisfy the tax 

debt. However, as we have previously reported, IRS has deferred 

collection action on billions of dollars of delinquent tax debt and, until 

recently, IRS collection program performance indicators have declined, in

part because of higher workload in other priority areas and unbudgeted

cost increases (such as for rent or pay).3

 Although IRS data indicate that 

trends in collections have shown some improvements, the enforcement of 

the tax laws—including the collection of unpaid taxes—remains one of 

GAO’s “high-risk” areas of government.4

To help address the growing tax debt inventory and declines in IRS’s tax 

collection efforts, the Department of the Treasury proposed that Congress 

authorize IRS to use PCAs to help collect tax debts for simpler types of 

cases, paying them out of a revolving fund of tax revenues that they 

collect. IRS officials said that this proposal arose, in part, because of the 

belief that Congress was not likely to provide the increased budget to hire

enough IRS staff to work the inventory of collection cases. 

In 2004, Congress authorized IRS to use PCAs to take certain defined steps 

to collect tax debts—including locating taxpayers, requesting full payment 

of the tax debt or offering taxpayers installment agreements if full 

payment cannot be made, and obtaining financial information from 

taxpayers. PCAs are to have limited authorities and are not to adjust the 

amount of tax debts or to use enforcement powers to collect the debts, 

which are inherently governmental functions that are to be performed by 

IRS employees. IRS is authorized to pay PCAs up to 25 percent of the 

amount of tax debts collected and retain another 25 percent of taxes 

collected to fund IRS collection enforcement activities. 

IRS initially envisions using PCAs on simpler cases that have no need for 

IRS enforcement action and that involve individual taxpayers that (1) filed 

 3

See GAO, Tax Administration: Impact of Compliance and Collection Program Declines

on Taxpayers, GAO-02-674 (Washington, D.C.: May 22, 2002); Compliance and Collection: 

Challenges for IRS in Reversing Trends and Implementing New Initiatives, GAO-03-732T 

(Washington, D.C.: May 7, 2003); and Internal Revenue Service: Assessment of Fiscal Year 

2005 Budget Request and 2004 Filing Season Performance, GAO-04-560T (Washington,

D.C.: Mar. 30, 2004). 

4

GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). 

Page 3 GAO-06-1065 Tax Debt Collection
tax returns showing taxes due but did not pay all those taxes and (2) made 

three or more voluntary payments to satisfy an additional tax assessed by 

IRS but have stopped the payments. To start, IRS plans to send cases to 

PCAs that have not recently been worked by IRS because of their lower 

priority, such as cases set aside because of inadequate IRS resources to 

work them or those in the queue to be worked but not yet assigned to IRS 

staff. After gaining some experience, IRS plans to expand the types of 

cases to be sent to PCAs to include those unassigned cases that IRS staff 

now may work, including those in which IRS attempts to find taxpayers 

that appeared to not file required tax returns, according to IRS officials. 

IRS first attempted to contract collections with a pilot test in 1996 but 

abandoned the effort, in part, because the $3.1 million collected fell below 

the $4.1 million in direct costs plus the $17 million in lost revenues from 

using IRS staff to work on the pilot test rather than collect taxes. Also, 

limitations in IRS’s computer systems and ability to transfer data 

hampered efforts to send appropriate cases to PCAs.5

The current PDC program differs from the 1996 pilot because IRS will 

require PCAs to try to resolve collection cases within guidelines rather 

than just remind taxpayers of their debt, will pay PCAs a percentage of 

dollars they collect rather than a fixed fee, and will electronically send and 

protect taxpayer data rather than send the cases manually. Appendix III 

provides some data and information about the PDC program in terms of 

costs, projected tax revenue to be collected, staffing, and cases to be sent

to PCAs. 

Our 2004 report identified and validated five critical success factors for 

contracting with PCAs to collect tax debt. Table 1 describes the critical

success factors and their related subfactors. 

 5

GAO, Internal Revenue Service: Issues Affecting IRS’s Private Debt Collection Pilot, 

GAO/GGD-97-12R (Washington, D.C: July 18, 1997). 

Page 4 GAO-06-1065 Tax Debt Collection
Table 1: Critical Success Factors and Related Subfactors for Contracting with PCAs 

for Tax Debt Collection 

Critical 

success factor Related subfactors 

Results 

orientation 

• Determine expected program goals, costs, and overall results for 

contracting with PCAs. 

• Establish contract provisions and operational expectations, 

measurable PCA performance evaluation standards, and PCA 

rewards and disincentives based on performance and ensure that 

the government agency and PCAs have a common understanding 

of these elements. 

• Give PCAs as much freedom as practical on how to achieve

performance goals. 

• Use a contracting process that will help ensure that PCAs selected 

are able to meet operational and performance expectations. 

Agency 

resources 

• Provide sufficient staffs to do work associated with contracting with 

PCAs, including administrative functions, contract oversight, and 

working collection cases referred back by the PCAs. 

• Have management commitment to using PCAs. 

• Ensure that PCA employees receive appropriate training on such 

areas as taxes and case-handling procedures. 

• Ensure that computer systems will allow data to be exchanged 

electronically between PCAs and the government agency and that 

payments will be tracked and accounts updated. 

• Be aware of and control costs of functions related to contracting. 

Workload • Select the appropriate type and volume of cases for PCAs to work 

on. 

• Ensure that contractors work on the range of cases that they are 

assigned in terms of ease of collection and amounts due. 

• Provide PCAs appropriate, accurate information on taxpayers and 

accounts. 

Taxpayer issues • Ensure that taxpayers are treated properly by PCAs. 

• Ensure the security of taxpayer information provided to PCAs. 

Evaluation • Perform ongoing monitoring of PCAs in various aspects of 

operations and performance expectations. 

• Measure PCAs’ performance in light of performance standards and 

distribute rewards/disincentives. 

• Evaluate whether the program meets its goals and expectations 

and adjust the program as needed. 

Source: GAO analysis of selected GAO reports and interviews with officials from selected state and federal agencies and PCA firms. 

To identify the critical success factors, we reviewed reports on contracting 

and interviewed parties with experience in contracting for debt collection,

such as officials from 11 states, the Department of the Treasury’s Financial 

Management Service, the Department of Education, and three PCA firms 

that IRS selected as subject matter experts for the program. To 

Page 5 GAO-06-1065 Tax Debt Collection
corroborate the factors, we interviewed officials from IRS who were 

developing the PDC program, the IRS Office of Taxpayer Advocate, and 

the National Treasury Employees Union, which represents IRS employees. 

As a validation tool, we asked for comments on our draft list of factors 

from those whom we consulted to identify the factors as well as from 

officials at four additional PCA firms. We made changes based on their 

comments where appropriate. 

After receiving authority to use PCAs in 2004, IRS had planned to issue 

task orders to three PCAs in January 2006 as part of a limited 

implementation phase running through December 2007. However, IRS was 

delayed by a lawsuit and bid protest filed by certain PCAs to challenge 

IRS’s request for and evaluation of bids from PCAs. Specifically: 

• IRS issued a Request for Quotations (RFQ) to solicit debt collection 

services for the PDC program on April 25, 2005, under which IRS would 

start sending cases to three PCAs in January 2006. Because of a lawsuit 

filed in June 2005, IRS revised and reissued the RFQ on October 14, 2005,

with plans to send cases to the PCAs in July 2006. 

• IRS selected the three PCAs on March 9, 2006. Because one of the PCAs 

that were not selected filed a bid protest later in March 2006,6

 IRS stopped 

working with the three selected PCAs and pushed back the date to send 

cases to those PCAs to the August-September 2006 time frame. 

• IRS prevailed in the bid protest in a decision issued on June 14, 2006, 

allowing it to resume its work with the selected PCAs. IRS sent cases to 

the three PCAs on September 7, 2006. 

In addition to contracting with PCAs, the PDC program includes IRS’s 

acquisition and deployment of an information system for automating case 

selection and managing the case workload. IRS plans to eventually also 

use this system to select and manage the caseloads for its telephone and 

field collection functions. IRS had originally planned to deploy the system 

with two limited-functionality subreleases concurrent with the limited 

implementation phase (in which IRS is contracting with three PCAs 

through December 2007) and begin ramping up the number of contractors 

(eventually to up to 12) with the third, fully functional information system 

subrelease in January 2008. However, IRS officials said that information 

systems budget constraints require IRS to change its information system 

plan. Although IRS has not yet finalized decisions on ramping up the 

 6

Another PCA that was not selected also filed a bid protest that was later withdrawn by that 

protester. 

Page 6 GAO-06-1065 Tax Debt Collection
number of PCAs and implementing the information system, the proposed 

plan IRS officials are considering is to begin increasing the number PCAs 

and deploy an interim subrelease with some enhancements in January 

2008, but delay the full-function subrelease indefinitely. 

As shown in table 2, in preparation for turning over collection cases to 

PCAs, as of September 15, 2006, IRS has made major progress in 

addressing the 5 critical success factors and 17 related subfactors for 

contracting for tax debt collection, but nevertheless has more to do. 

Results 

Table 2: Extent to Which IRS Has Taken Steps to Address the Critical Success Factors and Related Subfactors for 

Contracting for Tax Debt Collection as of September 15, 2006 

Status of step(s) to

address the subfactor

Critical 

success factor Related subfactor Complete Partial 

Determine expected program goals, costs, and overall results X 

Establish contract provisions, operational expectations, and standards X 

Give PCAs freedom to achieve performance goals X 

Results 

orientation 

Use a contracting process for selecting PCAs to meet expectations X 

Provide sufficient staffs to do contract-related work X 

Have management commitment to using PCAs X 

Ensure appropriate PCA employee training X 

Ensure computer systems can exchange data, track payments, and update 

accounts 

X

Agency 

resources 

Be aware of and control costs of functions related to contracting X 

Select the appropriate type and volume of cases X 

Ensure that contractors work the range of cases X 

Workload 

Provide PCAs appropriate and accurate information X 

Taxpayer issues Ensure that taxpayers are treated properly X 

Ensure the security of taxpayer information X 

Perform ongoing monitoring of PCAs X 

Measure PCAs’ performance and distribute rewards/disincentives X 

Evaluation 

Evaluate whether program meets goals and expectations, make adjustments X 

Source: GAO analysis of IRS’s data. 

Note: Our analysis was not to determine the adequacy of IRS’s actions to address the critical success 

factors and subfactors, but rather to determine whether IRS had completed steps to address the 

various factors. 

Page 7 GAO-06-1065 Tax Debt Collection
IRS has completed steps to address 14 of the 17 subfactors. Although IRS 

has taken steps on the remaining 3 subfactors, IRS still has work to do to 

complete addressing them. For example, IRS had not yet documented all 

of its specific goals7

 and related measures to orient and evaluate the PDC 

program in terms of achieving desired results, such as goals and measures 

for improving the productivity of IRS staff. Also, IRS had not determined 

all historical program costs, that is, how much IRS has invested to date to

develop and implement the PDC program. Finishing work to address the 

critical success factors could help achieve desired results—such as 

collecting tax debts—but cannot guarantee success, which depends, in 

part, on how well IRS addresses the factors, identifies problems, and 

resolves problems in the limited implementation phase. 

Although IRS officials indicated that a purpose of the limited 

implementation phase is to assure readiness for full implementation, IRS 

has not yet documented how it will identify and use the lessons learned to 

ensure that each critical success factor is adequately addressed before 

expanding the program. Because program success will be affected by how 

well IRS identifies and makes needed adjustments to resolve problems, 

tracking the lessons learned in the limited implementation phase is 

critical. According to IRS officials, during the limited implementation 

phase, they plan to collect information to provide baselines, trends, and a 

basis for making any necessary changes. However, officials did not have 

specifics on how IRS would ensure all factors had been adequately 

addressed before moving to full implementation in January 2008. Also, IRS

has not documented criteria that it will use to determine whether limited 

implementation phase performance was sufficient to warrant program 

expansion. IRS officials indicated that they plan to further discuss 

performance criteria that could trigger a go/no go decision, and might 

consider criteria such as the amount of taxes collected and indications of 

PCAs abusing taxpayers or misusing taxpayer data. IRS has not decided on

whether these targets will include the amounts of collected taxes 

compared to program costs, which was a key reason for canceling the 

1996 PCA pilot program. Finally, IRS will have a little more than a half year 

to identify the lessons learned before incorporating them into the 

solicitation for the next contract, which IRS intends to release in March 

2007 in order to begin expanding the number of PCAs in January 2008. 

 7

As used in this report, a goal is the desired numerical value of a program performance

measure, which can also be called a target. 

Page 8 GAO-06-1065 Tax Debt Collection
IRS has begun work to design a study intended to respond to a 

recommendation in our May 2004 report. IRS plans to compare the net 

dollars collected through the PDC program (dollars paid by taxpayers less

fees paid to PCAs) to the dollars IRS could expect to collect if it invested 

its PDC-related operating costs into having IRS staff work the “next best” 

cases under IRS’s collection system. IRS is planning to define the cases it 

considers to be “next best;” gather data on PCA cases for 6-12 months; and 

do two iterations of the study, one in September 2006 and one in March 

2007. In the documented study design, IRS would exclude the fees paid to

PCAs from the costs and subtract those fees from the tax debts collected 

by PCAs. While such a study might produce useful information, it will not 

meet the intent of our recommendation. The study would not compare the 

results of using PCAs with the results IRS could get if given the same 

amount of resources, including the fees to be paid to PCAs (which are to

be paid from federal tax receipts), to use in whatever fashion that officials 

determine would best meet tax collection goals.

Appendix I includes more information on the status of IRS’s 

implementation of the PDC program. 

As discussed in more detail below, we are recommending that IRS 

complete establishing for the PDC program results-oriented goals and 

measures; information on costs; plans for evaluations; and criteria and 

process for assessing the critical success factors and program 

performance. We also are recommending that IRS ensure that its planned

comparative study of using PCAs informs decision makers of all the 

program costs and the best use of those federal funds. In providing written 

comments on a draft this report (see app. V) the Commissioner of Internal 

Revenue agreed with our recommendations and outlined some actions IRS 

has initiated to respond to some of them. 

Although IRS’s actions do not guarantee PDC program success, IRS made 

significant progress in addressing the 5 critical success factors and 17 

related subfactors before sending cases to PCAs for the limited 

implementation phase. Taken together, these actions were intended to 

achieve such important ends as ensuring that the selected PCAs will be 

able to do the job and work the range of cases assigned, that IRS will have 

the necessary resources and caseload ready to do its part, and that 

taxpayers’ rights and data will be protected. Even with this progress, IRS 

has not yet completed the related steps that it must take for 3 subfactors 

on setting goals and measures, determining all program costs, and 

evaluating the program. Having information on whether the program met 

Conclusions 

Page 9 GAO-06-1065 Tax Debt Collection
its goals and desired results given the program costs would be critical for

policymakers. In addition, IRS lacks clear criteria and processes for 

assessing how well it addressed the critical success factors and whether 

the program performance warrants expanding the number of PCAs and 

turning over more cases to them. 

It is understandable that IRS officials have focused on rolling out this new 

program and dealing with many pressing concerns such as making sure 

that the PCAs are ready and that IRS can do its part, while delaying work 

on these three subfactors and on the criteria and processes for deciding on

future program expansion. However, if it waits too long, IRS risks not 

having critical information in a timely and cost-effective manner in order 

to answer important questions about whether the PDC program is 

producing desired results at acceptable costs and whether the program 

should be expanded. Having plans to answer these questions is especially 

critical now that lawsuit and bid protest delays have reduced the time that

IRS has to collect and analyze performance data before having to make 

decisions about expanding the PDC program. Therefore, it is all the more 

important that IRS determine program costs and make decisions about its 

goals and measures, evaluation plans, approach to assessing critical 

success factors, and program expansion decision criteria as soon as 

possible. 

Related to such decisions on expansion is IRS’s planned comparative 

study of using PCAs. If this study is not adequately designed and 

implemented, policymakers may not be aware of the true costs of 

contracting with PCAs—including the fees paid to PCAs. They also would 

not be aware of the potential impact of increasing IRS funding, and 

thereby miss the opportunity to know whether contracting with PCAs is 

the best use of federal funds for meeting tax collection goals.

To ensure that IRS decision makers will timely have the information 

needed to make informed, data-based decisions about the private debt 

collection program, we recommend that, as soon as possible, and certainly

before any expansion of the PDC program beyond the initial round of 

cases sent to PCAs, the Commissioner of Internal Revenue complete 

establishing:

Recommendations for 

Executive Action 

• results-oriented goals and measures for the program based on the best 

available information; 

• reliable, verifiable information on all the costs of the program, to the 

extent possible; 

Page 10 GAO-06-1065 Tax Debt Collection
• plans for evaluating the results of the program in terms of expected costs, 

goals, and desired results; and 

• clear criteria and processes for assessing how IRS addressed the critical 

success factors in the limited implementation phase and whether PDC 

program performance warrants program expansion. 

We also recommend that, as IRS continues planning its comparative study 

of using PCAs, the Commissioner of Internal Revenue ensure that the 

study methodology and the IRS reports on the study results will inform 

decision makers of the full costs of the PDC program, including the fees 

paid to PCAs and the best use of those federal funds. 

The Commissioner of Internal Revenue provided written comments on a 

draft of this report in letter dated September 20, 2006 (which is reprinted 

with its enclosures in app. V). The Commissioner noted that he was 

pleased that our report acknowledges IRS’s accomplishments and steps to 

protect taxpayer data and rights.8

 The Commissioner also noted that IRS 

agreed with our recommendations and had initiated efforts to address 

them, as discussed below. 

IRS agreed with the recommendation. In discussing our draft report with 

IRS officials, we clarified that the goals and measures should be logically 

linked to IRS’s five desired results and that IRS should document any 

indirect links and why more direct linkages were not made. In turn, IRS’s 

letter provided information on such linkages, including the indirect linkage

for the desired result involving increased public confidence, and provided 

a revised version of our appendix IV (which we reprint with the 

Commissioner’s letter in app. V) with columns added to show the linkages

between the desired results and the proposed goals and measures as they 

appeared in our draft report. Although we did not have time to fully 

review IRS’s information, we are gratified to see that IRS has established 

some program goals and measures and has made progress in developing

the linkages. We look forward to IRS developing the related measures and 

data, such as for reducing the penalties and interest paid, better utilizing 

IRS staff, freeing up IRS staff to work more complex cases, and 

Agency Comments 

and Our Evaluation 

Recommendation 1: 

Establish Results-Oriented 

Goals and Measures for 

the Program Based on the 

Best Available Information 

 8

Although our report does document IRS’s progress, it is important to note that our report 

points out that we did not assess the adequacy of IRS’s actions or whether they would 

work, and that success would depend, in part, on how well IRS addressed the critical 

success factors, including identifying and resolving any problems. 

Page 11 GAO-06-1065 Tax Debt Collection
significantly reducing case backlogs. We also look forward to IRS 

identifying specific goals—referred to as “targets” in IRS’s comments—

that IRS will strive to achieve beyond those listed in appendix IV. 

IRS agreed with our recommendation. In response to our draft report, IRS 

provided us documentation that it had implemented a system to track PDC 

program costs going forward from July 2006. In discussing our draft report 

with IRS officials, they said that IRS will face difficulties in estimating 

some of the of the PDC program costs incurred before the tracking system 

was established. Based on this new information, we revised our 

recommendation to state that IRS should complete establishing verifiable, 

reliable information on all the costs of the program, to the extent possible.

IRS’s comments state that it will furnish reconstructed historical costs as 

soon as they are compiled. Although we look forward to receiving such 

cost information, we encourage IRS to use the cost information to manage

and evaluate the PDC program and inform policymakers. 

IRS provided a combined response on this and the last recommendation 

dealing with the comparative study (which is discussed below). IRS agreed 

with our recommendation to evaluate the program, but did not provide 

any additional information on how it plans to do so. We look forward to 

IRS establishing and documenting specific plans for evaluating the 

program over time and reporting the evaluation results. 

IRS agreed with this recommendation and noted that its decision on 

whether to expand the PCA program will be driven by several factors, 

such as the composition of the inventory and cases to be worked by PCAs, 

IRS resource capacity, and PCA performance. We look forward to IRS 

finalizing and documenting the criteria and processes, which could 

consider factors listed in this report, such as PCAs’ treatment of taxpayers 

and taxpayer data, the tax amounts collected, and the cost of collecting 

the taxes. We also look forward to IRS documenting its criteria and 

processes for assessing the critical success factors. 

Recommendation 2: 

Establish a System for 

Tracking All Costs of the 

Private Debt Collection 

Program 

Recommendation 3: 

Establish Plans for 

Evaluating the Results of 

the Program in Terms of 

Expected Costs, Goals, 

and Desired Results 

Recommendation 4: 

Establish Clear Criteria 

and Processes for 

Assessing How IRS 

Addressed the Critical 

Success Factors in the 

Limited Implementation 

Phase and Whether PDC 

Program Performance 

Warrants Program 

Expansion 

Page 12 GAO-06-1065 Tax Debt Collection
In agreeing with this recommendation, IRS noted that it has structured the 

study so that data can be analyzed with and without the PCA fees. In 

discussing the draft report with IRS officials, the officials said that the 

study will include an analysis of the PCA fees as costs, not as a reduction 

of gross revenue, and the study will project what IRS would have collected 

had those costs been used to fund IRS’s collection program. We look 

forward to receiving more information on IRS’s study approach and the 

study results as IRS begins the first study iteration in September 2006. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from its 

date. At that time, we will send copies to the Chairman and Ranking 

Minority Member, House Committee on Ways and Means; the Secretary of 

the Treasury; the Commissioner of Internal Revenue; and other interested 

parties. Copies will be made available to others upon request. This report 

will also be available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you or your staff have any questions, please contact me at (202) 512-9110

or brostekm@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

Key contributors to this report are listed in appendix VI. 

Michael Brostek 

Director, Tax Issues 

Strategic Issues Team 

Recommendation 5: 

Ensure the Comparative 

Study Informs Decision 

Makers of All PDC Costs, 

Including PCA Fees 

Page 13 GAO-06-1065 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Review of IRS Private Debt Collection Program

Briefing for 

Senate Committee on Finance

Page 14 GAO-06-1065 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 15 GAO-06-1065 

2

Review Objectives

• To what extent will the Internal Revenue Service (IRS) have addressed the 

critical success factors before turning over collection cases to private collection 

agencies (PCA) for the limited implementation phase? 

• How will IRS use the lessons learned from the limited implementation phase to

assess critical success factors and program performance before full program 

implementation?

• Is the design of IRS’s planned study of using PCAs adequate to provide useful 

information to help determine whether contracting is the best use of federal 

funds for achieving tax collection goals?

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 16 GAO-06-1065 

3

Objective 1: Extent to Which IRS Will Have 

Addressed the Critical Success Factors and

Subfactors Before Turning Over Cases to PCAs

• In preparation for turning over cases to PCAs for the limited implementation phase, IRS 

made major progress in addressing the five critical success factors. For example, IRS has 

addressed

• results orientation issues by establishing expected costs and desired results for the 

program; 

• agency resources issues by estimating and funding IRS staffing needs to administer

the program in the limited implementation phase;

• workload issues by selecting and analyzing cases to identify the types that should not 

be sent to PCAs and make needed changes to case selection programming before

sending the cases; 

• taxpayer issues by taking steps to obtain feedback on PCA employees’ treatment of 

taxpayers, provide taxpayers information on how to contact the National Taxpayer

Advocate, and monitor PCAs’ phone calls with taxpayers; and 

• evaluation issues by planning various ways to monitor PCAs, such as site reviews of 

training records and information systems records to ensure PCAs comply with related 

requirements.

• The extent to which IRS has addressed the critical success factors and the 17 related 

subfactors before turning over the cases is summarized in table 1.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 17 GAO-06-1065 

4

Objective 1: The Extent to Which IRS Will Have

Addressed the Critical Success Factors and 

Subfactors Before Turning Over Cases to PCAs

(cont’d)

Table 1: The Extent to Which IRS Has Taken Steps to Address the Critical Success Factors and Related

Subfactors for Contracting for Tax Debt Collection as of September 15, 2006

Complete Partial

Be aware of and control costs of functions related to contracting X

Ensure computer systems data exchange, payment tracking, and X

account updating

Ensure appropriate PCA employee training X

Have management commitment to using PCAs X

Agency resources Provide sufficient staffs to do contract-related work X

Use a contracting process for selecting PCAs to meet expectations X

Give PCAs freedom to achieve performance goals X

Establish contract provisions, operational expectations, and standards X

Results orientation Determine expected program goals, costs, and overall results X 

Critical success Related subfactor Status of step(s) to address the subfactor

factor

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Page 18 GAO-06-1065 

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Objective 1: The Extent to Which IRS Will Have

Addressed the Critical Success Factors and

Subfactors Before Turning Over Cases to PCAs 

(cont’d)

Source: GAO analysis.

Note: our analysis was not to determine the adequacy of IRS’s actions to address the critical success factors and subfactors, but rather whether

IRS had completed steps to address the various factors.

Complete Partial

Evaluate whether program meets goals and expectations, make X

adjustments 

Measure PCAs’ performance and distribute rewards/disincentives X

Evaluation Perform ongoing monitoring of PCAs X

Ensure the security of taxpayer information X

Taxpayer issues Ensure that taxpayers are treated properly X

Provide PCAs appropriate and accurate information X

Ensure that contractors work the range of cases X

Workload Select the appropriate type and volume of cases X

Critical success Related subfactor Status of step(s) to address the subfactor

factor

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Collection Program 

Page 19 GAO-06-1065 

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• As table 1 shows, IRS has taken steps to address all subfactors but has more to 

do, as of September 15, 2006. Of the 17 subfactors, IRS has completed steps to 

address 14. Although IRS has taken steps to address the remaining 3 

subfactors, IRS still has more work to do to complete addressing them. 

Objective 1: The Extent to Which IRS Will Have 

Addressed the Critical Success Factors and

Subfactors Before Turning Over Cases to PCAs

(cont’d)

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Page 20 GAO-06-1065 

7

• For the three subfactors for which IRS has remaining work, IRS has made

progress but did not yet have

• results-oriented performance goals and measures for the results IRS has 

said will come from the program;

• reliable, verifiable information on all PCA-related costs; and

• details on when and how evaluations would be done to determine whether 

the program met goals and expectations, in part because of a lack of

complete results-oriented program goals and related performance

measures.

• The following slides discuss IRS’s actions to address each of the 17 subfactors.

Objective 1: The Extent to Which IRS Will Have

Addressed the Critical Success Factors and 

Subfactors Before Turning Over Cases to PCAs

(cont’d)

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 21 GAO-06-1065 

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Objective 1: Results Orientation Subfactor:

Determine Expected Program Goals, Costs, and 

Overall Results

• IRS has completed steps to establish expected costs (see app. III) and desired results for 

contracting with PCAs.

• IRS officials said they had established private debt collection (PDC) program goals and 

related measures but were unable to document a complete list of goals and measures and 

their approval. Based on our feedback since March 2006, IRS has been revising these 

goals and measures and provided an updated revision in July 2006. Because of their draft 

status and late development, we have not fully analyzed them (app. IV lists the proposed 

goals and measures) but observed that not all these proposed measures have goals.

Some goals are to be established based on actual PDC program performance in 2007. 

IRS officials said they need to work with the PCAs to establish a PCA employee

satisfaction goal.

• We also observed that the proposed measures are not fully linked to the five desired

results for the PDC program (as identified in IRS documents and officials’ statements). 

Because of the difficulty in directly making such linkages, using intermediate proxy 

measures is acceptable. IRS provided information in August 2006 on which measures

were linked to the desired results but, as of September 15, 2006, had not yet documented 

the logic behind the linkages or whether more direct linkages could be made. Table 2 

shows our preliminary observations on the extent to which the proposed measures link to 

the desired results. 

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 22 GAO-06-1065 

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Objective 1: Results Orientation Subfactor:

Determine Expected Program Goals, Costs, and 

Overall Results (cont’d)

Table 2: Preliminary Observations and Rationales on Whether IRS’s Proposed PDC Program Measures Link

to the Desired Results for Contracting with PCAs, as of September 15, 2006

Source: GAO analysis.

Increased revenue Yes; measures of dollars and percentage collected are linked.

Partial; measures on PCA case closure rates would link to

increased case closure rates overall. The PCA cycle time 

measure would show speed and timeliness improvements if

compared to all IRS collection cases. None of the measures 

show how more cases will be handled earlier or whether

penalty and interest payments are reduced.

Top quality service to each taxpayer through 

increased case closure rates, speed and

timeliness of service, handling more cases 

earlier, and reducing penalties and interest

paid by taxpayers 

Partial; measures on PCA cases placed and closed link to 

backlog reduction but do not show the percentage of the

backlog reduction or whether that reduction is significant.

Significant reduction in the backlog of

delinquent/inactive tax inventory.

Partial; the measures on PCA staff satisfaction, PCA cases

placed, time taken to close PCA cases, and PCA case quality

could be indicators of PCA productivity but do not clearly link

to better utilization or freeing up of IRS staff.

Productivity through a quality work

environment, including better utilization of IRS 

staff and freeing up IRS staff to focus on more 

complex cases

Partial; the case quality measure links to service. Measures of 

how many PCA cases have been placed and closed can be

linked to improved fairness and compliance for cases correctly

resolved by PCAs. We have not seen a linkage through these 

measures or the taxpayer satisfaction survey with improved

taxpayer confidence. 

Top quality service to all taxpayers through 

improved compliance, fairness, and taxpayer 

confidence in the tax system 

Preliminary observations and rationales on whether IRS’s

proposed measures link to desired results

Desired results

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 23 GAO-06-1065 

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Objective 1: Results Orientation Subfactor:

Determine Expected Program Goals, Costs, and 

Overall Results (cont’d)

• Our previous work on high-performing organizations has shown that resultsoriented measures are important for allowing organizations to track the progress

they are making toward their goals and give managers crucial information on 

which to base their organizational and management decisions. 

• Leading organizations recognize that performance measures can create 

powerful incentives to influence organizational and individual behavior and

reinforce the connection between the goals outlined in strategic plans and the 

day-to-day activities of their managers and staff.

• Linking program performance to higher-level goals can provide a clear, direct

understanding of how the achievement of the program’s goals will lead to the 

achievement of the agency's strategic goals.

• We look forward to receiving more information from IRS officials as they work

toward documenting the final, approved PDC program goals and related 

performance measures and the measures’ linkages to the desired results.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 24 GAO-06-1065 

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Objective 1: Results Orientation Subfactor:

Establish Contract Provisions, Operational 

Expectations, and Measurable Performance

Standards and PCA Rewards and Disincentives

• IRS has completed the tasks to establish contract provisions, performance 

standards, operational expectations, and rewards and disincentives. 

• The Request for Quotations (RFQ, or contract solicitation) contains key contract 

elements of evaluation criteria, performance measurement, and compensation 

arrangements.

• IRS’s review and approval of PCAs’ operational plans, IRS meetings with PCAs 

in July 2006 and August 2006, and follow-up actions resulting from these 

meetings were to help clarify expectations.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 25 GAO-06-1065 

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Objective 1:

Results Orientation Subfactor: Give PCAs Freedom

to Achieve Performance Goals

• IRS has completed tasks intended to ensure PCAs have sufficient freedom to

achieve performance goals. For example, IRS had meetings with the selected 

PCAs in July 2006 and August 2006 in part, to go over program administration 

and expectations. IRS officials said that the meetings allowed PCAs an

opportunity to point out any restrictions that would adversely affect their 

performance. 

• During development of the program, IRS officials consulted with selected PCAs

and state and federal agencies that had contracted for debt collection, in part, to

ensure IRS’s program would be designed to provide PCAs adequate latitude to

achieve goals. For example, IRS’s contract will allow PCAs to vary in their 

practices, such as the frequency of attempted contacts with taxpayers, with the 

intent of enabling each PCA to utilize its competitive advantage.

• Also, IRS provided potential bidders for the PCA contract an opportunity to

review and comment on any restrictions in the draft PCA procedural 

requirements. The PCAs provided no comments on the requirements.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 26 GAO-06-1065 

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Objective 1

Results Orientation Subfactor: Contracting

Process for Selecting PCAs

• IRS has completed contracting process tasks designed to ensure that the

selected PCAs are able to meet operational and performance expectations.

• IRS sought proposals from preapproved vendors listed in the General Service 

Administration’s (GSA) Federal Supply Schedule contract for tax collection 

services. GSA had already determined that listed vendors were capable of

performing the work. The solicitation contained a detailed statement of work and 

required vendors to provide technical, past performance, and pricing information.

• IRS received 33 responsive proposals and evaluated all proposals using the 

three criteria specified in the solicitation: (1) relevant experience and past

performance, (2) technical approach, and (3) management plan. These criteria

are commonly used in government contracting.

• IRS selected three vendors to receive PCA contracts. The ninth-ranked vendor 

protested the evaluation, but GAO issued a decision on June 14, 2006, denying 

the protest and upholding the evaluation conducted by IRS.

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Appendix I: Briefing on the IRS Private Debt 

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Page 27 GAO-06-1065 

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Objective 1: Agency Resources Subfactor:

Providing Sufficient Staffs to Do Contract-Related

Work

• IRS completed steps to hire the number of staff officials judge to be sufficient to 

do PDC contract-related work. Staffs were hired for the Oversight Unit that will

oversee the PCAs (15 staff) and the Referral Unit that will refer cases to and 

receive cases from the PCAs (33 staff). 

• IRS determined its estimated staffing needs based on what it identified as key

workload drivers for similar functions. For example, IRS considered the workload 

drivers for the Oversight Unit to be the number of PCAs, number of teams and 

locations needed, and span of control (the number of employees to be

supervised).

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 28 GAO-06-1065 

15

Objective 1: Agency Resources Subfactor: Have 

Management Commitment to Using PCAs

• IRS has completed steps to ensure management commitment. IRS has three 

executive-level committees that meet regularly to oversee, coordinate, and

provide guidance for program management, including the Filing and Payment 

Compliance Advisory Council and Taxpayer Relationship Management

Executive Steering Committee. The program office also briefs the IRS

Commissioner monthly. 

• According to IRS officials, these committees serve as a means to inform IRS 

executives, including the Commissioner, and provide adequate assurance and 

opportunity for feedback on management’s commitment to the PDC program. 

• IRS officials said the executive briefings would continue throughout the limited 

implementation phase.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 29 GAO-06-1065 

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Objective 1: Agency Resources Subfactor: Ensure

Appropriate PCA Employee Training

• IRS has completed tasks to help ensure appropriate PCA employee training. For 

example, IRS developed the training curriculum that identifies the information 

that PCAs should use in developing training for their employees who will handle 

taxpayers’ information.

• The RFQ task order requires PCAs to train all their employees before they begin 

any taxpayer collection activity, including training on taxpayer rights and privacy

awareness.

• The RFQ requires the PCA employees to sign a form certifying that they 

completed the required training. The PCA must maintain these forms for review

by IRS upon request. 

• In response to our preliminary observations, IRS informed the PCAs that their 

employees must receive a proficiency score of 70 percent or better after training 

before being allowed to work on cases (as do IRS telephone collection 

employees) and plans to contractually require this test score threshold in future 

RFQs.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 30 GAO-06-1065 

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Objective 1: Agency Resources Subfactor: Ensure

Appropriate PCA Employee Training (cont’d)

• IRS plans to monitor PCAs’ performance through quality review assessments to

identify trends and gauge training effectiveness. IRS will use the same quality 

review process for PCA cases that it uses for cases worked by its own 

employees.

• Prior to turning over cases to the PCAs, IRS officials did site visits to monitor 

initial PCA training sessions to ensure the content and delivery of training

followed PCAs’ approved training plans. IRS officials developed a checklist for 

monitoring the PCA training.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 31 GAO-06-1065 

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Objective 1: Agency Resources Subfactor: Ensure

Computer Systems Data Exchange, Payment 

Tracking, and Account Updating

• IRS has completed the tasks for computer systems data exchange, payment 

tracking, and account updating.

• IRS’s system for tracking payments and updating taxpayer accounts is the same

as that used for other tax payments.

• In developing the management information system for handling PCA cases, IRS 

completed its system requirements, design, development, and testing activities

in accordance with its approved methodology for acquisition of information 

systems.

• IRS began its “partial production phase” (a simulated version of the limited 

implementation phase using IRS staff rather than PCAs) in January 2006 to help 

test processes and procedures.

• Before turning cases over to PCAs, IRS tested its capability to electronically

transfer encrypted case files to them.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 32 GAO-06-1065 

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Objective 1: Agency Resources Subfactor: Be

Aware of and Control Costs of Functions Related to

Contracting

• IRS has begun, but not completed, work to determine all the costs of the PDC 

program.

• Beginning July 2006, IRS has an accounting system that can be used to track 

program costs and established codes and procedures to track private debt

collection program costs. However, since prior costs were not systematically 

tracked, IRS would have to use available historical cost data to determine the 

costs that were incurred prior to systematic tracking, including such costs as 

those of planning the program beginning as far back as October 2001. 

• IRS officials said they are working to use available data to determine the 

historical costs. IRS provided us documentation on some of the these costs, but

without supporting information, it was not possible for us to assess whether it 

captured all costs or if the costs provided were reliable.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 33 GAO-06-1065 

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Objective 1: Workload Subfactor: Select

Appropriate Type and Volume of Cases for PCAs to

Work

• IRS completed work to identify the appropriate type and volume of PCA cases

for the limited implementation phase. IRS identified criteria intended to avoid 

sending cases that PCAs should not handle and used its information system to 

test the criteria for case selection. Beginning in January 2006, IRS officials 

tracked and analyzed the selected cases to ensure that they were appropriate 

for PCAs and to make any necessary changes to case selection programming.

• For the limited implementation phase, IRS will turn over to PCAs only cases that 

IRS currently is not working, including those “shelved” because of IRS’s 

inadequate resources to work them and those in the queue to be worked by IRS

employees but not yet assigned. However, in full implementation, IRS officials 

said they may assign PCAs unassigned cases from the various types of cases 

that IRS employees might work. 

• To reach case placement and collection goals for the limited implementation 

phase, IRS is increasing case age thresholds to 2 years since the case was put 

into its current status. IRS officials said they are planning more changes in the 

limited implementation phase, including further increasing case age and dollar

thresholds.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 34 GAO-06-1065 

21

Objective 1: Workload Subfactor: Select 

Appropriate Type and Volume of Cases for PCAs to

Work (cont’d)

• The impact of the changes in the age of cases on realizing revenue collection 

goals is uncertain. Some evidence suggests that PCAs are generally less 

successful as the age of debt increases. However, IRS officials said that the 

Financial Management Service within the Department of Treasury has been 

successful in using PCAs to collect debt in this age range.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 35 GAO-06-1065 

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Objective 1: Workload Subfactor: Ensure

Contractors Work the Range of Cases

• IRS has completed work on this factor with the following procedures:

• the RFQ requires PCAs to mail a letter to each taxpayer within 10 days of

receiving a case for cases for which IRS provides a valid address; 

• target PCA reimbursement rates reflect higher compensation for lowerdollar cases; 

• the PCA Policy and Procedures Guide clarifies that PCAs are to perform 

searches to locate all taxpayers that do not respond to initial contacts;

• IRS’s quality review procedures include a check that cases are being 

worked actively;

• according to IRS officials, IRS plans to analyze these quality review data

and other data reports to identify trends in working different types of

cases; and 

• PCAs are allowed to return accounts after 6 months, and IRS officials said

that before approving returns, they will check whether PCAs had taken the 

appropriate collection actions.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 36 GAO-06-1065 

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Objective 1: Workload Subfactor: Provide PCAs 

Appropriate, Accurate Information on Taxpayers

and Accounts

• IRS has completed the necessary tasks for this subfactor. According to IRS 

officials, the taxpayer and account information to be provided to PCAs will be the 

authoritative data from IRS’s own records—the most accurate available to IRS—

and the data will be updated four times a week to ensure accuracy. 

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

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Page 37 GAO-06-1065 

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Objective 1: Taxpayer Issues Subfactor: Ensure

Taxpayers Are Treated Properly by PCAs

• IRS has completed the steps intended to ensure that taxpayers are treated 

properly.

• IRS has developed procedures to protect taxpayers and to ensure taxpayers are 

treated properly, including the following:

• IRS will continue to require all new PCA employees to have background 

investigations, photo identifications, and training on taxpayer rights 

before they have access to taxpayer information; 

• IRS will conduct taxpayer satisfaction surveys;

• IRS will monitor PCAs’ compliance through quality reviews of PCAs’ 

telephone calls and case documents; and 

• IRS developed a formal complaint process for taxpayers to use based 

on input and comment from the National Taxpayer Advocate.

• IRS completed background investigations and monitoring of PCA employees’ 

training before turning over cases to PCAs.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 38 GAO-06-1065 

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Objective 1: Taxpayer Issues Subfactor: Ensure the

Security of Taxpayer Information

 IRS has completed the steps intended to ensure the security of taxpayer 

information. For example, IRS completed site visits of the PCAs and performed 

its safeguard computer security evaluations.

 The PCA contract statement of work addresses security requirements by

referring to compliance with information security guidance and by requiring 

minimum system capabilities, such as end-to-end encryption. 

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 39 GAO-06-1065 

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Objective 1: Evaluation Subfactor: Perform Ongoing 

Monitoring of PCA’s in Various Aspects of 

Operations and Performance Expectations

• As pointed out in our earlier discussion of training, IRS completed steps to 

perform the one type of performance monitoring that was to be done before 

turning over cases to PCAs: monitoring PCAs’ training of their own employees.

• As also discussed earlier, IRS has taken steps to implement various methods to

monitor PCAs’ performance in working cases, including

• PCA scorecard scoring,

• telephone monitoring and case quality reviews, and

• taxpayer satisfaction surveys.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 40 GAO-06-1065 

27

Objective 1: Evaluation Subfactor: Measure PCAs’ 

Performance and Distribute Rewards and 

Disincentives

• IRS’s tasks are complete on this subfactor in preparation for turning cases over 

to PCAs. As noted earlier, the RFQ (contract solicitation) contains key contract 

elements of performance measurement and compensation arrangements.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 41 GAO-06-1065 

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Objective 1: Evaluation Subfactor: Evaluate Whether

Program Meets Goals and Expectations, Make

Adjustments

• IRS must complete work on program goals and related results-oriented

measures to enable it to evaluate program results. As noted earlier, IRS officials 

provided us proposed PDC program goals and related measures but were 

unable to document a complete list of goals and measures and their approval.

Also, the proposed goals and measures IRS provided us were not linked to all 

the desired results for the PDC program.

• Our previous work has shown that evaluations are critical to ensuring that

programs achieve desired results, government funds are well spent, and the 

agencies are held accountable for the performance and effectiveness of the 

programs they administer.

• As discussed on the next slides, IRS did not have specifics on how it will assess

how critical success subfactors were addressed in the limited implementation 

phase. Without such assessments, IRS may lack information with which to better 

understand why goals (once they are established) were or were not achieved 

and to identify any needed adjustments.

 Tax Debt Collection
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Page 42 GAO-06-1065 

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Objective 2: How IRS Will Use Limited Implementation

Lessons Learned to Assess Critical Success Factors and

Performance Before Full Implementation 

• Although IRS officials said that a purpose of the limited implementation phase is to ensure 

readiness for full implementation of the program, it is not clear when IRS will decide, in

terms of addressing critical success factors, if it is ready to proceed with full

implementation. IRS officials said that they intend to establish a date and performance

criteria that would trigger a go/no go decision, but have delayed such work until after 

limited implementation starts in order to finish the tasks that must be done to turn over 

cases to the PCAs.

• Generally, IRS officials said they will collect information during the limited implementation

phase to establish baselines, identify trends, and provide a basis for making changes, if

needed, to the program. However, IRS officials could not cite specific circumstances that 

would cause IRS to discontinue or delay full implementation of the program. Officials said

that before expanding the program, they would consider a variety of data or criteria, such 

as the amounts of collected taxes and indications of PCAs mistreating taxpayers or

misusing tax data. IRS has not decided whether these targets would include the amounts 

of collected taxes compared to program costs, which was a reason for canceling the 1996

PCA program pilot.

• IRS did not have specifics on how and when collected information would be reviewed to

identify and use the lessons learned from the limited implementation phase to ensure that

the critical success factors have been addressed before IRS expands to full 

implementation. 

 Tax Debt Collection
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Page 43 GAO-06-1065 

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Objective 2: How IRS Will Use Limited Implementation

Lessons Learned to Assess Critical Success Factors and

Performance Before Full Implementation (cont’d)

• IRS’s management guidance requires IRS managers to “get behind the numbers” to

determine the reasons for program performance levels. Since critical success factors may 

be key to why desired results were or were not achieved, assessments of critical success 

factors could provide information with which IRS can take action to make adjustments to 

improve performance.

• Specific plans for how and when IRS will make decisions about readiness on critical 

success factors and program expansion can help ensure that IRS has the data it will need 

in time to make those decisions. Because of implementation delays caused by a contract 

award lawsuit and bid protest, IRS will have 16 instead of 24 months to identify any 

needed adjustments and make decisions on expanding the program. For limited 

implementation, IRS will have 7 months experience—from September 2006 to March 

2007—before issuing its next contract solicitation under its plans to have more PCAs

working more cases by January 2008. As originally planned, IRS would have rolled out

cases in January 2006.

• Our previous work has shown that data-based decision making is important for improving 

government operations and programs. Collecting and reviewing data, whether qualitative 

or quantitative, to help make decisions about expanding the PDC program will require 

resources as well as consideration of how to balance the costs and benefits of the data 

collection and review, including the risks of not ensuring that the critical success factors 

are adequately addressed or of ill-advised or premature expansion of the PDC program.

 Tax Debt Collection
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Page 44 GAO-06-1065 

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Objective 3: IRS’s Planned Study Of Using Pcas

• In the planned comparative study, IRS will compare the net dollars collected by

PCAs to the gross dollars that would be collected if IRS (1) took no further action 

on the cases or (2) worked the "next best" cases in IRS’s own telephone 

collection program with funding equal to IRS’s annual budget for administering 

the PDC program.

• IRS is planning to define the cases it considers to be “next best” and plans to

gather data on PCA cases for 6 to 12 months. IRS plans to do two iterations of

the study, one in September 2006 and one in March 2007.

• The study design indicates that IRS will not count the fees paid to PCAs as

program costs. IRS will subtract these fees from the tax debts collected and 

report the net dollars collected by PCAs.

• For example, if the study found that IRS's PDC program administration costs

were $6 million, PCAs collected $100 million in tax debt, and PCAs were paid

$24 million in fees, the study would compare only the net $76 million dollars that

PCAs collected to all the dollars IRS could be expected to collect if the $6 million 

were spent on IRS’s collection program.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 45 GAO-06-1065 

32

Objective 3: IRS’s Planned Study of Using 

PCAs (cont’d)

• Although IRS officials said that data on fees to PCAs—$24 million as shown in the above 

hypothetical results—could be made available to decision makers in the study results, the 

study plan document is not clear on that point or whether the total costs of the program, to 

include the PCAs’ fees, will be made apparent in the study.

• While the study may produce useful information, it will not compare the results of using 

PCAs with the results IRS could get if it was given the same amount of resources, 

including the fees to be paid by the government to the PCAs. As a result, the IRS study 

will not meet the intent of our recommendation. Our previous work has shown that for

informed decision making, agency managers and other stakeholders need reliable, valid 

data on the costs of government programs. Economic principles and government cost 

analysis criteria suggest that federal government costs and social costs should be

considered in analyzing programs and policies.

• For example, a study that would meet the intent of our recommendation would compare 

the dollars collected by PCAs to the dollars that IRS could be expected to collect if the true 

costs to the government—such as the $6 million from the PDC program administration 

budget plus the $24 million in PCA fees (which are paid out of federal tax receipts) as

shown in the above hypothetical example—were spent by IRS on working its next best 

cases, using the most effective strategy for identifying and working such cases.

 Tax Debt Collection
Appendix I: Briefing on the IRS Private Debt 

Collection Program 

Page 46 GAO-06-1065 

33

Objective 3: IRS’s Planned Study of 

Using PCAs (cont’d)

• IRS officials said that such a comparison is not realistic because Congress

would not approve such a budget increase. As noted in our 2004 report, IRS 

officials said that the proposal that Congress authorize IRS to use PCAs arose,

in part, because of the belief that Congress was not likely to provide the 

increased budget to hire enough IRS staff to work on the inventory of collection

cases. 

• IRS’s proposed study approach—by netting PCA fees from dollars collected by

PCAs—apparently adopts IRS’s assumption about potential funding increases.

However, unless Congress is fully informed on the true costs of the PDC

program, and the potential impact of increasing collections funding, it will lack

key information with which to make decisions on how federal funds can best be 

spent to meet tax collection goals, in concert with other information about trade- offs with other government programs.

• IRS officials stated that supplemental research efforts are being designed to

identify the best use of PCAs among all cases in the collections inventory. The

status and methodologies of these efforts are not clear because IRS has not yet

provided us documents on them.

 Tax Debt Collection
Appendix II: Scope and Methodology Appendix II: Scope and Methodology 

To determine to what extent the Internal Revenue Service (IRS) addressed 

the critical success factors before turning over collection cases to the 

private collection agencies (PCA) we reviewed program documents and 

interviewed IRS officials. IRS agreed with the critical success factors we 

identified. We identified the approaches/methods IRS intended to use to

address the factors and related subfactors and identified any steps IRS had 

remaining to address each factor before turning over cases to PCAs. We 

analyzed interviews and documents to identify any gaps in IRS’s approach, 

such as factors for which IRS lacked intended approaches/methods to 

address a factor, documented plans for completing steps, or details on 

how intended approaches/methods would be implemented. For selected 

subfactors related to areas for which we had related expertise and readily 

available criteria (government acquisition, information technology 

development and security, and financial management), we analyzed IRS’s 

program documents and compared IRS’s approach for addressing the 

subfactor to the criteria. For example, our information security staff 

reviewed IRS’s approach for addressing information security issues in light 

of Federal Information Security Management Act and National Institute of 

Standards and Technology requirements. We did not attempt to analyze 

how well IRS addressed the factors or whether IRS made the right 

decisions on issues such as PCA employees’ training or taxpayer 

protections. 

To determine how IRS will use the lessons learned from the limited 

implementation phase to assess the critical success factors and program 

performance before full program implementation, we interviewed IRS 

officials and reviewed available agency documents and plans. We focused 

on when and how, if at all, IRS would determine whether its 

approaches/methods for addressing the factors worked as intended; if 

program performance warrants program expansion; and what changes, if 

any, should be made before fully implementing the program. 

To determine whether IRS’s planned approach to study using PCAs will 

provide useful information with which to determine if contracting is the 

best use of federal funds for achieving tax collection goals, we reviewed 

program documents and interviewed officials from IRS supported by 

contractor staff assisting them in developing the study. 

We used data only as background for reporting and did not formally assess 

their reliability. To the extent possible, we corroborated information from

interviews with documentation and, where not possible, we report the 

information as attributed to IRS officials. Although we obtained 

documentation that IRS had completed steps to address the critical 

Page 47 GAO-06-1065 Tax Debt Collection
Appendix II: Scope and Methodology 

success subfactors, we did not do detailed verification of the documents, 

in part due to the limited time we had between IRS completing and 

documenting some steps taken in preparation for turning the cases over to

PCAs on September 7, 2006, and the due date of this report. 

We did our work from August 2005 to September 2006 in accordance with 

generally accepted government auditing standards. 

Page 48 GAO-06-1065 Tax Debt Collection
Appendix III: Selected Data Related to IRS’s 

Expectations for Elements of the Private Appendix III: Selected Data Related to IRS’ Debt Collection Program s 

Expectations for Elements of the Private 

Debt Collection Program 

Element 

In the limited 

implementation phasea

In full program implementation 

(inclusive of limited 

implementation phase)b

Revenue collected $55.8 million to $92 million $1.4 billionc

Number of IRS staff Referral Unit: 33

Oversight Unit: 15

Other: 17

Referral Unit: 70

Oversight Unit: 35

Other: 15

Costsd$61.16 millione$77.58 millionf

PCAs contracted 3 Up to 12g

Case placements 158,000 Not availableh

Dollar value of case 

placements 

$615.6 million to

$1.01 billion

Not availableh

Source: IRS. 

Note: The data are based on IRS’s expectations. We did not verify the data. 

a

Unless otherwise noted, date range is from September 2006 (date of turning over cases to PCAs) 

through December 2007. 

b

Unless otherwise noted, date range is from September 2006 (date of turning over cases to PCAs) 

through September 30, 2009. 

c

This is a 10-year estimate with no date range provided. According to IRS officials, this is a 

Department of Treasury estimate. IRS did another estimate based on a different methodology for its 

information systems investment document which is being revised. 

d

This includes information systems acquisition, maintenance, and IRS staff costs. 

e

Costs are from IRS’s information systems investments document, which includes costs that precede

case rollout and data organized by information system subrelease with a date range from October 1, 

2004, through May 30, 2007, and is being revised with changes that may affect program costs. 

f

Costs are from IRS’s information systems document, which has cost data organized by information 

system subrelease with a date range from October 1, 2004 through September 30, 2009 and is being 

revised with changes that may affect program costs. 

g

No date range was provided. However, IRS officials said they expect to increase the number of 

PCAs beginning in January 2008.

h

IRS officials said that inventory estimates for full implementation cannot be made until decisions are

made about information system releases. 

Page 49 GAO-06-1065 Tax Debt Collection
Appendix IV: Proposed Private Debt 

Collection Program Performance Measures 

and Goals for Fiscal Year 2007 Fiscal Year 

2007 

Appendix IV: Proposed Private Debt 

Collection Program Performance Measures 

and Goals for Fiscal Year 2007 

IRS category 

Proposed private debt collection program 

performance measure Goal 

Operations

Cases placed Number of cases placed with PCAs in first 12 months 100,000 

Resolutions Percentage of cases placed with PCAs that are 

resolved 

63

Recalls Number/percentage of PCA cases recalled to IRS a 

Not collectible Number/percentage of PCA cases that are deemed

currently not collectible 

a 

Bankruptcies and 

decedents 

Number/percentage of cases involving bankruptcies 

or decedents 

b

Cycle time PCA time to close the case a 

Financial 

Dollars placed Amount of unpaid tax debts that are placed with PCAs b 

Collections Amount of unpaid tax debts that are collected b

Collection percent Percentage of unpaid tax debts placed with PCAs that 

is collected 

6

Collections retained 

by IRS 

Amount of PCA collections that IRS retains to fund 

collection enforcement activities 

b

Full payments Cases closed as fully paid a

3-5 year installment 

agreements 

Cases closed with an agreement to satisfy the 

taxpayer’s unpaid tax debt in 3 to 5 years 

a

5-year installment 

agreements 

Cases closed with an agreement to satisfy the 

taxpayer’s unpaid tax debt in more than 5 years 

a

Quality

Taxpayer 

satisfaction 

Percentage of surveyed taxpayers responding that 

they were satisfied 

67.5 

IRS employee 

satisfaction 

Satisfaction score for IRS employees in PDC program 3.72 of 5

PCA employee

satisfaction 

Satisfaction score for PCA employees working cases to be set 

Accuracy Accuracy score for PCA cases c

Timeliness Timeliness score for PCA cases c

ProfessionalismdProfessionalism score in PCA cases c

Complaints Verified major complaints against PCA employeese0

Case quality Overall percentage quality score for cases worked by 

PCAs 

90f

Source: IRS information as of September 15, 2006. 

a

Goals will be determined using experiences with PCA cases over the first year. 

b

Goals will be developed using IRS’s revenue projection model. 

Page 50 GAO-06-1065 Tax Debt Collection
Appendix IV: Proposed Private Debt 

Collection Program Performance Measures 

and Goals for Fiscal Year 2007 Fiscal Year 

2007 

c

Goals will be based on those used in the IRS telephone collection function. 

d

Includes various types behavior of when interacting with taxpayers, such as promoting a positive

image by using effective communication techniques. 

e

These major complaints could be reported by taxpayers and government employees and include 

intimidation, heavy-handed behavior, or similar activity by a PCA employee (type 2 complaint) or 

statutory violations by a PCA employee, such as those of the Taxpayer Bill of Rights, Fair Debt 

Collection Practices Act, Privacy Act, taxpayer information disclosure statutes, or other applicable 

laws (type 3 complaint). 

f

PDC program officials said this is an approximate goal that could be revised based on experience in 

IRS’s telephone collection function. 

Page 51 GAO-06-1065 Tax Debt Collection
Appendix V: Comments from the Internal Appendix V Revenue Service : Comments from the Internal 

Revenue Service 

Page 52 GAO-06-1065 Tax Debt Collection
Appendix V: Comments from the Internal 

Revenue Service 

Page 53 GAO-06-1065 Tax Debt Collection
Appendix V: Comments from the Internal 

Revenue Service 

Page 54 GAO-06-1065 Tax Debt Collection
Appendix V: Comments from the Internal 

Revenue Service 

Page 55 GAO-06-1065 Tax Debt Collection
Appendix V: Comments from the Internal 

Revenue Service 

Page 56 GAO-06-1065 Tax Debt Collection
Appendix V: Comments from the Internal 

Revenue Service 

Page 57 GAO-06-1065 Tax Debt Collection
Appendix V: Comments from the Internal 

Revenue Service 

Page 58 GAO-06-1065 Tax Debt Collection
Appendix VI: 

A

GAO Contact and Staff 

cknowledgments 

Page 59 GAO-06-1065 

Appendix VI: GAO Contact and Staff 

Acknowledgments 

Michael Brostek, (202) 512-9110 or brostekm@gao.gov 

In addition to the contact named above, Tom Short, Assistant Director; 

John Davis; Charles Fox; Timothy Hopkins; Ronald Jones; Jeffrey Knott; 

Veronica Mayhand; Edward Nannenhorn; Cheryl Peterson; and William 

Woods made key contributions to this report. 

 Tax Debt Collection

GAO Contact 

Acknowledgments 

(450434) 
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