GAO 

United States Government Accountability Office

Report to the Committee on Finance, 

U.S. Senate 

TAX DEBT 

COLLECTION 

IRS Needs to Better 

Manage the Collection 

Notices Sent to 

Individuals 

September 2009 

GAO-09-976 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2009

TAX DEBT COLLECTION

IRS Needs to Better Manage the Collection Notices

Sent to Individuals

Highlights of GAO-09-976, a report to the 

Committee on Finance, U.S. Senate 

According to the Internal Revenue 

Service (IRS), $23 billion in unpaid 

individual income tax debt existed 

in 2001, its most recent estimate. 

The notice phase is the first of 

IRS’s three-phase process to collect 

unpaid debt. IRS annually sends 

notices to millions of individual 

taxpayers about billions of dollars 

of unpaid tax debt. 

Congress and others have 

questioned IRS’s collection 

process’s effectiveness. As 

requested, GAO is reporting on 

(1) how well IRS has established 

objectives, performance measures, 

and responsibility for reviewing 

notice-phase performance, and 

(2) how well IRS’s business rules 

for sending notices to individuals 

help assure that the collection 

notice phase is achieving desired 

results at the lowest costs. To 

address these objectives, GAO 

compared the evidence obtained 

from IRS documents and 

responsible IRS collection officials 

to applicable guidance for internal 

control standards.

What GAO Recommends

GAO recommends that the 

Commissioner of Internal Revenue 

establish for the notice phase: 

(1) objectives and performance 

measures, (2) responsibilities for 

reviewing performance, 

(3) documented rationales for the 

business rules, (4) useful 

information on what the business 

rules are, and (5) periodic 

evaluations of the rules. In 

commenting, IRS agreed with the 

recommendations and said that IRS 

would make related improvements. 

Although the notice phase is a key part of IRS’s approach and strategy for 

resolving billions of dollars of individuals’ unpaid tax debt, IRS lacks certain 

internal controls to assure that notices to individuals are achieving the most 

benefits—such as debt collected or unpaid debt cases otherwise resolved— 

with the resources being used. Management controls like clearly defined 

objectives, performance measures, and clear responsibility for reviewing 

program performance help provide reasonable assurance that the objectives 

of an agency are being achieved effectively and efficiently. However, IRS has 

no documented objectives for the notice phase and no performance measures 

to indicate how well the phase is performing in resolving debt cases or 

achieving other potential desired results. Further, IRS has not established 

responsibility for reviewing the performance of the complete notice phase. 

IRS lacks documentation for and evaluations of its business rules for notices 

to individuals to assure that the collection notice phase is achieving desired 

results. According to IRS officials, to make the best use of collection 

resources, IRS uses its business rules to—based on certain dollar thresholds 

and individual tax debt case characteristics—vary the number and types of 

notices sent to taxpayers and determine whether unresolved cases will be 

sent for further collection action or further action will be deferred. However, 

as shown in the table, in almost all cases, for the five business rules that IRS 

identified as affecting the most taxpayers, IRS did not have information on the 

date the rules were established, the rationale for the rule, or data supporting 

the rationale. IRS collection officials also lacked documentation describing 

the business rules and how they operate. Further, even though IRS officials 

estimated that the business rules had been established for years, IRS had 

documentation for an evaluation of only one of the five business rules. 

Without relevant evaluations IRS lacks assurance that the notice phase 

achieves desired collection results at the least cost. 

Available IRS Documentation for Selected Notice-Phase Business Rules

Business rule Date established Rationale 

Data supporting

rationale Evaluation 

1. Minimum dollar No No No Yes 

2. Low dollar No No No No 

3. Medium dollar No No No No 

4. Repeater (taxpayer 

had previous tax debt 

resolved) Yes No No No 

5. Repeater (taxpayer 

currently has other 

unresolved debts) No No No No 

Source: GAO analysis of IRS information. 

View GAO-09-976 or key components.

For more information, contact Michael 

Brostek at (202) 512-9110 or 

brostekm@gao.gov. 
Page i GAO-09-976 

Contents 

Letter 1

Background 3 

Objectives, Scope, and Methodology 8 

IRS Lacks Reasonable Assurance That Collection Notices to 

Individuals Achieve Desired Results 10 

IRS Lacks Documentation on the Notice Phase Business Rules and 

Whether They Worked as Intended 17 

Conclusions 23 

Recommendations 24 

Agency Comments and Our Evaluation 24 

Appendix I Data on Dispositions from the Notice Phase for 

Individual Taxpayers, Fiscal Years 1999 to 2008 26 

Appendix II Descriptions of Notice-Phase Business Rules 

Identified by IRS 29 

Appendix III Comments from the Department of the Treasury 30 

Appendix IV GAO Contact and Staff Acknowledgments 33 

Table 

Table 1: Available IRS Documentation for Selected Business Rules 18 

Figures 

Figure 1: Number of Collection Notices Issued to Individuals by 

Notice Type, Fiscal Years 1999 to 2008 5 

Figure 2: Dollar Values Associated with Notices Issued to 

Individuals by Notice Type, Fiscal Years 1999 to 2008 6 

Figure 3: IRS Units and Functions Involved in Administering Notice 

Phase Processes 15 

 IRS's Collection Notices 
Figure 4: Primary Types of Dispositions of Unpaid Individual 

Income Tax Debt Cases from the Notice Phase, Fiscal 

Years 1999 to 2008 27 

Figure 5: Dollar Values of Notice-Phase Results for Individual 

Income Tax, Fiscal Years 1999 to 2008 28 

Abbreviations 

BPRS Business Performance Review System 

CAR Collection Activity Report 

CGC Collection Governance Council 

CSCO Compliance Services Collection Operation 

FMFIA Federal Managers’ Financial Integrity Act of 1982 

FSP Functional Specifications Package 

IRM Internal Revenue Manual 

IRS Internal Revenue Service 

MITS Modernization and Information Technology Services 

OPERA Office of Program Evaluation and Risk Analysis 

PRP Program Requirements Package 

SB/SE Small Business/Self-Employed Division 

TAP Taxpayer Advocacy Panel 

TACT Taxpayer Communication Taskforce 

W&I Wage and Investment Division 

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

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Page ii GAO-09-976 IRS's Collection Notices
Page 1 GAO-09-976 

 

United States Government Accountability Office

Washington, DC 20548 

 

September 30, 2009 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Internal Revenue Service (IRS) must pursue collection of unpaid tax 

debt to help ensure compliance and confidence in the tax system and 

address the tax gap, which is the estimated difference between tax 

amounts that taxpayers voluntarily and timely pay and those they owe. IRS 

most recently estimated that $23 billion of the gross tax gap ($345 billion) 

for tax year 2001 was for nonpayment of known individual income tax 

assessments.1

As we previously reported to you, the first phase of IRS’s complex, threephase collection process is the notice phase in which taxpayers are mailed 

a series of notices informing them of their tax debts and asking for 

payment.2

 The notices provide opportunities for taxpayers to pay or 

otherwise resolve their debts before their cases are potentially forwarded 

to one of the following two phases—the phone and in-person contact 

phases—where IRS may take enforcement action such as to levy financial 

assets or seize physical property. 

The notice phase provides IRS with an opportunity to maximize 

collections while minimizing costs in pursuing individual tax debts. 

Notices are computer-generated and mailed to taxpayers with little direct 

involvement by IRS employees, a process that minimizes costs. To the 

extent that taxpayers then take action to pay or otherwise resolve their 

debts, collections can occur with relatively little additional IRS 

investment. When individuals with tax debt do not respond to notices, IRS 

either takes no action or takes enforcement action through the other two 

1

 IRS estimated it would collect about $55 billion of the $345 billion gross tax gap, yielding 

an estimated $290 billion net tax gap for tax year 2001. 

2

 GAO, Tax Debt Collection: IRS Has a Complex Process to Attempt to Collect Billions of 

Dollars in Unpaid Tax Debts, GAO-08-728 (Washington, D.C.: June 13, 2008). 

 IRS's Collection Notices 
 

phases to collect the tax debts. Such enforcement action is more laborintensive and expensive. 

Even though the notice phase is relatively low cost, opportunities may 

exist to improve tax collections though notices sent to individuals. In 

fiscal year 2008, IRS issued about 22 million notices to individual 

taxpayers, including about 12 million notices involving almost $57 billion 

in newly identified unpaid tax debts from multiple tax years.3

 Putting aside 

debt amounts that IRS abated or offset with refunds during fiscal year 

2008,4

 IRS sent about $40.6 billion in tax debt to the more expensive 

collection phases for potential enforcement action compared to around 

$5.6 billion that IRS collected. 

Because of your continued concerns about unpaid tax debt and IRS’s 

collection processes for individual taxpayers, you asked us to review IRS’s 

procedures for sending notices of unpaid tax debt to individual taxpayers. 

Specifically, this report addresses: 

• How well has IRS established objectives, performance measures and 

responsibility for reviewing notice-phase performance? 

• How well do IRS’s business rules for sending notices to individuals help 

assure that the collection-notice-phase is achieving desired results at the 

lowest costs? 

To assess IRS’s objectives, performance measures, and responsibility for 

reviewing notice phase performance, we reviewed information on how IRS 

has organized the work flow of the notice phase, including its objectives 

and related measures of performance as well as the assignments of 

responsibility for notice activities such as reviewing the results achieved. 

To assess IRS’s business rules, we asked responsible IRS collection 

officials to provide basic information on the key rules that affect the most 

individual taxpayers in terms of which notices IRS sends to them. We 

assessed the information for both objectives in light of applicable 

 

3

 The $57 billion is overstated to some unknown extent, in part, because IRS has to abate 

some of the debt amounts for reasons such as, for example, errors that overstated the tax 

amounts owed. 

4

 Although IRS may defer collection action on certain tax debts, IRS continues to take 

systemic action to collect unpaid debt. For example, IRS may take no further action in 

fiscal year 2008 but could collect some of the tax debt in later years by offsetting tax 

refunds or by taking enforcement action because the debt had become large enough to 

justify pursuit. The amounts involved with abatements and refund offsets are presented in 

appendix I. 

Page 2 GAO-09-976 IRS's Collection Notices
 

guidance for federal internal control standards. More detailed information 

on our objectives, scope, and methodology are below. 

IRS identifies unpaid tax liabilities through its program activities. The 

most common include IRS (1) identifying a taxpayer who files a tax return 

without fully paying the tax claimed to be owed, (2) adjusting tax liabilities 

when filed returns are being processed by IRS by checking for obvious 

errors such as those involving adding or subtracting numbers incorrectly 

or using the wrong social security number for a claimed dependent, 

(3) finding additional tax liabilities by auditing a filed tax return or 

computer matching it to third party information on income paid to a 

taxpayer, (4) assessing a penalty for some taxpayer action or inaction, and 

(5) sending a tax bill to a taxpayer who did not file a required tax return 

after IRS estimates, based on available information, how much tax the 

person should have paid. 

Background 

IRS’s process for collecting identified unpaid debt has three phases. Debt 

goes through these phases until it is determined to be uncollectible, is 

collected, or is otherwise resolved: 

• Notice: IRS sends the taxpayer a series of notices of balances due, in part, 

to prompt a reply and payment by the taxpayer and handles responses to 

those notices. 

• Telephone: IRS uses telephone contacts with the taxpayer to prompt 

payment or takes enforcement action that may include levying financial 

assets or filing a lien against property. 

• In-person: IRS staff contact the taxpayer to prompt payment or to take 

enforcement action, including levies, liens, and seizures of property. 

According to IRS officials, the phases and routing of tax debt-collection 

cases result from IRS’s designing the collection process to effectively and 

efficiently use resources to resolve taxpayer debt at the earliest possible 

time and using the least costly resources. Although data is not readily 

available to determine the relative costs and benefits of the notice phase 

versus the other phases, given the relatively high automation of the notice 

process and relatively low costs of postage compared to the more staffintensive nature of enforcement actions in later collection phases, the 

notice phase is likely the most cost effective way for IRS to resolve unpaid 

debt cases. 

Page 3 GAO-09-976 IRS's Collection Notices
 

During the notice phase for individual taxpayers IRS’s general practice is 

to send up to four notices at 5-week intervals to collect the balances due. 5

Generally, 6 weeks after the fourth notice, IRS either determines that any 

additional collection actions should be deferred or sends cases to be 

worked potentially in the telephone or in-person contact phases. IRS has 

made an administrative decision to separately send two notifications in the 

notice phase that are required by law—notifications (1) of the debt due 

and request for payment6

 and (2) with regard to a levy of a state tax 

refund7

—in the first and fourth notices, respectively.8 According to IRS 

officials, IRS sends the discretionary second and third notices because 

they are successful in resolving some cases at relatively low cost. 

However, IRS has developed variations on the practice of sending four 

notices before deciding whether to send any uncollected tax debt to the 

next collection phase. Depending on specific debt-related characteristics, 

IRS may take such actions as: (1) skip the discretionary reminder notices 

to “accelerate” a debt to the next collection phase or (2) defer further 

collection action on debts not resolved with notices.9

 Based on these 

characteristics, IRS has established “business rules” that are embedded in 

IRS’s computer system. These rules are to determine the number and types 

of notices as well as whether IRS defers collection action or sends the 

debt to other phases for further collection action. IRS officials said 

business rules were created in an attempt to make the most effective use 

of collection resources. 

As shown in figure 1, IRS annually has sent millions of notices (across the 

four types) to collect billions of dollars in unpaid debt from individual 

 

5

 Business taxpayers receive up to two notices. Business taxpayers are outside the scope of 

this review. 

6

 26 U.S.C. § 6303(a). 

7

 26 U.S.C. § 6330(f); 26 C.F.R. § 301.6330-1(a)(2)(i). 

8

 IRS generally sends other required collection notifications in later phases of the collection 

process. For example, IRS separately sends a notice of intent to do other levies—such as to 

seize funds in a bank account—in the telephone contact phase, after which, in most cases, 

IRS is required by statute to wait 30 days before levying the account 26 U.S.C. § 6330(a). 

Such later notifications are outside the scope of this report. 

9

 Although IRS may defer collection action on certain tax debts, IRS continues to take 

systemic action to collect unpaid debt, such as by offsetting the debt amounts with tax 

refunds claimed when the taxpayer files future tax returns. IRS also offsets debt with tax 

refunds during the notice phase. 

Page 4 GAO-09-976 IRS's Collection Notices
 

taxpayers. The total number of the notices generally increased from fiscal 

years 2004 through 2008, reaching around 22 million in 2008, largely 

because of the number of “first” notices sent. 

Figure 1: Number of Collection Notices Issued to Individuals by Notice Type, Fiscal 

Years 1999 to 2008 

Figure 2 shows that the total dollar values of these sent notices increased 

overall in comparing fiscal years 2004 and 2008, with a decline in 2008, 

when it reached around $129 billion.10

0

2

4

6

8

10

12

14

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Notices issued (in millions)

Fiscal year

Source: IRS data.

1st notice

2nd notice

3rd notice

4th notice

 

10 When added together for each year, the total dollar values of each notice type overstate 

the amount of unpaid tax to some unknown extent, in part, because the totals are based on 

the value of each notice sent. Therefore, to the extent that multiple notices were sent on a 

single debt within a fiscal year, the dollars are overstated. Also, IRS has to abate some of 

the debt amounts for reasons such as, for example, errors that overstated the tax amounts 

owed. 

Page 5 GAO-09-976 IRS's Collection Notices
 

Figure 2: Dollar Values Associated with Notices Issued to Individuals by Notice 

Type, Fiscal Years 1999 to 2008 

Every year, IRS’s notice phase also disposes of debt for millions of notices 

that had been sent. IRS dispositions arise in various ways, such as by 

resolving the debt (including collecting payment from the taxpayer, 

abating all or some of the debt, or offsetting the taxpayer’s refund with the 

debt owed), deferring further collection action, or sending the case to the 

next collection phase for potential enforcement action. (See app. I on the 

trends in volumes and dollar values of dispositions from the notice phase 

for fiscal years 1999 to 2008.) 

Internal control is a major part of managing an organization. It comprises 

the plans, methods, and procedures used to meet missions, goals, and 

objectives and, in doing so, supports performance-based management. 

Internal control also serves as the first line of defense in safeguarding 

assets and in preventing and detecting errors and fraud. In short, internal 

control, which is synonymous with management control, helps 

government program managers achieve desired results through effective 

0

10

20

30

40

50

60

70

80

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Dollars (in billions)

Fiscal year

Source: IRS data.

1st notice

2nd notice

3rd notice

4th notice

Page 6 GAO-09-976 IRS's Collection Notices
 

stewardship of public resources. Internal control should provide 

reasonable assurance that the objectives of the agency are being achieved 

through, among other things, effective and efficient use of the agency’s 

resources. 

Federal Law requires that we issue standards for internal control in 

government.11 The standards provide the overall framework for 

establishing and maintaining internal control and for identifying and 

addressing major performance and management challenges and areas at 

greatest risk of fraud, waste, abuse, and mismanagement. In 2001, we 

issued Internal Control Management and Evaluation Tool

(GAO-01-1008G, August 2001) based upon Standards for Internal Control 

in the Federal Government (GAO/AIMD-00-21.3.1, November 1999), to 

assist agencies in maintaining or implementing effective internal control. 

This tool is not an authoritative part of the standards for internal control, 

nor is it required to be used. Instead, it is intended as a supplemental guide 

that federal managers and others may use in assessing the effectiveness of 

internal control and identifying important aspects of control in need of 

improvement. When used with GAO’s standards for internal control and 

the Office of Management and Budget Circular A-123, Management’s 

Responsibility for Internal Control, the tool is to provide a systematic, 

organized, and structured approach to assessing an agency’s internal 

control structure. 

During the course of our review, in November 2008, IRS separately 

initiated a review of notices sent to taxpayers, including notices sent to 

taxpayers during the collection notice phase. The review was led by an IRS 

team called the Taxpayer Communication Taskforce (TACT.) TACT’s 

objectives included simplifying and clarifying notice language; instituting 

effective measures; streamlining and improving business processes; and 

eliminating unnecessary or duplicative notices, letters, reminders and 

inserts. According to its director, TACT is to brief the Commissioner on a 

proposed “road map” for addressing issues identified by the team. IRS did 

not establish a date for the briefing before we concluded our work. 

 

11 31 U.S.C. § 3512(c), commonly referred to as the Federal Managers’ Financial Integrity 

Act of 1982. 

Page 7 GAO-09-976 IRS's Collection Notices
 

Our objectives were to determine: 

• How well has IRS established objectives, performance measures, and 

responsibility for reviewing notice-phase performance? 

Objectives, Scope, 

and Methodology 

• How well do IRS’s business rules for sending notices to individuals help 

assure that the collection notice phase is achieving desired results at the 

lowest costs? 

To assess IRS’s objectives, performance measures, and responsibility for 

reviewing notice-phase performance, we reviewed information on how IRS 

has organized the work flow of the notice phase, including its objectives 

and related measures of performance as well as assignments of 

responsibility for notice activities such as reviewing the results. We 

reviewed collection program documents including the Internal Revenue 

Manual (IRM), IRS’s collectionwide performance measures, and any 

related performance measures in the Wage and Investment Division’s 

(W&I) and Small Business/Self-Employed Division’s (SB/SE) 12 periodic 

business performance review documents. We were to analyze whether 

these measures provided information adequate to assess whether the 

notice phase achieved the desired results laid out in any stated objectives. 

We also interviewed responsible IRS collection officials13 on any stated 

objectives for the notice phase and whether and how the officials use 

available data to assess the performance of the notice phase and develop 

performance measures. We reviewed available organization charts and the 

IRM sections on the managerial and reviewing responsibilities for the 

collection operations. We also obtained and reviewed the charter of the 

Collection Governance Council, which includes representatives of 

collection operations in W&I and SB/SE. We reviewed these documents to 

identify IRS officials responsible for managing aspects of the notice 

process and reviewing notice-phase performance and interviewed these 

officials. 

To determine how well IRS’s business rules help assure that the collection 

notice phase achieves desired results at the lowest costs, we asked IRS 

 

12 These are the IRS divisions that serve individual taxpayers and have collection functions. 

Among other things, SB/SE serves individual taxpayers who operate a business as selfemployed sole proprietors. W&I serves taxpayers whose primary income sources are 

wages and investments. 

13 As used in this report, IRS the phrase “collection officials” includes the W&I and SB/SE 

executives and managers responsible for managing aspects of the collection process, 

including the collection units that administer parts of the notice phase. 

Page 8 GAO-09-976 IRS's Collection Notices
 

collection officials who were the most knowledgeable about the business 

rules to identify the key business rules that affect most individual 

taxpayers in the notice phase. The five rules IRS identified were based on 

(see app. II for further descriptions of the five rules):14

• certain dollar thresholds (minimum-, low- and medium-dollar amounts) or 

• “repeater” characteristics (taxpayers who recently had tax debt resolved 

or currently have other tax debt in collection status). 

For each of the five business rules, we interviewed these knowledgeable 

officials on how the rule operates—i.e., how the rule determines the 

number and types of notices sent—and asked IRS for documentation on 

how the rules operated. We asked for information and documentation on 

when the rule was established, the rationale or purpose for the rule to 

include supporting data that IRS considered in establishing the rule, and 

any evaluations of the rule since its establishment. 

To answer both objectives, we used applicable internal control standards 

in our Standards for Internal Control in the Federal Government

(GAO/AIMD-00-21.3.1, November 1999), Internal Control Management 

and Evaluation Tool (GAO-01-1008G, August 2001), and the Office of 

Management and Budget Circular A-123, Management’s Responsibility for 

Internal Control. To assess IRS’s objectives, measures, and performance 

review, we selected the applicable internal control standards based upon 

our report on IRS’s collection process in which we addressed the 

complexity, organization, and performance measures of the collection 

process.15

The IRS information we relied on for our audit work was descriptive. The 

quantitative data in this report are from an IRS Collection Activity Report 

(CAR) and are for the purpose of providing background and context on 

the notice process. We interviewed IRS officials with knowledge about 

CAR data about the steps taken to ensure data accuracy. We determined 

that the data we use in this report were sufficiently reliable for our 

purposes. We conducted this performance audit from July 2008 through 

September 2009 in accordance with generally accepted government 

 

14 With the exception the minimum dollar rule, this report does not provide specifics on the 

dollar thresholds and case characteristics of the business rules because IRS considers that 

information to be sensitive because of its potential to be used intentionally to avoid IRS 

collection actions. 

15 GAO-08-728. 

Page 9 GAO-09-976 IRS's Collection Notices
 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

To assure that programs operate efficiently and effectively, agencies must 

assess the risks that the program will not achieve desired results at the 

least possible cost. A precondition to risk assessment is the establishment 

of clear, consistent goals and objectives at both the entity level and at the 

activity (program or mission) level. Without objectives, an agency cannot 

identify the risks that could impede the efficient and effective achievement 

of program or activity purposes. As shown below, guidance for the federal 

internal control standards states that objectives should be established for 

all key operational activities. 

IRS Lacks Reasonable 

Assurance That 

Collection Notices to 

Individuals Achieve 

Desired Results 

• Objectives have been established for all key operational activities and 

support activities. 

• Activity-level (program or mission-level) objectives flow from and are linked 

with the agency’s entitywide objectives and strategic plans. The activity-level 

objectives are relevant to all significant agency processes. 

• All levels of management are involved in establishing the activity-level 

objectives and are committed to their achievement. 

Source: Excerpts from Internal Control Management and Evaluation Tool 

(GAO-01-1008G, August 2001).

Although the notice phase affects millions of taxpayers and is a key part of 

IRS’s strategy for resolving billons of dollars of unpaid debt, IRS has not 

established written objectives for the notice phase. Guidance for the 

internal control standards is clear that such objectives should be written 

and be the product of a process in which all levels of management have 

been involved and have committed to the objectives. By not meeting these 

standards, IRS cannot be assured that relevant staff and management 

commonly understand and pursue the same outcomes that are linked to 

IRS-wide objectives and strategic plans. 

IRS officials said that written objectives are unnecessary because IRS 

officials have widespread agreement on the objectives. However, our 

discussions with IRS W&I and SB/SE executives and managers responsible 

for all parts of the collection process show that they have different views 

about the notice phase in terms of what it is intended to do. For example, 

Page 10 GAO-09-976 IRS's Collection Notices
 

one official said that the purposes of the notice phase are to prompt a 

response from the taxpayer and get the taxpayer actively engaged in 

resolving the unpaid debt. Among other possible objectives, officials said 

that the notice phase is to resolve unpaid debt cases at the lowest possible 

cost or achieve the most economical resolution of the greatest number of 

debts. Furthermore, IRS officials referred to abating certain debts, 

achieving full payments for debts, or collecting as much unpaid debt as 

possible as other desired outcomes. 

These desirable outcomes strive for different things such as getting the 

taxpayer involved, resolving as many debts as possible, minimizing costs, 

and collecting the unpaid amounts. For example, one could focus on 

minimizing costs or resolving more debt cases—such as through 

abatements or deferring any collection action—but not collect any debt in 

doing so. Without documenting how these different outcomes interact, IRS 

does not have assurance that its staff clearly understand what the notice 

phase should be producing or that they may maximize one type of 

performance while adversely affecting other desired levels of 

performance. 

Without written objectives, IRS cannot move forward to the next step of 

establishing program performance measures that are tied to the desired 

results envisioned in the objectives. Without performance measures 

related to established objectives agencies cannot be assured that a 

program is achieving desired results and, if possible, improving results. As 

shown below, guidance for the federal internal control standards states 

that performance measures should be established for government 

programs and, among other things, be linked to objectives. 

• Activity-level objectives include measurement criteria. 

• Performance measures and indicators have been established throughout the 

organization at the entitywide, activity, and individual levels. 

• Performance measurement assessment factors are to be evaluated to ensure 

they are linked to mission, goals, and objectives and are balanced and set 

appropriate incentives for achieving goals while complying with law, 

regulations, and ethical standards. 

Source: Excerpts from Internal Control Management and Evaluation Tool 

(GAO-01-1008G, August 2001). 

As with objectives, IRS has not established performance measures for the 

notice phase. IRS established the Collection Governance Council (CGC) in 

part to establish consistent performance measures that could be compared 

Page 11 GAO-09-976 IRS's Collection Notices
 

across the divisions and operating units that administer parts of the 

collection process and be rolled up to reflect IRS-wide collection 

performance. However, the three IRS-wide collection process measures16

do not provide information necessary to assess the notice phase in part 

because two of the measures reflect telephone and in-person contact 

phase work in addition to notice phase work17 and the other measure is 

specific to the telephone contact phase.18

Nor do the W&I and SB/SE unit-level performance measures that IRS uses 

to hold managers accountable for performance in these units provide 

information necessary to assess the notice phase in part because they 

reflect work done in addition to notice phase work. For example, the 

measures for the Compliance Services Collection Operations (CSCO) units 

reflect performance not only on handling taxpayer written responses to 

the four collection notices but also post-notice phase work, such as 

taxpayer correspondence on defaulted installment agreements.19

Without performance measures, IRS cannot tell how well the notice phase 

works and helps achieve any objectives that are established. In discussing 

this effect with IRS officials, they cited a percentage—total number of 

cases disposed by the entire notice phase divided by the total number of 

first notices issued in a given year —as evidence that the notice phase is 

working well. However, IRS has not established this percentage as a 

performance measure or defined how it is to be consistently calculated. 

For example, the official who calculated the percentage explained that 

more than one formula could be used to calculate the percentage, such as 

including or excluding deferred cases from the number of cases disposed. 

Furthermore, establishing this measure as the only measure of notice-

 

16 They are referred to as “IRS-wide” because they reflect performance of units across W&I 

and SB/SE. 

17 These measures, “collection coverage” and “collection efficiency,” are the (1) percentage 

of workload that was available and disposed and (2) the number of cases disposed 

compared to the number of staff working cases, respectively. 

18 The measure, “automated collection system customer accuracy,” is the percentage of 

time taxpayers received the correct answers to their inquiries, had their cases resolved 

correctly, or both. 

19 The primary tasks of the CSCO function involve securing delinquent returns that 

individuals are required to file and securing payment for taxes, penalties, and any interest 

owed. Among other things, the CSCO function processes taxpayer installment agreement 

requests, handles correspondence from taxpayers in regard to balance due notices, and 

monitors offer-in-compromise agreements and installment agreements. 

Page 12 GAO-09-976 IRS's Collection Notices
 

phase performance would not meet IRS’s policy of having a set of 

balanced measures that are linked to IRS goals, such as goals for customer 

satisfaction, employee satisfaction, and business results. 

In addition to performance information, IRS would also benefit from using 

cost information to make data-based decisions about notice phase 

effectiveness. Officials in IRS’s Office of Chief Financial Officer have 

demonstrated the ability to determine full cost information on selected IRS 

programs through a series of cost studies, but the notice phase was not 

included in them. Even so, IRS has collected some information on the cost 

to produce or mail collection notices to taxpayers. For just fiscal year 2006 

and just the fourth notice (which is sent by certified mail), IRS tracked and 

maintained postage cost data that showed IRS spent $22 million on 

sending that notice type.20 According to IRS’s comments on a draft of this 

report (see appendix III), IRS has an effort underway that is intended to 

address the lack of some types of cost information. IRS said that it 

awarded a contract in August 2009, to help develop the Correspondence 

Management Information System (CMIS) to provide, among other things, 

data on the costs of notice printing and postage which will assist in 

determining the full cost of notices. The full costs also include such things 

as labor cost of processing payments or handling taxpayers’ 

correspondence or telephone calls in response to notices. 

Related to the establishment of objectives and measurement of 

performance against those objectives, the internal controls also envision 

top management reviews. To ensure that agencies are achieving desired 

program results, it is important to have a chain of performance reporting 

leading to top-level management reviews and accountability for program 

performance. As shown below, guidance for the federal internal control 

standards indicates that performance reporting up through higher levels of 

agency management should create a chain of accountability where 

performance is compared to targets. 

 

20 As we were concluding our audit work, in July 2009 IRS’s Office of Program Evaluation 

and Risk Analysis (OPERA) issued a report at the request of TACT that included estimates 

of the costs of selected notices, including the costs of at least some first notices for fiscal 

years 2005-2008 and costs of other types of collection notices for only fiscal year 2008. 

Page 13 GAO-09-976 IRS's Collection Notices
 

• Top-Level Reviews—Management tracks major agency achievements in 

relation to its plans. 

• Top-level management regularly reviews actual performance against 

budgets, forecasts, and prior period results. 

• Management Reviews at the Functional or Activity Level—Agency managers 

review actual performance against targets. 

• Managers at all activity levels review performance reports, analyze 

trends, and measure results against targets. 

Source: Excerpts from Internal Control Management and Evaluation Tool 

(GAO-01-1008G, August 2001).

Without objectives and performance measures for the notice phase, IRS 

top management cannot review notice-phase performance. IRS’s primary 

system for periodically measuring and reviewing performance—the 

Business Performance Review System (BPRS)—focuses on business units 

rather than notice phase performance.21 According to IRS collection 

officials, the performance reporting creates a chain of accountability up 

through IRS for unit performance. 

According to IRS collection officials, other data exist that IRS could use to 

review notice phase performance—data that include notice-phase results 

like full payments that do not involve W&I and SB/SE subunits—and are 

contained in the Collection Activity Report. Selected report data—such as 

the number of first notices and the number of notice cases disposed—are 

trended and reported to the CGC. However, the CGC is not required to 

report these data to higher levels of IRS management for its review as part 

of a mechanism for being accountable for notice performance. 

IRS faces a challenge in developing objectives, performance measures, and 

related top management reviews for the notice phase, in part, because the 

phase spans across IRS units or functions. As shown in figure 3, collectionnotice-phase key activities are divided among five IRS units or functions. 

Factors that determine whether a given unit will be involved in handling a 

notice case include, among other things, whether the taxpayer is a W&I 

taxpayer or an SB/SE taxpayer and whether the taxpayer chooses to reply 

at all, pay the debt in full, or respond to a notice by telephone or by mail. 

 

21 Among other things, IRS uses BPRS meetings to assess all business units’ progress 

toward achieving IRS’s mission and strategic goals. The system includes periodic reviews 

of strategic and operations issues and business unit performance to assess IRS’s progress. 

Page 14 GAO-09-976 IRS's Collection Notices
 

Figure 3: IRS Units and Functions Involved in Administering Notice Phase Processes 

Taxpayer

Computer

system

W&I Accounts

Management

Mail handling

system

W&I

Compliance

Services

Collection

Operations

SB/SE

Compliance

Services

Collection

Operations

Sends first and 

following notices

based on business

rules or handles

the case

Responses?

Routes payments

and written 

responses

Payment

Written 

response

Handles written 

responses

Handles written 

responses

Handles all 

taxpayers’ 

telephone calls

Telephone

Source: GAO analysis of IRS information.

Notice Mail

W&I taxpayer

SB/SE taxpayer

Close case or send to 

next phase for potential 

collection action 

Case

handling Notice or 

case 

handling

None

IRS collection officials have recognized that improvements are needed 

that span some of the differing responsible units. Officials have, for 

example, proposed an information system enhancement that would allow 

Page 15 GAO-09-976 IRS's Collection Notices
 

IRS to analyze unpaid debt cases earlier in the notice phase, reduce the 

amount of time cases spend in the notice phase, and identify cases that

less likely to resolve without additional enforcement action and move 

them to the other collection phases earlier in the collection process.22

Further, among other reasons, IRS established the Collection Governance 

Council to help coordinate selected activities, including work do

CSCO units that are responsible for parts of the notice process. 

Nevertheless, the Council’s stated responsibilities do not focus on 

management and accountability for the entire notice process and have no

led to the establishment of the other internal controls, like documented 

objectives and performa

 are 

ne by the 

t 

nce measures that would better ensure the entire 

process functions well. 

as for 

 in 

ones 

ecause the 

ion was not provided to us in time to take it into account in 

this report. 

 

According to TACT’s director, the TACT review also found that 

performance measures and clear management responsibility—such 

reviewing the effectiveness of notices—were lacking for notices

general. The TACT director said that the CMIS database under 

development is to take better advantage of existing data to measure the 

effectiveness of notices, but documentation on specifics like milest

for the project was not yet available. TACT was also considering a 

proposal to address aspects of management responsibility. According to 

the TACT director, the proposal was not considered finalized b

IRS Commissioner had not yet been briefed on it.23 Therefore, 

documentat

22 This enhancement, Enhanced Inventory Delivery System, has been proposed internally in 

IRS but as of the issuance of our report its funding and implementation was uncertain 

because such decisions have not yet been made. According to an IRS official, the 

enhancement is proposed for fiscal year 2011 and decisions for funding these projects will 

not be made until late 2010. 

23 The TACT director said the Commissioner would likely be briefed by mid-September 

2009. 

Page 16 GAO-09-976 IRS's Collection Notices
 

Written documentation of processes is useful to managers in guiding an 

agency’s operations and to those overseeing and analyzing operations. As 

shown below, guidance for the federal internal control standards states 

that there should be complete and accurate documentation of transactions 

and significant events.24

• Written documentation exists covering the agency’s internal control 

structure and for all significant transactions and events. 

• The documentation is readily available for examination. 

• Documentation, whether in paper or electronic form, is useful to managers in 

controlling their operations and to any others involved in evaluating or 

analyzing operations. 

• Documentation of transactions and other significant events is complete and 

accurate and facilitates tracing the transaction or event and related 

information from authorization and initiation, through its processing, to after 

it is completed. 

Source: Excerpts from Internal Control Management and Evaluation Tool 

(GAO-01-1008G, August 2001). 

IRS Lacks 

Documentation on the 

Notice Phase 

Business Rules and 

Whether They Worked 

as Intended 

As noted earlier, IRS officials said that generally business rules were 

established to make the best use of IRS resources. The five business rules 

IRS identified as affecting most taxpayers use certain dollar thresholds 

(minimum-, low- and medium-dollar amounts) or “repeater” 

characteristics (taxpayers who either recently had resolved a previous tax 

debt or currently have other debt in collection status) to determine 

whether certain notices are sent or whether IRS will defer further 

collection in a given case. 

IRS Did Not Have 

Documentation on When 

and Why the Business 

Rules Were Established 

Given the stated purposes of the business rules, the millions of taxpayers 

impacted by them, and the billions of dollars in unpaid debt involved, the 

establishment of a business rule is a significant event that should be 

documented with enough detail to allow IRS managers and others to trace 

the basis for its establishment. Such details could include the date the rule 

was established, the rationale for the rule, and any data supporting the 

 

24 In regard to financial transactions, although we have reported that IRS’s financial 

statements have been fairly presented in all material respects since fiscal year 2000, we 

have also reported a material weakness in IRS’s internal control over financial reporting. 

Specifically, we reported that IRS cannot generate and report the information needed to 

prepare financial statements directly from its financial systems because it does not have an 

adequate general ledger system for tax-related transactions. 

Page 17 GAO-09-976 IRS's Collection Notices
 

rule. However, table 1 shows that IRS lacked such basic documentation 

for four of the five business rules and that for the one rule with 

documentation, IRS only had the information on the date it was 

established. 

Table 1: Available IRS Documentation for Selected Business Rules 

Business rulea Date established Rationale 

Data supporting 

rationale 

1. Minimum dollar No No No 

2. Low dollar No No No 

3. Medium dollar No No No 

4. Repeater (taxpayer had 

previous tax debt resolved) 

Yes No No 

5. Repeater (taxpayer currently 

has other unresolved debts) 

No No No 

Source: GAO analysis of IRS information. 

a

See appendix II for descriptions of the rules. The descriptions do not provide specifics on the dollar 

thresholds or case characteristics on four of the five rules because IRS considers that information to 

be sensitive because of its potential to be used intentionally to avoid IRS collection actions. 

IRS provided documentation that the repeater rule (for taxpayers that had 

previous tax debt resolved) was established in August 2002. Without 

documentation of when the other four rules were established, IRS lacked 

information for tracking and evaluating events over time that could affect 

how the rules operate. IRS officials’ recollections of when the four rules 

were established were imprecise and in one case depended on the 

official’s experiences in IRS. For example, an IRS official said the 

minimum dollar rule was established as early as 1978 because the rule was 

in effect when the official began working at IRS. Officials speculated that 

the low dollar rule was established around 1995. Officials said the medium 

dollar rule was established sometime in 1994 because an official had 

retained a dated training manual on a related program that officials 

recalled being established at the same time as the rule. 

IRS could not provide documentation on the rationales (such as the 

factors considered or reasons for adopting the rule) for any of the rules we 

reviewed. As with the dates that rules were established, we had to rely on 

the recollections of IRS officials to determine why IRS had adopted the 

rule and its purpose. Such sources were of limited use because of their 

reliance on staffs’ memories and because officials disagreed on some of 

the rules, thus making it unclear what IRS’s reasoning was for the rule. For 

Page 18 GAO-09-976 IRS's Collection Notices
 

example, officials said that the reason IRS established the medium dollar 

rule to defer sending certain cases to ACS was that using automatic offsets 

of future tax refunds to collect these debts was less costly than using ACS. 

However, another official said that the rule was established not so much 

because of the relative costs of ACS but instead to stem the flow of paper 

because, at the time IRS began deferring sending cases, IRS’s process for 

levying assets relied on paperwork, which overwhelmed the staffs. The 

lack of documentation for the rationale of the rule—the basic reasoning on 

why the rule exists—made it impossible to determine if the rule achieves 

its intended purpose. 

IRS also lacked data supporting the rationales for the rules. For example, 

for the minimum-, low-, and medium-dollar rules that include dollar 

thresholds for determining notices sent and whether further collection 

action would be deferred, IRS officials were unable to provide analyses on 

why a given dollar amount was chosen as opposed to a higher or lower 

amount. As a further example, for the repeater rule for previously resolved 

debts, IRS had no data to show why it selected the time period considered 

in determining whether a taxpayer was a “repeater.” 

IRS officials told us that documentation was lacking in most cases because 

the rules were established so long ago. Further, the officials said the 

current rules are not so much designed as a cohesive set of rules but 

instead are the result of numerous decisions made over the course of 

several years. Regardless, without documentation on when the rules were 

established, the rationale for the rules, and data supporting those 

rationales, IRS managers lack basic information to help assure that the 

business rules are working as originally intended. Without such 

documents, IRS has limited ability to determine whether the 

circumstances under which a rule was established have changed in such a 

way that the rationale for the rule is no longer valid and therefore it should 

be revised or abandoned. 

Collection Managers Lack 

Documentation to Know 

What the Rules Are and 

How the Rules Operate 

To exercise control over government operations, managers need to know 

how the programs they are responsible for operate. As shown below, 

guidance for the federal internal control standards states that managers 

should have pertinent information available in forms that are useful for 

them to exercise their responsibilities to ensure efficiency and 

effectiveness of operations. 

Page 19 GAO-09-976 IRS's Collection Notices
 

• Pertinent information is identified, captured, and distributed to the right 

people in sufficient detail, in the right form, and at the appropriate time to 

carry out their duties and responsibilities efficiently and effectively. 

Source: Excerpts from Internal Control Management and Evaluation Tool 

(GAO-01-1008G, August 2001). 

We found that collection officials lacked information to know what the 

notice-phase business rules are and how the rules operate. In some cases, 

the officials either did not know or misunderstood these key business 

rules. For example, in a meeting with us, IRS executives and managers 

cited three different amounts for the dollar threshold of the low dollar 

rule, which determines which notices are sent and whether further 

collection action will be deferred or the debt will potentially be offset by 

levying a state refund. For the medium dollar rule, IRS managers who we 

were told were most familiar with the rules originally said that a taxpayer 

under this rule would receive four notices. The managers said that sending 

four notices was to give the taxpayer the maximum opportunities to 

respond given that IRS would not be taking further collection action if 

payment or another response was not received. After further review, 

officials later told us that taxpayers receive only three notices in these 

cases. 

IRS collection officials were able to provide specifics on the operations of 

some of the rules and corrected some of their misunderstandings of the 

rules by using a document called the Functional Specifications Package 

(FSP) and consulting with Modernization and Information Technology 

Services (MITS) staff.25 The FSP contains some of the computer 

commands that control the sending of notices. Officials said the FSP and 

related system documents are the only documentation for the existence 

and operation of the rules. According to IRS collection officials, the 

language of the FSP is difficult to understand. Consequently, the managers 

had to consult with MITS staff to explain the rules. One of the roles of 

MITS is to translate operational requirements devised by the collection 

function into computer programming language. 

Furthermore, not all collection notice rules are in the FSP. Some rules are 

in at least one other information system—the program requirements 

 

25 MITS is an information systems support function separate from the operating units that 

deal with collections. 

Page 20 GAO-09-976 IRS's Collection Notices
 

package (PRP) of the master file, the information system that sends the 

first collection notice to taxpayers. With more than one system, IRS has 

limited assurance that the business rules are identical because changes in 

one system may not also be made in all the systems. For example, the FSP 

sends a notice for debts of $5 and above, but the PRP has a slightly higher 

dollar threshold for taking further action. IRS officials were unaware of 

this inconsistency, and, after our further discussion with them, they agreed 

that the FSP rules should be amended to be consistent with the PRP. 

IRS Does Not Have a 

Process to Evaluate 

Whether Its Business Rules 

Work as Intended 

A critical part of management control is monitoring to ensure that 

programs are working as intended. Agency policies and procedures should 

generally be designed to assure that ongoing monitoring occurs in the 

course of normal operations and that periodic evaluations are part of 

management’s continuous monitoring of internal control. As shown below, 

guidance for the federal internal control standards shows that monitoring 

is important as a means to provide a reasonable assurance that the 

objectives of the agency continue to be achieved and to determine and 

improve the quality of the agency’s performance over time. If deficiencies 

are discovered, the agency can become quickly aware and take prompt 

action to remedy them. 

• Management’s strategy provides for routine feedback and monitoring of 

performance and control. 

• Management has a strategy to ensure that ongoing monitoring is effective and 

will trigger separate evaluations where problems are identified, and it is 

desirable that critical systems are periodically tested. 

• Control activities are regularly evaluated to ensure that they are still 

appropriate and working as intended. 

• The strategy includes a plan for periodic evaluation of control activities for 

critical operational and mission support systems. 

• Appropriate portions of the internal controls are evaluated regularly. 

• The agency takes appropriate follow-up actions with regard to findings and 

recommendations of audits and other reviews. 

• Management and auditors follow up on audit and review findings, 

recommendations, and the actions decided upon to ensure that those actions 

are taken. 

Source: Excerpts from Internal Control Management and Evaluation Tool 

(GAO-01-1008G, August 2001). 

Even though IRS officials estimated that the business rules had been 

established for years, IRS had documentation for an evaluation of only one 

of the five business rules we reviewed (the minimum dollar rule). For the 

Page 21 GAO-09-976 IRS's Collection Notices
 

remaining four rules we reviewed, IRS officials said that they had not 

evaluated three rules and had evaluated one rule (the medium dollar rule) 

but had no documentation of the evaluation. Without a process to evaluate 

the business rules, IRS officials can not be assured that the rules work as 

intended. 

IRS collection managers were unaware of evaluation of the minimum 

dollar rule and had no documentation on the follow-up action that was 

promised. IRS collection officials had originally told us that no evaluation 

had been done for the minimum dollar rule. During our work, we 

separately learned that IRS had done an evaluation in response to a 2004 

Taxpayer Advocacy Panel26 (TAP) recommendation that the $5 threshold 

be raised to $25. The evaluation report showed that IRS had done analyses 

to consider such factors as the costs of sending and handling responses to 

notices and potential lost revenue. Although the report concluded that 

raising the threshold to the recommended level would not be costeffective, it said that IRS would do further evaluation to determine if the 

threshold should be increased to some amount between $5 and $25. 

However, IRS officials could not provide any documentation that a followup evaluation had been done27 nor did IRS have plans to conduct such an 

evaluation. Also, IRS officials could provide none of the data supporting 

the report conclusions, such as information on the costs of sending and 

handling responses to notices. 

For the medium dollar rule evaluation that IRS officials said was done, the 

age of the evaluation and lack of documentation limited its usefulness. The 

officials said that IRS had evaluated the medium dollar threshold in the 

1980’s and concluded that it was appropriate.28 As we noted earlier, the 

intended purposes of all the rules we reviewed were undocumented. To 

the extent that IRS’s costs and collections may have been considered in 

establishing the medium dollar rule, with changes over time—including 

 

26 The Taxpayer Advocacy Panel is an advisory group of volunteers established under the 

authority of the Department of the Treasury to identify taxpayers’ issues and make 

suggestions to help IRS improve customer service and satisfaction. 

27 As we were concluding our audit work, at the request of TACT rather than as follow-up 

to the TAP recommendation, in July 2009 IRS’s OPERA issued a report analyzing the costs 

and collections of raising in increments the dollar thresholds for sending selected account 

balances notices, including at least one of the collection notice-phase notices. 

28 According to IRS officials, although the current dollar threshold was established in 1994, 

the threshold was the current amount in the 1980’s with at least one intervening change. 

IRS officials could not recall specifics on the change. 

Page 22 GAO-09-976 IRS's Collection Notices
 

possible changes in taxpayer behavior and IRS’s processes along with the 

certain change in the value of dollars due to inflation—it is unclear how 

the results of an evaluation done over twenty years ago would serve as 

adequate assurance that a current business rule is appropriate. Over time, 

various changes could affect the continued validity of any rationale. For 

example, according to IRS officials, the current medium dollar threshold 

was set in 1994 as part of a program for accelerating debts above a certain 

amount to ACS to make outbound telephone calls to attempt collection. 

According to IRS officials, the acceleration program was dropped after 

one year because future funding was eliminated. Even so, the medium 

dollar threshold has remained unchanged in the computer programming. 

IRS officials said that IRS has no requirement to periodically evaluate the 

business rules. Because the business rules are not being regularly 

evaluated, IRS risks that the rules will result in unnecessary costs or 

missed collections. For example, IRS could defer sending a case for 

collection action based on outdated assumptions about the costs of such 

action. To the extent that evaluations are done, the lack of a system to 

make managers aware of them or to maintain the evaluations and 

supporting data limits their usefulness in making program decisions to 

ensure that desired collection results are achieved at the least costs. 

According to its director, TACT also found that evaluations of business 

rules were lacking and was considering recommending certain actions to 

improve such evaluations. As with the project to build a database for 

measuring notice effectiveness and the proposal on management 

responsibility discussed above, documentation on TACT’s evaluation 

recommendation was not available for us to take into account in this 

report. 

Given the notice phase’s primary position in IRS’s collection process, its 

potential to collect or otherwise resolve debts at relatively low cost and 

the significant revenue that it can generate, notice-phase performance 

could be a key indicator of the efficiency of IRS’s collection enforcement 

efforts overall. The notice phase may be operating well, but given the lack 

of objectives and performance measures for the process, its efficiency and 

effectiveness are not reasonably assured, and opportunities for improving 

performance may be missed. With the high volume of cases the process 

handles and the revenue it generates, modest percentage change 

improvement could result in significant cost savings or improvements in 

dollars collected or cases otherwise resolved. 

Conclusions 

Page 23 GAO-09-976 IRS's Collection Notices
 

To better ensure the notice phase is achieving desired results at the lowest 

costs, we recommend that the Commissioner of Internal Revenue: 

• establish objectives and performance measures to reflect the desired 

results for the notice phase; 

• establish responsibilities for reviewing the performance of the notice 

phase to help ensure accountability throughout IRS; 

• document the rationales for the key notice-phase business rules in terms 

of efficiency, effectiveness, or other desired results; 

• provide IRS collection managers and executives accessible, reliable 

information on what the business rules are; and 

• periodically and regularly evaluate the business rules in terms of efficiency 

and effectiveness or other results and ensure the results are available to 

managers so the data and methodologies can be used or considered in 

future evaluations. 

Recommendations 

The IRS Deputy Commissioner for Services and Enforcement provided 

written comments on a draft of this report in a September 16, 2009, letter, 

which is reprinted in appendix III. IRS staff also provided technical 

comments. We incorporated these written and other technical comments 

into the report as appropriate. 

Agency Comments 

and Our Evaluation 

IRS agreed with all five of our recommendations and to make related 

improvements. Specifically, IRS agreed to establish and document key 

objectives, measures, and responsibilities. IRS also agreed to periodically 

reevaluate its notice business rules and provide appropriate, reliable 

information to its managers. 

IRS also stated that it closes approximately 80 percent of its notice 

accounts without need for further contact with the taxpayer, and that it 

collected $23.6 billion through the notice process in fiscal year 2007. IRS 

did not clarify whether this percentage and this dollar amount involved all 

types of collection notices, closures, and taxpayers. In our report, we 

noted in figure 5 that IRS collected about $6 billion during fiscal year 2008. 

This total includes collections directly from notices sent to individual 

taxpayers only and comes from data that IRS provided to us. 

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

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

date. At that time, we will send copies to the Secretary of the Treasury, the 

Commissioner of Internal Revenue, and other interested parties. This 

Page 24 GAO-09-976 IRS's Collection Notices
 

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 about this report, 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 IV. 

Michael Brostek 

Director, Tax Issues 

Strategic Issues 

Page 25 GAO-09-976 IRS's Collection Notices
Appendix I: Data on Dispositions from the 

Notice Phase for Individual Taxpayers, Fiscal Appendix I: Data on Dispositions from the Years 1999 to 2008 

Notice Phase for Individual Taxpayers, Fiscal 

Years 1999 to 2008 

Every year, IRS disposes of millions of tax debt collection cases through 

its notice phase in various ways. For example, IRS closes cases when 

taxpayers pay the debt in full or enter an installment agreement. In other 

cases, IRS defers further collection action and suspends active collection 

until some later date, which may be triggered by some taxpayer action. For 

example, taxpayers in active combat duty who have unpaid tax debts will 

be put in a deferred status. Also, IRS sends some unpaid tax debt cases 

that have gone through the notice phase to the other collection phases for 

potential enforcement action. 

As shown in figure 4, from fiscal year 1999 through 2008, the most frequent 

way that IRS disposed of tax debt cases that went through the notice 

phase was by the taxpayer’s paying the debt in full. Specifically, in fiscal 

year 2008, IRS disposed of 5.8 million (or 46 percent) unpaid tax debt 

cases through the notice phase as full paid. Another 4.1 million unpaid tax 

debt cases were deferred or sent to other collection phases. 

Page 26 GAO-09-976 IRS's Collection Notices 
Appendix I: Data on Dispositions from the 

Notice Phase for Individual Taxpayers, Fiscal 

Years 1999 to 2008 

Figure 4: Primary Types of Dispositions of Unpaid Individual Income Tax Debt Cases from the Notice Phase, Fiscal Years 

1999 to 2008 

Cases disposed (in millions)

Fiscal year

Source: IRS data.

Full paid 

Installment agreement 

Deferred 

Othera

Sent to other collection phases

0

1

2

3

4

5

6

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

a

For example, this category represents cases that are in litigation or are currently not collectible. 

On the other hand, when looking at the dollar values of the dispositions 

from notices, IRS sent much more of the unpaid debt amounts to other 

collection phases for potential collection than it collected. For example, in 

fiscal year 2008, IRS sent $40.6 billion in unpaid tax debt to other 

collection phases for potential collection enforcement action but collected 

$5.6 billion during the notice phase, as shown in figure 5. The remaining 

dollar amounts disposed through notices in fiscal year 2008 involved $4.4 

billion in tax refund claims from the taxpayers that were used to offset the 

debt and $4.6 billion that IRS had to abate based on new information. 

Page 27 GAO-09-976 IRS's Collection Notices
Appendix I: Data on Dispositions from the 

Notice Phase for Individual Taxpayers, Fiscal 

Years 1999 to 2008 

Figure 5: Dollar Values of Notice-Phase Results for Individual Income Tax, Fiscal Years 1999 to 2008 

Dollars (in billions)

Fiscal year

Source: IRS data.

Collected

Offset 

Abated 

Sent to other collection phases

0

10

20

30

40

50

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Page 28 GAO-09-976 IRS's Collection Notices
Appendix II: Descriptions of Notice-Phase Appendix II: Descriptions of Notice-Phase Business Rules Identified by IRS 

Business Rules Identified by IRS 

Below are descriptions of the five business rules IRS officials identified in 

response to our request for the key rules that affect the most individual 

taxpayers. With the exception of the minimum dollar rule, the descriptions 

do not provide specifics on the case characteristics that the business rules 

consider because IRS considers that information to be sensitive. Such 

information could potentially be used by purposefully noncompliant 

taxpayers to not pay taxes due and avoid IRS’s collection actions. 

• Minimum dollar rule—if the unpaid debt is below $5 no notice is sent and 

the debt is abated. 

• Low dollar rule—if the debt is below a certain threshold, three notices are 

sent, and if the debt remains unresolved, further collection action is 

deferred. 

• Medium dollar rule—if the debt is above the low dollar rule threshold but 

below a certain higher amount, three notices are sent,1

 and if the debt 

remains unresolved and there is no known levy source, further collection 

action is deferred. 

• Repeater rule for previously resolved debts—if a taxpayer had previous 

tax debt resolved in the telephone contact phase, in-person contact phase, 

or in the waiting queue for assignment to a revenue officer, for any new 

debt identified within a selected number of weeks, two notices are sent, 

and the case is sent to the phase that resolved the previous debt. 

• Repeater rule for current unresolved debts—if the taxpayer has a current 

debt assigned to the telephone contact phase, in-person contact phase, or 

in the waiting queue for assignment to a revenue officer, for any new debt 

two notices are sent, and the case is sent to the phase handling the current 

debt.2

 

1

 As compared to the low dollar rule, only two of the three notices sent are the same. 

2

 This rule was revised effective January 2009 with regard to taxpayers with debts assigned 

to the in-person contact phase. Since the change was made after we started our review the 

revised rule is outside the scope of this report. 

Page 29 GAO-09-976 IRS's Collection Notices 
Appendix III: Comments from the Internal Appendix III: Comments from the Internal Revenue Service 

Revenue Service 

Page 30 GAO-09-976 IRS's Collection Notices
Appendix III: Comments from the Internal 

Revenue Service 

Page 31 GAO-09-976 IRS's Collection Notices
Appendix III: Comments from the Internal 

Revenue Service 

Page 32 GAO-09-976 IRS's Collection Notices
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 33 GAO-09-976 

Appendix IV: GAO Contact and Staff 

Acknowledgments 

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

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

Susan Baker; Ray Bush; Bill Cordrey; George Guttman; Ronald W. Jones; 

Veronica Mayhand; Ed Nannenhorn; Karen O’Conor; Cheryl Peterson; 

Steve Sebastian; Jay Smale; and A.J. Stephens made key contributions to 

this report. 

 IRS's Collection Notices 

GAO Contact 

Acknowledgments 

(450691) 
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