Tax Debt Collection: Measuring Taxpayer Opinions Regarding Private Collection Agencies
Published: 2007-05-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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, the three PCAs used different methods to determine which right party contacts were offered the survey. 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.

section_title: Letter
paragraphs: 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.  Based on that authority, in 2006, IRS contracted with three PCAs as a pilot  program. 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. 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. 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,  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.
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. 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  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.
subsections: section_title: Background
paragraphs: 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-for- service 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  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.
section_title: PCA Program Data, Survey Data, and Key Related Findings
paragraphs: 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. 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  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.
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.
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  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.
section_title: Contacts and Acknowledgments
paragraphs: 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.
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