	Background

IRS has two major programs to collect tax debts. Finishing work to address the  critical success factors could help achieve desired results—such as  collecting tax debts—but cannot guarantee success, which depends, in  part, on how well IRS addresses the factors, identifies problems, and  resolves problems in the limited implementation phase. Although IRS officials indicated that a purpose of the limited  implementation phase is to assure readiness for full implementation, IRS  has not yet documented how it will identify and use the lessons learned to  ensure that each critical success factor is adequately addressed before  expanding the program. Because program success will be affected by how  well IRS identifies and makes needed adjustments to resolve problems,  tracking the lessons learned in the limited implementation phase is  critical. Also, IRS  has not documented criteria that it will use to determine whether limited  implementation phase performance was sufficient to warrant program  expansion. IRS officials indicated that they plan to further discuss  performance criteria that could trigger a go/no go decision, and might  consider criteria such as the amount of taxes collected and indications of  PCAs abusing taxpayers or misusing taxpayer data. IRS has not decided on  whether these targets will include the amounts of collected taxes  compared to program costs, which was a key reason for canceling the  1996 PCA pilot program. Finally, IRS will have a little more than a half year  to identify the lessons learned before incorporating them into the  solicitation for the next contract, which IRS intends to release in March  2007 in order to begin expanding the number of PCAs in January 2008. In the documented study design, IRS would exclude the fees paid to  PCAs from the costs and subtract those fees from the tax debts collected  by PCAs. While such a study might produce useful information, it will not  meet the intent of our recommendation. The study would not compare the  results of using PCAs with the results IRS could get if given the same  amount of resources, including the fees to be paid to PCAs (which are to  be paid from federal tax receipts), to use in whatever fashion that officials  determine would best meet tax collection goals. Conclusions

Although IRS’s actions do not guarantee PDC program success, IRS made  significant progress in addressing the 5 critical success factors and 17  related subfactors before sending cases to PCAs for the limited  implementation phase. Taken together, these actions were intended to  achieve such important ends as ensuring that the selected PCAs will be  able to do the job and work the range of cases assigned, that IRS will have  the necessary resources and caseload ready to do its part, and that  taxpayers’ rights and data will be protected. Even with this progress, IRS  has not yet completed the related steps that it must take for 3 subfactors  on setting goals and measures, determining all program costs, and  evaluating the program. Related to such decisions on expansion is IRS’s planned comparative  study of using PCAs. If this study is not adequately designed and  implemented, policymakers may not be aware of the true costs of  contracting with PCAs—including the fees paid to PCAs. Recommendations for Executive Action

To ensure that IRS decision makers will timely have the information  needed to make informed, data-based decisions about the private debt  collection program, we recommend that, as soon as possible, and certainly  before any expansion of the PDC program beyond the initial round of  cases sent to PCAs, the Commissioner of Internal Revenue complete  establishing:  results-oriented goals and measures for the program based on the best  available information;  reliable, verifiable information on all the costs of the program, to the  extent possible;    plans for evaluating the results of the program in terms of expected costs,  goals, and desired results; and    clear criteria and processes for assessing how IRS addressed the critical  success factors in the limited implementation phase and whether PDC  program performance warrants program expansion. To determine whether IRS’s planned approach to study using PCAs will  provide useful information with which to determine if contracting is the  best use of federal funds for achieving tax collection goals, we reviewed  program documents and interviewed officials from IRS supported by  contractor staff assisting them in developing the study.
Why GAO Did This Study

In 2005, the inventory of tax debt with collection potential had grown to $132 billion. The Internal Revenue Service (IRS) has not pursued some tax debt because of limited resources and higher priorities. Congress has authorized IRS to contract with private collection agencies (PCA) to help collect tax debts. IRS has developed a Private Debt Collection (PDC) program to start with a limited implementation in September 2006 and fuller implementation in January 2008. As requested, GAO is reporting whether (1) IRS addressed critical success factors before limited implementation, (2) IRS will assess lessons learned before fuller implementation, and (3) IRS's planned study will help determine if using PCAs is the best use of federal funds.

What GAO Found

IRS made major progress in addressing the 5 critical success factors and 17 related subfactors for the PDC program before sending cases to PCAs. GAO reviewed program documents and interviewed officials to identify IRS's approaches and steps taken to address the factors. Taken together, IRS's actions were intended to ensure that the PCAs will be able to do the job and work the range of cases assigned, IRS will have the necessary resources and caseload ready, and taxpayer rights and data will be protected. Even with this progress, IRS has not completed work for three subfactors--setting results-oriented goals and measures, determining all PDC program costs, and evaluating the program based on the results-oriented goals and measures, once they are established. As a result, IRS risks not providing complete information that decision makers would find useful. Finishing work on the factors could help achieve but cannot guarantee program success, which also depends, in part, on how IRS addresses the factors and identifies and resolves any problems in the limited implementation phase. Although IRS officials indicated that a purpose of the limited implementation phase is to assure readiness for full implementation to up to 12 PCAs, IRS has not yet documented how it will identify and use the lessons learned to ensure that each critical success factor is addressed before expanding the program starting in January 2008. Because program success will be affected by how well IRS makes adjustments, assessing the lessons learned in limited implementation is critical. Also, IRS has not documented criteria that it will use to determine whether the limited implementation performance warrants program expansion. IRS officials indicated that they are considering criteria that could trigger a go/no go decision, such as the amount of taxes collected and indications of PCAs abusing taxpayers or misusing taxpayer data. IRS has not decided on whether these targets will include comparing the taxes collected to program costs, which was a key reason for canceling a 1996 PCA pilot program. Finally, IRS will have a little more than a half year to identify the lessons learned before incorporating them into the next contract solicitation, which IRS intends to release in March 2007. Related to such decisions on expansion is IRS's planned comparative study of using PCAs. That study is to compare using PCAs to investing IRS's PDC-related operating costs into having IRS staff work IRS's "next best" collection cases. Under the documented study design, IRS would exclude the fees paid to PCAs from the costs and subtract those fees from the tax debts collected by PCAs. While such a study might produce useful information, it will not compare the results of using PCAs with the results IRS could get if given the same amount of resources, including the fees to be paid to PCAs, to use in what IRS officials would judge to be the best way to meet tax collection goals. Adequately designing and implementing the study is important to ensure policymakers are aware of the true costs of contracting with PCAs and know whether PCAs offer the best use of federal funds.