Tax Debt Collection: Measuring Taxpayer Opinions Regarding	 
Private Collection Agencies (23-MAY-07, GAO-07-890T).		 
                                                                 
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.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-890T					        
    ACCNO:   A69851						        
  TITLE:     Tax Debt Collection: Measuring Taxpayer Opinions	      
Regarding Private Collection Agencies				 
     DATE:   05/23/2007 
  SUBJECT:   Debt collection					 
	     Delinquent taxes					 
	     Program evaluation 				 
	     Statistical methods				 
	     Surveys						 
	     Tax administration 				 
	     Tax consultants					 
	     Taxes						 
	     Taxpayers						 
	     Data collection					 

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GAO-07-890T

   

     * [1]Background
     * [2]PCA Program Data, Survey Data, and Key Related Findings
     * [3]Contacts and Acknowledgments
     * [4]GAO's Mission
     * [5]Obtaining Copies of GAO Reports and Testimony

          * [6]Order by Mail or Phone

     * [7]To Report Fraud, Waste, and Abuse in Federal Programs
     * [8]Congressional Relations
     * [9]Public Affairs

Testimony

Before the Committee on Ways and Means, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 10:00 a.m. EDT
Wednesday, May 23, 2007

TAX DEBT COLLECTION

Measuring Taxpayer Opinions Regarding Private Collection Agencies

Statement of Gregory D. Kutz, Managing Director
Forensic Audits and Special Investigations

GAO-07-890T

Mr. Chairman and Members of the Committee:

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.^1
Based on that authority, in 2006, IRS contracted with three PCAs as a
pilot program.^2 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.^3 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.^4 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.

^1American Jobs Creation Act of 2004, Pub. L. No. 108-357, S 881, 118
Stat. 1418 (codified at 26 U.S.C. 6306) (2004).

^2Contract in this case refers to task orders issued to the three PCAs
under their existing United States General Services Administration federal
supply schedule contracts.

^3If an authorized representative is designated on an individual's tax
return, for example, a legal representative, such as a Power of Attorney,
the PCA is required to contact the representative rather than the
individual taxpayer. For the purposes of this report, all references to
taxpayers are defined as either individual taxpayers or their
representatives.

^4See GAO, Tax Debt Collection: IRS Is Addressing Critical Success Factors
for Contracting Out but Will Need to Study the Best Use of Resources,
[10]GAO-04-492 (Washington, D.C.: May 24, 2004). Also see GAO, Tax Debt
Collection: IRS Needs to Complete Steps to Help Ensure Contracting Out
Achieves Desired Results and Best Use of Federal Resources,
[11]GAO-06-1065 (Washington, D.C.: Sept. 29, 2006).

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:

           o 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.
           ^5

^5Right party contacts made from November 27, 2006, through November 30,
2006, are not included in this figure, although they would have been
eligible to take the survey.

           o 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.

           o 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.

           o 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.^6 Out of these
           252,173 calls, PCAs confirmed 13,630 right party contacts.

           o 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.

^6According to IRS, for all PCAs, the outbound connected call figure
includes any outbound phone call that connects with a person, with the
exception of calls that are answered but immediately disconnected. For 2
PCAs, outbound connects include reaching an electronic answering device
such as an answering machine. The third PCA's predictive dialer system
does not connect identified answering machine calls to employees. Outbound
connects do not include no answers, operator messages for disconnected
numbers, busy signals, fax machine answers, or calls that do not connect
for any other reason.

           Background
			  
           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. S 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.
			  
			  PCA Program Data, Survey Data, and Key Related Findings

           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.^7 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.
			  
^7As indicated previously, right party contacts made from November 27,
2006, through November 30, 2006, are not included in this figure, although
they would have been eligible to take the survey.

Table 1: PCA Approaches to Survey Methodology, November 2006 through
February 2007

Sources: GAO and the PCAs.

Note: Right party contacts offered the survey between November 27, 2006
and November 30, 2006 are not included in the figures above.

aIRS did not execute the option to renew this PCA's contract early in
2007.

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.

Table 2: Summary of PCA Work and Consulting Company Survey Work, September
2006 through February 2007

Sources: IRS, the PCAs, and the consulting company.

Note: We did not independently verify the reliability of these data.

aThe survey period we reviewed was from November 27, 2006, through
February 28, 2007. Data do not include right party contacts made between
November 27, 2006 and November 30, 2006.

We also made several related observations during the course of our work:

           o 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.

           o 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.

           o 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).

           o 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.

Contacts and Acknowledgments

For further information about this testimony, please contact Gregory D.
Kutz at (202) 512-7455 or [email protected]. 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.

(192249)

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Highlights of [19]GAO-07-890T , a testimony before the Committee on Ways
and Means, House of Representatives

May 23, 2007

TAX DEBT COLLECTION

Measuring Taxpayer Opinions Regarding Private Collection Agencies

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.

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, as summarized in the following table, the three PCAs used
different methods to determine which right party contacts were offered the
survey.

PCA Approaches to Survey Methodology, December 2006 through February 2007

Sources: GAO and the PCAs.

Note: Right party contacts offered the survey between 11/27/06 and
11/30/06 are not included in the figures above.

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.

References

Visible links
  10. http://www.gao.gov/cgi-bin/getrpt?GAO-04-492
  11. http://www.gao.gov/cgi-bin/getrpt?GAO-06-1065
  19. http://www.gao.gov/cgi-bin/getrpt?GAO-07-890T
*** End of document. ***