United States Government Accountability Office

GAO Testimony 

Before the Committee on Ways and 

Means, House of Representatives

TAX DEBT COLLECTION

Measuring Taxpayer 

Opinions Regarding Private 

Collection Agencies 

Statement of Gregory D. Kutz, Managing Director 

Forensic Audits and Special Investigations 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Wednesday, May 23, 2007

 

GAO-07-890T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 23, 2007

TAX DEBT COLLECTION 

Measuring Taxpayer Opinions Regarding 

Highlights of GAO-07-890T, a testimony Private Collection Agencies 

before the Committee on Ways and 

Means, House of Representatives 

Every year the Internal Revenue 

Service (IRS) does not collect tens 

of billions of dollars in delinquent 

taxes. In 2004, Congress

authorized IRS to use private 

collection agencies (PCA) to help 

collect some of these debts. To 

ensure that taxpayers are treated 

properly and that the program 

achieves the desired results, IRS 

contracted with a consulting

company to perform a survey of

right party contacts—those

individuals who confirmed their 

identity and tax debt to PCAs over 

the telephone. The consulting 

company reported overall taxpayer 

satisfaction ratings from 94 to 96

percent for contacts made from

November 2006 through February

2007. 

At the request of the Chairman, 

House Committee on Ways and

Means, GAO attempted to obtain,

for the period September 2006 

through February 2007, the number

of tax debt cases IRS referred to

PCAs, right party contacts who 

were offered the taxpayer survey, 

and right party contacts who took

the survey. GAO was also asked to 

report any other key observations

related to the PCA program and 

taxpayer survey. 

To perform this work, GAO 

collected information and 

interviewed officials from IRS, the 

consulting group that administered

the survey, and the PCAs. 

According to the PCAs, 37,030 tax debt cases were referred to them by IRS 

from September 2006 through February 2007. PCAs reported making 

contact with, and authenticating the identity of, 13,630 right party contacts.

Of these, 6,793 were eligible to take the taxpayer survey which did not start 

until the end of November 2006. According to the consulting company, the 

validity of the survey was based on the key underlying assumption that all 

right party contacts would be offered a chance to take the survey. However, 

GAO could not determine the number of right party contacts offered the 

survey because not all PCAs kept records on who was offered it. Further, as 

summarized in the following table, the three PCAs used different methods to 

determine which right party contacts were offered the survey. 

PCA Approaches to Survey Methodology, December 2006 through February 2007 

PCA 

Number of

individuals

offered 

survey Survey methodology

Offered survey to 

all right party 

contacts Records kept

One 999

Primarily offered survey to all 

first and third contacts during 

specified times of day No Yes

Two 1,283

Offered to all right party

contacts Yes No

Three Unknown

Offered to all right party

contacts with some exceptions No No

Sources: GAO and the PCAs. 

Note: Right party contacts offered the survey between 11/27/06 and 11/30/06 are not included in the figures above.

The consulting company that administered the survey told GAO that 

between November 27, 2006, and February 28, 2007, 1,572 of the individuals

offered the survey, agreed to take the survey, and 1,011 of these individuals

completed the survey. A consulting company representative told GAO that 

the company was not aware, until several months after the survey was first 

offered, that the PCAs used differing methodologies for offering the survey 

and that not all right party contacts were offered an opportunity to complete

the survey. According to IRS, beginning in April 2007, PCAs began offering 

the survey to all right party contacts. 

Among other key observations, IRS advised GAO that they did not provide 

the PCAs with taxpayer telephone contact information for referred cases. 

As a result, in attempting to contact taxpayers by telephone, PCA 

representatives tried to determine the taxpayers’ phone numbers through 

electronic searches. PCA representatives told GAO that they made a total of 

252,173 outbound connected telephone calls from September 2006 through 

February 2007 in an attempt to make contact with the 37,030 tax debt cases

IRS referred. PCAs did not offer the survey to incorrect contacts, such as

individuals who provided personal information but were not authenticated 

as right party contacts. 

www.gao.gov/cgi-bin/getrpt?GAO-07-890T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gregory D. 

Kutz at (202) 512-7455 or kutzg@gao.gov. 
Mr. Chairman and Members of the Committee: 

Thank you for the opportunity to discuss issues related to private 

collection agencies (PCA). Because the Internal Revenue Service (IRS) 

does not collect billions of dollars of delinquent taxes each year—at the 

end of fiscal year 2005, it estimated that $132 billion in delinquent debt 

with some collection potential had gone uncollected—it supports the use 

of PCAs to enhance its existing collection mechanisms. In 2004, Congress 

authorized IRS to use PCAs to help collect tax debts in certain cases.1

Based on that authority, in 2006, IRS contracted with three PCAs as a pilot 

program.2

 Before referring cases to PCAs, IRS sends notification letters to 

the taxpayers explaining that their cases will be handled by a PCA. Once 

cases are referred, PCAs must first notify taxpayers of their collection 

efforts by letter, and are then allowed to contact the taxpayers via 

telephone.3

 Individuals who are properly authenticated over the telephone 

are known as right party contacts. 

According to IRS, in the first 7 months of the pilot program, PCAs helped 

IRS collect about $19 million in tax debt from right party contacts—over 

$3 million of which was paid to the PCAs under the terms of their contract. 

As we have previously reported, in addition to the collection of tax debt, 

providing for the proper treatment of taxpayers is a critical factor in 

ensuring that the PCA program achieves desired results.4

 In order to 

measure taxpayer opinion and gauge PCA performance, IRS contracted 

with a consulting company to perform a taxpayer survey of right party 

contacts. Starting on November 27, 2006, the consulting company 

administered an automated telephone survey to right party contacts 

transferred to a survey line by the PCAs. Based on this automated survey,

 1

American Jobs Creation Act of 2004, Pub. L. No. 108-357, § 881, 118 Stat. 1418 (codified at 

26 U.S.C. 6306) (2004). 

2

Contract in this case refers to task orders issued to the three PCAs under their existing 

United States General Services Administration federal supply schedule contracts. 

3

If an authorized representative is designated on an individual’s tax return, for example, a 

legal representative, such as a Power of Attorney, the PCA is required to contact the

representative rather than the individual taxpayer. For the purposes of this report, all 

references to taxpayers are defined as either individual taxpayers or their representatives. 

4

See 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). Also see GAO, Tax Debt Collection: IRS Needs to 

Complete Steps to Help Ensure Contracting Out Achieves Desired Results and Best Use of 

Federal Resources, GAO-06-1065 (Washington, D.C.: Sept. 29, 2006). 

Page 1 GAO-07-890T 
the consulting company reported that taxpayer satisfaction with PCAs was 

94 percent for November/December 2006, 94 percent for January 2007, and 

96 percent for February 2007. 

Given the importance of ensuring that taxpayers are treated properly, at 

your request, we attempted to obtain, for the period September 2006 

through February 2007, the number of cases IRS referred to PCAs, right 

party contacts who were offered the taxpayer survey, and right party 

contacts who took the survey. We were also asked to report any other key 

observations related to the PCA program and taxpayer survey. 

To perform our work, we collected data and interviewed officials from 

IRS, the consulting group that administered the survey, and the three 

PCAs. We also reviewed the statement of work for the contract between 

IRS and the consulting company, and contract between IRS and the three 

PCAs. IRS, PCAs, and the consulting company told us that the data they 

provided are accurate. Because we did not independently verify the data, 

we cannot offer an opinion on its reliability or accuracy. We did not 

attempt to compare the PCA program with other forms of debt collection 

or evaluate the performance of the program itself. In addition, based on 

our discussions with IRS and the entities involved in this program, we 

have included key observations related to the PCA program and taxpayer 

survey. These observations illustrate areas of concern and are not 

intended to offer a comprehensive analysis of the PCA program. At your 

request, we focused our work on the period September 2006 through 

February 2007. We conducted our work from April 2007 through May 2007

in accordance with the President’s Council on Integrity and Efficiency’s 

Quality Standards for Investigations.

In summary, we found the following:

• According to the PCAs, 37,030 tax debt cases were referred by IRS 

from September 2006 through February 2007. PCAs reported making 

contact with, and authenticating the identity of, 13,630 of the 

individuals whose cases were referred. Because the taxpayer survey 

was not offered until the end of November 2006, 6,793 of these right 

party contacts were eligible to take the survey—about 50 percent of all

right party contacts made since September 2006. 5

 5

Right party contacts made from November 27, 2006, through November 30, 2006, are not 

included in this figure, although they would have been eligible to take the survey. 

Page 2 GAO-07-890T 
• According to the consulting company, the validity of the survey was based 

on the key underlying assumption that all right party contacts would be 

offered a chance to take the survey. However, we could not obtain the 

number of right party contacts offered the survey because not all PCAs 

kept records on who was offered the survey. Additionally, the three PCAs 

used different methods to offer right party contacts the survey. For 

example, one PCA told us that the survey was offered to all right party 

contacts, unless the PCA representative was aware of certain limiting 

circumstances (e.g., the individual was contacted while driving). Another 

PCA told us that taxpayers were randomly selected to take the survey by 

using a structured method that offered the survey to every first or third 

contact during a specified time of day. 

• The consulting company that administered the survey told us that from 

November 27, 2006, through February 28, 2007, 1,572 individuals agreed to

take the survey, and 1,011 of these individuals completed the survey. A 

consulting company representative told us that the company was not 

aware, until several months after the survey was first offered, that the 

PCAs used differing methodologies for offering the survey and that, as a 

result, not all right party contacts were offered an opportunity to complete

the survey. 

• Among other related key observations, we were told that it was IRS policy 

to not provide the PCAs with taxpayer telephone contact information. As a 

result, in attempting to contact taxpayers by telephone, PCA 

representatives tried to determine the taxpayers’ phone numbers through 

electronic searches. According to the PCAs, their representatives made a

total of 252,173 outbound connected telephone calls from September 2006 

through February 2007 in an attempt to resolve the 37,030 cases IRS 

referred.6

 Out of these 252,173 calls, PCAs confirmed 13,630 right party 

contacts. 

• The overall satisfaction rating of 94 percent to 96 percent reported by the 

consulting company, and quoted by IRS, represents the answer to 1 

 6

According to IRS, for all PCAs, the outbound connected call figure includes any outbound

phone call that connects with a person, with the exception of calls that are answered but 

immediately disconnected. For 2 PCAs, outbound connects include reaching an electronic 

answering device such as an answering machine. The third PCA's predictive dialer system 

does not connect identified answering machine calls to employees. Outbound connects do

not include no answers, operator messages for disconnected numbers, busy signals, fax 

machine answers, or calls that do not connect for any other reason. 

Page 3 GAO-07-890T 
question on the 20-question automated survey. Of the survey questions, 15 

related to taxpayer satisfaction; the other questions were to gather more 

information about the respondents themselves. Those respondents who 

completed the entire survey had their results counted by the consulting 

company. 

As of December 2004, IRS classified approximately $7.7 billion in 

delinquent tax debt as potentially available for private debt collection—

$5.5 billion in low-priority work and $2.2 billion that was not likely to be

assigned to IRS employees for collection. In the American Jobs Creation 

Act of 2004, Congress authorized IRS to contract with private sector debt 

collection companies to collect federal tax debts. Based on this authority, 

IRS awarded contracts in March 2006 to three PCAs for tax collection 

services. IRS began referring taxpayer cases to PCAs in September 2006. 

Because of legal restrictions, PCAs can only 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 payments

cannot be made, and obtaining financial information from taxpayers. PCAs 

have limited authorities and are not allowed to adjust the amount of tax 

debts or to use enforcement powers to collect the debts, which IRS 

believes are inherently governmental functions to be performed only by

IRS employees. Additionally, PCAs do not actually collect the debts, but 

instruct taxpayers to forward payments to IRS. PCAs are paid on a fee-forservice basis ranging from 21 percent to 24 percent of the debt collected 

based on the balance of the account at the time of referral. IRS only 

referred those cases in which the taxpayer had not disputed the debt (e.g., 

taxpayers who filed form 1040, 1040A, or 1040EZ and owe a balance) and 

delinquency exists for one or more tax periods. 

Under the IRS policy and procedures guide, PCAs are required, within 10 

calendar days of receiving delinquent account information from IRS, to 

send a taxpayer notification letter to an address provided by IRS. This 

letter states that the taxpayer’s account has been placed with an IRS 

contractor for collection. According to IRS guidance, no sooner than 2 

days after the PCA sends the notification letter, PCA employees may 

attempt to contact the taxpayer by telephone. However, to comply with 26 

U.S.C. § 6103—which establishes a taxpayer’s right to privacy of tax 

information—PCA employees must not disclose any tax information until 

they are certain the person with whom they are speaking is the taxpayer. 

When a PCA employee makes a call to a taxpayer and reaches an 

answering machine, the only information the employee may leave on a 

recording is his or her name (no pseudonyms), company name, telephone 

number, the name of the taxpayer the PCA is attempting to reach, and the 

Background 

Page 4 GAO-07-890T 
fact that the PCA is calling about a debt (i.e., rather than specifically a tax 

debt). 

In August 2006, IRS began working with a consulting company to develop

and administer a taxpayer survey for PCA contacts. On November 27, 

2006, the consulting company began administering the survey. Under 

guidance issued by IRS, PCAs were instructed to invite every right party 

contact to take the survey. If the contacts agreed to take the survey, they

were transferred to the automated survey line. For the first 3 months of 

survey administration, the consulting company was required to issue 

overall satisfaction scores every month, followed by a quarterly report 

containing responses to all survey questions with information subdivided 

by each PCA. 

According to IRS, early in 2007, IRS did not execute the option to renew 

one of the PCA contracts. As of the date of this testimony, only two of the 

PCAs we reviewed are now under contract with IRS. 

According to the PCAs, 37,030 tax debt cases were referred by IRS from 

September 2006 through February 2007. In addition, we were informed 

that the survey was not offered until November 27, 2006—almost 3 full 

months after PCAs began to contact taxpayers. PCAs reported a total 

number of 13,630 right party contacts from September 2006 through 

February 2007, with 6,793 of these contacts made after the survey was 

available.7

 Because PCAs began calling taxpayers in September 2006 

before the survey was available, about 50 percent of all right party 

contacts identified during the period of our review were not eligible to

take the survey. 

According to the consulting company, the validity of the survey was based 

on the key underlying assumption that all right party contacts would be 

offered a chance to take the survey. Although IRS instructed the PCAs to 

offer the survey to all right party contacts, we could not obtain 

information on how many of the 6,793 contacts were offered the survey. 

One PCA reported that it offered the survey to 999 right party contacts and 

made 2,694 right party contacts during this period. Officials at this PCA 

PCA Program Data, 

Survey Data, and Key 

Related Findings 

 7

As indicated previously, right party contacts made from November 27, 2006, through 

November 30, 2006, are not included in this figure, although they would have been eligible 

to take the survey. 

Page 5 GAO-07-890T 
told us that from November 27, 2006, through February 13, 2007, taxpayers 

were randomly selected to take the survey using a structured method that 

offered the survey to every first or third contact during a specified time of 

day. The second PCA told us that it offered the survey to all right party 

contacts, but it did not keep any records to substantiate this claim. The 

third PCA told us that the survey was offered to all right party contacts, 

unless the PCA representative was aware that the contact was driving, if 

the contact had stated that he or she needed to get off the phone, or the 

contact said he or she was late for something. This PCA also did not have 

records regarding how many right party contacts were offered the survey, 

but an official noted that they were implementing procedures to track this

information in the future. See table 1 for a summary of the PCA 

approaches to offering the survey during the period of our review. 

Table 1: PCA Approaches to Survey Methodology, November 2006 through February 2007 

PCA 

Number of individuals 

offered survey Survey methodology 

Offered survey to all 

right party contacts 

Records 

kept 

Company one 999 Primarily offered survey to all first and third 

contacts during specified times of day 

No Yes

Company twoa1,283 Offered to all right party contacts Yes No 

Company three Unknown Offered to all right party contacts with some 

exceptions 

No No

Sources: GAO and the PCAs. 

Note: Right party contacts offered the survey between November 27, 2006 and November 30, 2006 

are not included in the figures above. 

a

IRS did not execute the option to renew this PCA’s contract early in 2007. 

Beginning in early April 2007, IRS officials reemphasized the need for 

PCAs to offer the survey to all right party contacts and to keep records in 

this regard. These instructions have been incorporated in additional 

guidance for the PCAs. 

The consulting company that administered the survey provided us with 

records indicating that of those offered the survey, 1,572 right party 

contacts agreed to be transferred to the automated survey system from 

November 27, 2006, through February 28, 2007. Of these, records further 

indicate that 1,011 individuals completed the survey. A consulting 

company representative told us that the company was not aware, until 

several months after the survey was first offered, that the PCAs had used 

differing methodologies for offering the survey and that not all right party 

contacts were offered it. Table 2 provides summary information on the 

data we gathered from IRS, the PCAs, and the consulting company. 

Page 6 GAO-07-890T 
Table 2: Summary of PCA Work and Consulting Company Survey Work, September 

2006 through February 2007 

Tax debt cases referred to PCAs 37,030

Right party contacts 13,630

• During survey perioda

6,793

• Offered survey Unknown

• Agreed to be transferred to survey line 1,572

• Completed survey 1,011

Sources: IRS, the PCAs, and the consulting company. 

Note: We did not independently verify the reliability of these data. 

a

The survey period we reviewed was from November 27, 2006, through February 28, 2007. Data do 

not include right party contacts made between November 27, 2006 and November 30, 2006. 

We also made several related observations during the course of our work: 

• PCAs were given some information about taxpayers with delinquent 

debt, including the taxpayers’ name, Social Security numbers, and last 

known addresses per IRS records. According to IRS, it did not provide 

PCAs with telephone numbers for the taxpayers as a matter of policy. 

As a result, in attempting to contact taxpayers by telephone, PCA 

representatives tried to determine the taxpayers’ phone numbers 

through electronic searches, for example, through the Lexis-Nexis 

database. PCAs told us that they made a total of 252,173 outbound 

connected telephone calls from September 2006 through February 2007 

in an attempt to resolve the 37,030 cases referred by IRS. PCAs 

indicated that 89,781 calls—or about 36 percent of all connected 

outbound calls—resulted in messages left on answering machines, 

voice mail, or with third parties. 

• In an attempt to make contact with the right party, PCAs may have 

contacted a substantial number of taxpayers who were not part of the 

37,030 cases referred to PCAs by IRS—these taxpayers represent a 

potentially large group of incorrect contacts. Incorrect contacts were 

not offered the survey. Examples of individuals who were not offered 

the survey would include individuals who refused to provide personal 

information to the PCAs and individuals who provided personal 

information but were not authenticated as part of the 37,030 IRS 

referrals. 

• The overall satisfaction rating reported by the consulting company, and 

quoted by IRS, represents the answer to 1 question on a 20-question 

automated survey. The question was “Everything considered, whether 

Page 7 GAO-07-890T 
you agree or disagree with the final outcome, rate your overall

satisfaction with the service you received during this call.” 

Respondents were allowed to rate their satisfaction on a scale of one to

five—with one being “very dissatisfied” and five being “very satisfied.” 

Of the survey questions, 15 related to customer satisfaction; the other 

questions were to gather more information about the respondents 

themselves. Those respondents who completed the entire survey had 

their results counted by the consulting company. Satisfaction ratings 

for other survey questions ranged from 81 percent (ease of 

understanding letters received from PCAs) to 98 percent (courtesy of 

PCA representatives). 

• Officials at IRS and the consulting company confirmed that some right 

party contacts were offered (and may have taken) the survey more 

than once because they had multiple discussions with a PCA 

representative. Thus, some of the 1,011 right party contacts who 

completed the survey may represent duplicate respondents. 

Mr. Chairman, this concludes my statement. I would be pleased to answer 

any questions that you or other members of the Committee may have at

this time. 

For further information about this testimony, please contact Gregory D. 

Kutz at (202) 512-7455 or kutzg@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this testimony. Key contributors to this testimony were John Ryan, 

Assistant Director; Bruce Causseaux, Jennifer Costello, Heather Hill, 

Wilfred Holloway, Jason Kelly, and Andrew McIntosh. 

Page 8 GAO-07-890T 

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