Overall, the total tax debt inventory has been trending upward. Process for Categorizing and Routing Collection Cases Is Largely Automated, but Management Monitors Priority Cases to Achieve Program Goals

		Automated Inventory Delivery System Categorizes and Routes Cases to Potentially Be Worked Based on Numerous Factors

IRS uses an automated process to categorize and route most collection  cases for potential selection. Management Identifies and Monitors Cases in Priority Areas

IRS’s executives set priorities for closing cases in certain priority areas. However, according to IRS officials, if periodic monitoring indicates that  goals may not be met, collection headquarters and program staff  collaborate to determine if they should take action to select and work  priority cases in sufficient numbers to achieve case closure goals. However, IRS officials also said that they  periodically search available collections inventory for large business or  high-wealth individuals with unpaid balances when goals are at risk of not  being met. IRS Exceeded Case Closure Goals for Priority Areas

During fiscal years 2013 and 2014, IRS exceeded nearly all of its goals  for collections in its priority areas. However, when we compared IRS’s processes to standards in the Green  Book, we found that they were deficient in some areas, thereby  increasing the risk that the collections program may not meet its stated  mission. IRS Has Not Clearly Defined Objectives or Key Terms, Such as Fairness, for the Collection Program and Case Selection Process

Internal control standard: define objectives   Program objectives are to be clearly defined in measurable terms to enable the  design of internal control for related risks. IRS also has not clearly defined important terms such as fairness. Although fairness is in the collection mission statement and IDS  processes may affect how collection cases are selected, collection  officials had not defined fairness or established it as a program or case  selection objective. Without clear objectives for the program and case selection processes  codified in official IRS guidance—including definitions for key terms like  fairness and risk—IRS is hindered in its efforts to ensure the program is  achieving its mission, including ensuring that taxpayers are treated  fairly—should fairness become a program objective. According to IRS collection officials, documents identifying and  describing IDS procedures and the case selection process are not  available because they are the result of incremental decisions and system  changes implemented over several years. Without adequate documentation, it is difficult to determine whether the  collection’s case selection procedures are effective in supporting program  objectives. A lack of documented  procedures also increases the risk that they will be consistently applied. Although evaluations have been conducted from time to time, IRS does  not have procedures to periodically monitor IDS categorization and  routing rules, such as reevaluating dollar thresholds used for categorizing  some cases as high priority and routing cases to one collections function  instead of another (e.g., ACS versus the Field). IRS has evaluated business rules on an ad-hoc basis. Another risk is that without systematic monitoring, collection procedures  could result in unnecessary costs or missed collections. Not  adjusting dollar amounts used to make collections case routing decisions  could lead to inconsistent treatment of taxpayers over time as the real  values of the dollar amounts declined due to inflation. Conclusions

IRS’s collection program is the federal government’s primary enforcement  tool for compelling noncompliant taxpayers to file their tax returns and pay  taxes, encouraging voluntary compliance and thereby helping address the  tax gap. Lastly, IRS noted that our report did not identify any instances where the  selection of a case was considered inappropriate or unfair. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) describe the Internal Revenue Service’s (IRS)  processes for categorizing and routing collection cases, trends in priority  areas, and key process changes for fiscal years 2012 through 2014; and  (2) assesses how well the processes for case selection support  collection’s mission, including applying tax laws with integrity and fairness  to all. In regard to internal control  standards on establishing program objectives, we interviewed various  collection officials, including the Director of Collection and other IRS  headquarters managers in the offices of Enterprise Collection Strategy,  Campus Compliance Services, and Field Collection, concerning their  understanding of the mission, objectives, and internal controls of the  collection program and IDS processes.
Why GAO Did This Study

IRS's collection program pursues individuals and businesses that failed to fully pay their taxes or file returns. Since 2009, the total tax debt inventory has increased 23 percent to $380 billion, while collection staff declined 23 percent. Given its large workload and declining resources, it is important that IRS make informed decisions about the collection cases it pursues to enhance compliance and confidence in the tax system.
GAO was asked to review IRS's processes for categorizing and routing collection cases for potential selection. This report (1) describes collection processes and trends in priority areas; and (2) assesses how well controls support the mission, including applying tax laws with integrity and fairness to all.
GAO reviewed IRS guidance, processes, and controls for categorizing and routing collection cases, reviewed data on results in priority areas, 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) collection program largely uses automated processes to categorize and route unpaid tax or unfiled tax return cases for potential selection. The automated Inventory Delivery System (IDS) categorizes and routes cases based on many factors, such as type of tax and amount owed. Outside of IDS, collection managers set goals for closing cases in priority areas, such as delinquent employer payroll taxes and cases involving certain high-wealth taxpayers. If goals are at risk of not being met, officials may take action to select additional priority cases. In recent fiscal years, the collection program has exceeded nearly all case closure goals for priority cases. However, because IRS has not identified objectives for the collection program, such as fairness, it is difficult to assess the program's overall effectiveness.
GAO identified several areas where the lack of documented objectives and internal control deficiencies for categorizing and routing cases increase the risk that the collection program's mission, including fair case selection, will not be achieved. Examples of key internal control steps and deficiencies follow.
Program objectives and key terms are not clearly defined: Although fairness is specified in the collection mission statement and IDS processes can affect how collection cases are selected, management has not defined fairness or any other program or case selection objectives. IRS collection's management referred to various documents as examples of program objectives. However, the documents were not specific enough nor codified in official IRS guidance to ensure proper control over the program. Without clearly defined objectives that can enhance program effectiveness, it is difficult for IRS to ensure it selected collection cases in a fair and unbiased manner.
Case categorization and routing procedures are not documented: According to management, case categorization and routing procedures were developed over several years as the result of incremental decisions and system changes. However, GAO found that the system and decisions were not documented, such as the selection of priority areas. Without documentation, it is difficult to determine whether processes are effective or consistently applied.
Effectiveness of processes is not routinely monitored : Despite some ad-hoc studies, IRS does not have procedures to periodically monitor IDS, including the dollar thresholds used to identify some cases for collection. Management could not provide GAO with justification for the thresholds because according to officials, they were set so long ago. Without periodic evaluations, out-of-date collection procedures could result in unnecessary costs or missed collections. Unadjusted dollar amounts could lead to inconsistent treatment of taxpayers over time as the real value of dollar thresholds decline over time due to inflation.

What GAO Recommends

GAO recommends that IRS take five actions to improve collection controls, such as clearly defining and documenting program objectives and control procedures, and periodically evaluating the effectiveness of controls. In commenting on a draft of this report, IRS said it generally agreed with all of GAO's recommendations.