	Background

The mission of IRS’s collection program, as set forth in the fiscal year  2015 collection program letter, is “to collect delinquent taxes and secure  delinquent tax returns through the fair and equitable application of the tax  laws, including the use of enforcement tools when appropriate, provide  education to customers to enable future compliance, and thereby protect  and promote public confidence in the American tax system.”
IRS collects unpaid tax debts through a complex, three-phase process:  (1) a notice phase, (2) a telephone phase (ACS), and (3) an in-person  phase (Field collection). ACS Managers Aim to Balance Workload to Achieve Case Closure and Taxpayer Service Measures

Although the ACS prioritization process is largely automated, IRS  managers responsible for case prioritization and selection have some  discretion in choosing the number and type of cases worked to ensure  that ACS meets two key performance measures: (1) the number of  balance due and nonfiler case closures and (2) the level of service, which  measures the quality of collection representatives’ interactions with  taxpayers who call into ACS. Priority Cases Accounted For Half of Case Closures in Fiscal Year 2014, and IRS Performed Better at Closing Priority Individual Cases Than Priority Business Cases

In fiscal year 2014, almost half of the 3.5 million cases closed or  transferred out of ACS were high-priority cases, such as high-income  nonfiler and trust fund cases. IRS collected almost $6.2 billion in  delinquent revenue for the federal government from those cases closed in  fiscal year 2014. The Collection Program and ACS Lack Clearly Documented Objectives, and the Key Term of Fairness Is Undefined

According to internal control standards, having clearly documented and  communicated program objectives is a precondition of any further internal  control activity, such as risk assessment, and is key to helping entities  meet their mission, objectives, and goals. IRS officials responsible for  the collection program and ACS were unable to produce documentation  regarding collection program or ACS objectives. However, the term “fairness” was not defined or operationalized in any  ACS or collection program documents as it relates to case selection. First, without clearly formulated and communicated program  objectives, IRS cannot know how well ACS contributes to the collection  program mission and is not able to effectively assess the risks ACS may  face or its overall effectiveness. Ensuring that the  multistep ACS prioritization and selection process is documented will  allow IRS to communicate the concept of fairness consistently and reduce  the risk that the case selection and prioritization process is perceived as  unfair. IRS has established a management infrastructure for both assessing risk  and monitoring performance. IRS officials acknowledged that they have little formal documentation  along these lines to comprehensively describe the ACS process. Without adequate documentation, it is also difficult to determine whether  the ACS case prioritization and selection process effectively supports  collection program and ACS missions and objectives. In addition, if the prioritization and selection  process is not periodically evaluated over time, it could lose its value and  usefulness. Conclusions

ACS is one of IRS’s primary enforcement tools for compelling  noncompliant taxpayers to file their tax returns and pay their taxes. Recommendations for Executive Action

To help ensure the IRS collection program meets its mission and selects  cases fairly, we recommend that the Commissioner of Internal Revenue  take the following four actions related to ACS:  1. Establish, document, and implement procedures to complete periodic  evaluations of the ACS case prioritization and selection process and  structure. However, IRS did not believe that  the level of current documentation has undercut the effectiveness of ACS. In response to our recommendation to establish, document, and  implement objectives for the collection program and ACS, IRS said it will  review its current objectives for both, which it identifies as the collection  program priorities, to identify and implement any additional objectives. IRS also noted that any evaluation of the ACS case prioritization and  selection process completed will be based on a risk assessment at that  time. Given that components of the ACS case prioritization and selection  process have been in place since at least 2000 without being evaluated,  ACS may be missing opportunities to better prioritize its workload and  improve collection results through periodic evaluations, and ensuring  follow up for ad hoc evaluations. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) describe the Automated Collection System  (ACS) process to prioritize and select collection cases and the results of  that process for fiscal year 2014, and (2) determine how well the ACS  case prioritization and selection process supports the collection program  mission and objectives. To determine IRS’s definition of fairness as it applies to  collection activities, we reviewed the ACS procedures and process for  case prioritization and selection. We  also interviewed relevant IRS officials concerning their understanding of  the mission, objectives, and internal controls of the collection program  and ACS, and about the extent to which procedures exist to monitor ACS  case prioritization and selection. Depending on the function unit, ACS may take a  number of actions, such as searching for contact information and a levy  source, contacting taxpayers, or issuing levies or liens as appropriate.
Why GAO Did This Study

IRS's ACS is one of the primary means for pursuing taxpayers who failed to fully pay their taxes or file their tax return in a timely manner. From fiscal years 2012 through 2014, ACS staff has declined 20 percent while the number of unresolved collection cases at year-end has increased 21 percent. Given these trends, IRS must make informed decisions about the collection cases it pursues to ensure the program is meeting its objectives and mission.
GAO was asked to review the ACS process for prioritizing and selecting collection cases. This report (1) describes the ACS process to prioritize and select collection cases and the results of that process for fiscal year 2014, and (2) determines how well the ACS case prioritization and selection process supports the collection program mission and objectives. GAO reviewed IRS guidance, processes, and controls for prioritizing and selecting collection cases, reviewed ACS data, assessed whether IRS's controls followed Standards for Internal Control in the Federal Government , and interviewed IRS officials.

What GAO Found

The Internal Revenue Service's (IRS) Automated Collection System (ACS) has a multistep, automated process to prioritize and select cases of unpaid taxes and unfiled tax returns to pursue. ACS assesses cases to determine the order to work cases based on IRS's collection program priorities, the likelihood the case will be resolved, and the type of tax and amount owed. ACS also reviews cases to determine what action to take based on whether a levy source or contact information is known for taxpayers. ACS will then contact taxpayers according to its assigned priority and may issue a levy or lien against the taxpayer.
ACS managers balance cases worked to ensure ACS achieves its case closure and taxpayer service measures. These decisions include how many notification and enforcement actions to take and how many cases to assign to IRS staff so that cases are worked in a timely manner. About half of the cases closed in ACS in fiscal year 2014 were high priority, including such issues as employers not paying federal employment taxes. Of the 3.5 million cases closed or transferred out of ACS in fiscal year 2014, IRS collected almost $6.2 billion. IRS generally had more success in collecting from individual taxpayers than from business taxpayers. However, because IRS has not identified objectives for the collection program and ACS, it is difficult to assess the program's overall effectiveness.
ACS has processes for managing risk and reviewing performance, but has not implemented other key internal controls. This increases the risk that the collection program's mission of fair and equitable application of the tax laws will not be achieved. GAO identified deficiencies in the following internal control areas.
Collection program and ACS objectives, and key term of fairness are not defined: IRS officials responsible for the collection program and ACS were unable to produce documentation of collection program or ACS objectives. Although fairness is specified in the collection mission statement, IRS has not defined or operationalized it in any ACS or collection program documents. In the absence of clearly documented objectives and a clearly communicated definition of fairness, IRS cannot know how well ACS contributes to the collection program mission and ensure the case prioritization and selection process is fair. The lack of clearly articulated objectives undercuts the effectiveness of IRS efforts to assess risks and monitor ACS performance.
ACS case prioritization and selection process is not documented: IRS has little formal documentation that describes the ACS prioritization and selection process. Without adequate documentation, it is difficult for IRS to determine whether the ACS case prioritization and selection process effectively supports the collection program mission.
Effectiveness of ACS process is not periodically evaluated: IRS has no procedures for periodically evaluating the ACS case prioritization and selection process and has not acted on implementing recommendations from a recent ad hoc study. Given that key components of the ACS process have remained relatively unchanged since its creation, IRS may be missing opportunities to better prioritize its workload, which could improve collection results.

What GAO Recommends

GAO recommends that IRS take four actions to help ensure the collection program meets its mission, such as establishing, documenting, and implementing objectives for the collection program and ACS, and establishing, documenting, and implementing procedures to complete periodic evaluations of the ACS case prioritization and selection process. In commenting on a draft of this report, IRS said it generally agreed with all of GAO's recommendations.