Specifically, we interviewed officials from  11 state revenue departments that, according to officials from the  Federation of Tax Administrators (FTA), represented a mix—in  aspects such as amount of resources and PCA roles—of experience in  contracting with PCAs for tax debt collection and provided examples of  program practices in such areas as case selection and use of  performance data; the Department of the Treasury’s Financial Management Service and  Department of Education—two federal agencies with large-scale, non- tax debt collection contracting; and  the three PCA firms that IRS selected as subject matter experts to assist  in drafting the provisions of a contract for PCA collection services. To determine whether IRS has addressed the critical success factors in  developing the PCA contracting program and, if not, what is left to be done,  we interviewed IRS program officials. Five Factors Are Critical for a Successful PCA Collection Program

Our work identified and validated five broad factors that are critical to the  success of a proposed program for contracting with PCAs to collect tax  debt. Officials recognize that much work needs to be done to  sufficiently address each factor, which they estimate will take 18 to 24  months after any legislation passes. IRS officials  said they intend to start developing the evaluation plan after they  receive this authority and to finish it before sending cases to PCAs. IRS officials stated that if legislation to authorize the program was not  passed during 2004, IRS eventually would suspend work on developing the  program. Potential Study Design Would Provide Limited Information to Judge Whether Contracting with PCAs Is the Best Use of Resources

Although IRS officials intend to study the relative performance of PCAs and  IRS employees in collecting delinquent taxes, the study approach under  initial consideration would provide policymakers limited information to  judge whether and when the PCA strategy is the best use of resources. The  tentative idea for a design—comparing PCA and IRS performance for  similar types of simple cases that would be sent to PCAs—does not  recognize that IRS officials believe that using employees on these cases  would not be their best use given the need to work on other, higher priority  cases. However, because IRS is developing a new case selection model for its own  use, after some experience is gained both with using PCAs and with new  IRS case selection processes, IRS should have better data to use in  determining the best way of achieving its collection goals. In response to our recommendation that, if Congress authorizes IRS’s use  of PCAs, IRS do a study that compares the use of PCAs to a collection  strategy that officials determine to be the most effective and efficient  overall way of achieving collection goals, the Commissioner agreed that  IRS would need to analyze the PCA program to determine its effectiveness  and impact on the overall collection of delinquent taxes.
Why GAO Did This Study

Congress is considering legislation to authorize IRS to contract with private collection agencies (PCA) and to pay them out of the tax revenue that they collect. Some have expressed concerns that this proposal might be unsuccessful, inefficient, or result in taxpayers being mistreated or having their private tax information compromised. This report discusses (1) the critical success factors for contracting with PCAs for tax debt collection; (2) IRS's actions to address these factors in developing the PCA program and actions left to be done; and (3) whether IRS, if it receives the authority to use PCAs, plans to do a study that will help policy makers judge whether PCAs are the best use of funds to meet IRS's collection objectives.

What GAO Found

Based on our analysis of information from various parties, including officials from selected state revenue departments and federal agencies that use PCAs, five factors are critical to the success of a PCA collection program. Together, these factors increase the chances for success and help the program achieve desired results. Although incomplete, IRS has taken actions to address these factors. For example, IRS has been developing (1) program performance measures and goals, (2) plans for a computer system to transmit data to PCAs, (3) a method to select cases for PCAs, and (4) contract provisions to govern data security and PCAs' interactions with taxpayers. IRS officials recognize that major development work remains and have plans to finish it. Officials said they would suspend work if PCA authorizing legislation is not passed during 2004. If legislation passes, officials estimated that it would take 18 to 24 months to send the first cases to PCAs. Aware of concerns about the efficiency of using PCAs, IRS intends to study the relative performance of PCAs and IRS employees in collecting tax debts after gaining some experience with them. However, the initial idea for a study would provide limited information to judge whether or when the PCA approach is the best use of resources. The tentative idea--comparing PCA and IRS performance for the same type of simpler cases to be sent to PCAs--does not recognize that IRS officials believe that using IRS employees on such cases would not be the best use of staff. Federal guidance emphasizes efficiently and effectively using resources to achieve results and identifying the most realistic and cost-effective program option. Experience gained in using PCAs and a new IRS case selection process would help officials design such a study.