High Risk Series: Internal Revenue Service Receivables (Letter Report,
02/95, GAO/HR-95-6).

In 1990, GAO began a special effort to identify federal programs at high
risk of waste, fraud, abuse, and mismanagement.  GAO issued a series of
reports in December 1992 on the fundamental causes of the problems in
the high-risk areas.  This report on Internal Revenue Service
receivables is part of the second series that updates the status of this
high-risk area. Readers have the following three options in ordering the
high-risk series: (1) request any of the individual reports in the
series, including the Overview (HR-95-1), the Guide (HR-95-2), or any of
the 10 issue area reports; (2) request the Overview and the Guide as a
package (HR-95-21SET); or (3) request the entire series as a package
(HR-95-20SET).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HR-95-6
     TITLE:  High Risk Series: Internal Revenue Service Receivables
      DATE:  02/01/95
   SUBJECT:  Tax administration
             Tax nonpayment
             Delinquent taxes
             Collection procedures
             Risk management
             Debt collection
             Records management
             Financial records
             Accounts receivable
             Federal agency accounting systems
IDENTIFIER:  IRS Compliance 2000 Initiative
             High Risk Series 1995
             
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Cover
================================================================ COVER


High-Risk Series

February 1995

INTERNAL REVENUE SERVICE
RECEIVABLES

GAO/HR-95-6

Internal Revenue Service Receivables


Abbreviations
=============================================================== ABBREV

  IRS - Internal Revenue Service
  OMB - Office of Management and Budget
  FMFIA - Federal Managers' Financial Integrity Act

Letter
=============================================================== LETTER



February 1995

The President of the Senate
The Speaker of the House of Representatives

In 1990, the General Accounting Office began a special effort to
review and report on the federal program areas we considered high
risk because they were especially vulnerable to waste, fraud, abuse,
and mismanagement.  This effort, which has been strongly supported by
the Senate Committee on Governmental Affairs and the House Committee
on Government Reform and Oversight, brought much needed focus to
problems that were costing the government billions of dollars. 

In December 1992, we issued a series of reports on the fundamental
causes of problems in designated high-risk areas.  We are updating
the status of our high-risk program in this second series.  Our
Overview report (GAO/HR-95-1) discusses progress made in many areas,
stresses the need for further action to address remaining critical
problems, and introduces newly designated high-risk areas.  This
second series also includes a Quick Reference Guide (GAO/HR-95-2)
that covers all 18 high-risk areas we have tracked over the past few
years, and separate reports that detail continuing significant
problems and resolution actions needed in 10 areas. 

This report discusses our continuing concerns about the Internal
Revenue Service's (IRS) management of accounts receivable.  While IRS
has undertaken many individual initiatives, in some respects, the
accounts receivable problem is worse today than 5 years ago.  IRS has
yet to clearly demonstrate that the efforts it has underway have
sufficient institutional focus to effectively deal with the
underlying causes of the problem--causes that cut across the agency
and across lines of managerial authority and responsibility. 

Copies of this report series are being sent to the President, the
Republican and Democratic leadership of the Congress, congressional
committee chairs and ranking minority members, all other members of
the Congress, the Director of the Office of Management and Budget,
the Secretary of the Treasury, and the Commissioner of Internal
Revenue. 

Charles A.  Bowsher
Comptroller General
of the United States


OVERVIEW
============================================================ Chapter 0

As the government's primary tax collection agency, the Internal
Revenue Service (IRS) routinely collects over a trillion dollars each
year.  But, its efforts to collect tens of billions of dollars
taxpayers owe in delinquent taxes have been inefficient and
unbalanced.  Because of this, IRS' management of accounts receivable
has been recognized by GAO, the Office of Management and Budget
(OMB), and IRS management as a high-risk area. 


   THE PROBLEM
---------------------------------------------------------- Chapter 0:1

IRS' poor performance in resolving tens of billions of dollars in
outstanding tax delinquencies has not only lessened the revenues
immediately available to support government operations but could also
jeopardize future taxpayer compliance by leaving the impression that
IRS is neither fair nor serious about collecting overdue taxes. 


   PROGRESS
---------------------------------------------------------- Chapter 0:2

In response to these concerns, IRS has undertaken many initiatives to
"fix" the accounts receivable problem.  The initiatives included
correcting errors in masterfile records of tax receivables,
estimating the size of the receivables inventory using statistical
sampling approaches, resolving high dollar cases, developing a
research system to identify characteristics of delinquent taxpayers,
and settling tax debts for less than what taxpayers owe.  Through
such initiatives, IRS was trying to (1) improve the accuracy of its
delinquent accounts inventory, (2) slow the growth in accounts
receivable, and (3) accelerate and increase the collection of overdue
taxes. 

Despite IRS' efforts, negligible progress has been made in achieving
the three objectives.  First, IRS has not yet developed an accounting
system that identifies valid and collectible receivables and those
that are not, thereby complicating the job of collection personnel in
trying to resolve individual accounts.  Second, over the period 1990
through 1994, the gross inventory of tax debt,\1 which includes
accounts receivable, grew about 80 percent--from $87 billion to $156
billion.  Third, by 1994, annual collections of delinquent taxes had
declined from $25.5 billion to $23.5 billion-- a decline of about 8
percent since 1990--with IRS either writing off or suspending
collection action on about $2 of receivables for each $1 it
collected.  While collections in 1994 were higher than in 1993, the
overall statistics suggest that, despite IRS' many initiatives, the
accounts receivable problem is, in some respects, worse today than it
was 5 years ago. 


--------------------
\1 The inventory of tax debt includes all outstanding debts owed by
taxpayers that are in IRS' detailed accounting records, even though
many are invalid.  IRS currently cannot differentiate valid from
invalid accounts in this inventory. 


   OUTLOOK FOR THE FUTURE
---------------------------------------------------------- Chapter 0:3

These disappointing results should not be interpreted as indicating
either that the problem is intractable or that IRS is incapable of
correcting the problem.  Rather, the results are indicative of the
(1) pervasiveness of problems throughout IRS' processes that cumulate
in the inventory and (2) difficulty in coming to grips with the
interrelationship of the following five underlying causes. 

First, the agency's records are inaccurate and insufficient for
making strategic planning or collection case management decisions. 
IRS does not know how many accounts are valid or collectible, which
accounts are valid, or which collection tools work best. 

Second, the collection process is lengthy, antiquated, rigid, and
inefficient.  The first step in the process alone may take 6 months,
whereas delinquencies in the private sector are usually resolved in 6
months. 

Third, IRS has had difficulty in balancing collection efforts with
the need to protect taxpayer rights--an objective embodied in legal
restrictions on IRS' efforts.  We are concerned that IRS may be
sending the wrong message to its employees because recent policies
have tended to emphasize practices that generate less revenues (for
example, settling tax debts for less than is owed) while not
emphasizing the need to collect delinquent taxes when the debtors
have sizable incomes. 

Fourth, IRS' decentralized structure tends to blur lines of
responsibility and accountability.  There is not an inherently clear
focus on solving problems that cut across the agency, such as the
passing on of invalid and uncollectible accounts from one function to
another. 

And fifth, IRS does not have enough information to determine the
optimum size and mix of staff for collections. 

We recognize that IRS has numerous initiatives underway which relate
to various aspects of the underlying causes.  However, IRS has yet to
clearly demonstrate that these efforts will effectively deal with the
underlying causes--causes that cut across the agency and across lines
of managerial authority and responsibility and whose resolution,
thus, requires an institution-wide focus. 


BACKGROUND:  CHALLENGES FACING
IRS' ACCOUNTS RECEIVABLE
============================================================ Chapter 1

IRS' inability to collect a significant portion of tax delinquencies
prompted the identification of accounts receivable as a high-risk
area in 1988.  The outstanding inventory of tax debt at that time was
about $76 billion, including $22 billion of reported receivables
classified as currently not collectible, while collections were about
$23 billion a year.  And the outstanding debt was increasing each
year, but collections were not keeping pace.  Our concerns were that
such seemingly poor collection performance not only lessened the
revenues immediately available to support government operations but
could also jeopardize future taxpayer compliance by leaving the
impression that IRS is neither fair nor serious about collecting
overdue taxes. 

In our view, the primary task now, as then, is two-fold:  collect
more delinquent taxes and stem the growth in outstanding debts.  The
first part of the task requires greater efficiency and productivity
in the collection process.  The second requires changes in other IRS
components to prevent delinquencies and minimize cluttering-up the
collection process with invalid and uncollectible accounts. 

Over the past 4 years, the inventory of tax debt has continued to
increase, while delinquent tax collections have declined.  As
depicted in figure 1, the inventory has grown almost 80 percent,
while collections have declined about 8 percent over the period 1990
through 1994. 

   Figure 1:  Inventory of Tax
   Debt, 1990 Through 1994

   (See figure in printed
   edition.)

Note 1:  Gross receivables include accounts categorized as currently
not collectible.  Receivables data represent year-end balances, while
collections data represent annual totals. 

Note 2:  Effective November 1990, Public Law 101-508 extended the
statutory time limit on collections from 6 years to 10 years. 

Source:  IRS. 

In part, the increase in the inventory of tax debt is attributable
to: 

The inflow of new accounts receivable, up 8 percent annually in
recent years; and

IRS' disposition of its annual workload, for example, for 1994, IRS
retained 53 percent in working inventory and added 7 percent to the
currently not collectible inventory.  (See figure 2.)

   Figure 2:  Accounts Receivable
   Dispositions, Fiscal Year 1994

   (See figure in printed
   edition.)

Note 1:  Data reflect the disposition of accounts receivable in
working inventory at the beginning of the year and new receivables
established during the year. 

Note 2:  Collectibility amounts are IRS estimates based on Research
Division analysis of the accounts receivable inventory. 

Source:  IRS

In its efforts to resolve and manage the current inventory, IRS has
been abating or suspending active collection efforts on about $2 of
receivables for each $1 it collects.  (See figure 2.) For example,
during fiscal year 1994, IRS abated about $37.5 billion of its
receivables indicating that a significant portion of the accounts
receivable inventory should not have been established in the first
place.  IRS also suspended about $11.3 billion of receivables it
classified as "currently not collectible." In contrast, collections
in fiscal year 1994 amounted to about $23.5 billion.  Also, IRS
expects to abate or suspend active collection efforts on about
two-thirds of the $79.5 billion of accounts in working inventory
(backlog) at the end of fiscal year 1994, based on IRS' estimates
that these accounts are of doubtful collectibility. 

Such a significant amount of unproductive accounts receivable demands
changing the manner in which other IRS components (for example,
compliance, returns processing, and taxpayer service) go about their
business.  Presently, accounts receivable reflect not just valid tax
debts needing collection action but also many breakdowns or
inefficiencies in other IRS programs.  For example: 

the failure of returns processing to correctly account for a
taxpayer's payment may result in the creation of an account
receivable for collection personnel to resolve;

the failure of taxpayer service to promptly resolve a taxpayer's
inquiry about an overdue account may perpetuate the receivable and
generate subsequent action by collection personnel; and

the establishment of a receivable as a result of an IRS compliance
effort which overstates a taxpayer's liability makes additional work
for collection personnel with no guarantee of revenue generation. 

The following sections discuss the actions IRS has taken and needs to
take with respect to the five problem areas that we previously
reported\2 and that perpetuate accounts receivable as a high- risk
area. 


--------------------
\2 High-Risk Series:  Internal Revenue Service Receivables
(GAO/HR-93-13, Dec.  1992). 


LACK OF INFORMATION STILL A MAJOR
PROBLEM
============================================================ Chapter 2

Accurate and reliable information on which to guide collection
efforts is a must, as is the sustained commitment from top management
to provide the resources needed to ensure the success of those
efforts.  Historically, IRS has not emphasized the importance of this
information, and the progress made to date in developing accurate and
reliable information has been very slow.  Probably the most
significant accomplishment in this area has been IRS' recognition
that more accurate financial and management information on the makeup
and characteristics of delinquent taxpayers would assist in
identifying and ultimately resolving problem areas. 

Efforts are under way to determine the valid and invalid segments of
the inventory of tax debts, and some interim progress has been made
in determining the value of the inventory.  There are also ongoing
efforts to determine those market segments, that is, industries,
occupations, geographic areas, taxpayers with common characteristics,
or internal compliance activities that identify tax debts, so that
collection efforts (including prevention activities) can be better
focused toward resolving tax debts. 

However, little has been done to utilize available information or
generate the additional information needed to evaluate the
effectiveness of numerous IRS collection tools and programs.  Such
evaluations would help IRS improve the efficiency and productivity of
the collection process. 


   VALID AND COLLECTIBLE ACCOUNTS
---------------------------------------------------------- Chapter 2:1

IRS is now able to estimate the total value of its valid receivables
based on statistical samples selected from its inventory of tax
debts.  As of September 30, 1993, IRS estimated that its valid
receivables total $71 billion, of which about $29 billion was
believed to be collectible.  While these estimates provide a much
clearer picture of the amount of tax revenue that could be realized
and are a vast improvement over the information IRS had in the past,
they are just an interim step. 

IRS needs to produce more reliable information on the validity and
collectibility of each account in the inventory.  In response to one
of our past recommendations, IRS is working to develop systems for
categorizing the validity and collectibility of each account in the
inventory, but it will be several years before the systems are
operational and can produce the needed information.\3

IRS also needs to work toward correcting the underlying account
information to ensure that the information used to develop its
systems is accurate.  We found some problems with the underlying
account information on credit balances and in-process revenue
transactions during our audit of IRS' fiscal year 1993 financial
statements. 

Until accurate and reliable information on the validity and
collectibility of the inventory of tax debts is available, IRS will
continue to waste time pursuing debts that are not real and will not
generate revenue.  Moreover, the taxpayers contacted about such
nonexistent debt may feel harassed and lose confidence in IRS'
competence and fairness.  In addition, available summary information
on tax debts may be misleading in allocating staff and developing
collection strategies because they include both valid and invalid
accounts. 


--------------------
\3 Financial Audit:  IRS Significantly Overstated Its Accounts
Receivable Balance (GAO/AFMD-93-42, May 6, 1993). 


   MARKET SEGMENT CHARACTERISTICS
---------------------------------------------------------- Chapter 2:2

As part of an initiative called "Compliance 2000," IRS intends to
analyze information from various internal and external databases to
identify tax debtors possessing similar characteristics so that it
can design strategies to bring them into compliance.  These
strategies could range from up-front prevention to tailored
collection efforts.  And IRS expects the research results to improve
the way in which it prioritizes tax debt cases for collection. 

We believe this concept could potentially have a major impact on how
IRS deals with tax debts, particularly in developing the much needed
prevention programs to keep accounts from becoming delinquent in the
first place.  However, it is too early to determine whether IRS'
research results will meet expectations.  IRS does not expect the
entire base-line of analytical data to be available until 1997. 

Even then, substantive collection results would take years longer. 
After identifying market segments generating valid tax debts, IRS
would need to determine the causes of those debts and develop, test,
and implement courses of action to deal with the causes.  Once those
actions are completed, it will take some time before full results
materialize. 


   WHICH PROGRAMS AND TOOLS WORK
   BEST
---------------------------------------------------------- Chapter 2:3

Although we have been pointing out the need for better information to
manage and evaluate collection programs and tools since the 1970s,
little has been done.  Without this type of information, IRS has no
empirical basis for selecting a cost-effective mix of collection
tools and programs.  With this type of information, IRS could develop
an overall strategy to better assure that it is recovering the most
revenue at the lowest cost. 

IRS is working on developing overall cost information on major
collection processes, but it does not capture enough information on
the use of some specific collection tools or programs to evaluate
their effectiveness.  For example, IRS does not capture account
related information to evaluate its use of levies--garnishing wages
or levying bank accounts.  Nor does IRS know whether the tools it has
to apply to collecting employment taxes (employee wages withheld for
social security and income taxes as well as the employer's share of
social security) are used, much less whether they are effective. 
Both these issues were reported in our last high-risk report.  This
past year we also reported that IRS had not developed a means to
evaluate the use of its offers in compromise to settle tax debts--a
program that has received renewed emphasis in recent years. 


INEFFICIENT COLLECTION PROCESS
============================================================ Chapter 3

Although IRS is considering some changes to parts of the collection
process, the process still remains outdated, costly, and inefficient. 
We have pointed out a number of private sector and state collection
techniques IRS could adopt to enhance its collection process.\4 IRS
plans to initiate one of these--early telephone contact with
delinquent taxpayers--in 1995 and is also developing information that
should assist in tailoring collection actions.  While these efforts
are in the right direction, IRS continues to rely heavily on field
collections-- personal visits by collection employees.  This is very
costly and an approach avoided in the private sector. 

The first stage of IRS' three stage collection process, introduced
decades ago, relies on computer generated notices and bills and could
take as long as 6 months before the account moves to the second stage
where telephone contact is attempted.  IRS is testing a program in
two locations for certain taxpayers where it attempts telephone
contact earlier in the process--after 2 to 3 months--and plans to
expand this program to all delinquent taxpayers in 1995.  However,
this is still later in the collection process than in the private
sector, where telephone contact is the primary tool. 

This expansion appears to be prompted by our prior recommendation and
at the direction of the House and Senate appropriations committees. 
Recently, both committees recognized the disparity in IRS' use of
personal visits versus the telephone to collect delinquent taxes. 
And they directed IRS to shift its emphasis so that contacting
taxpayers by telephone is used to a greater extent. 

The large number of invalid accounts that enter the inventory of tax
debts each year continues to compound collection problems by
increasing the workload.  IRS' antiquated computer systems also
contribute to the problem because of the slowness in which employees
are able to get timely and accurate information.  IRS' massive
computer modernization effort should help relieve these problems, but
this is a long-term effort and there does not appear to be any
significant relief in the short term.  Similarly, IRS' research
efforts may yield new methods for resolving tax debts but they, too,
are a long-term endeavor. 


--------------------
\4 Tax Administration:  New Delinquent Tax Collection Methods for IRS
(GAO/GGD-93-67, May 11, 1993). 


BALANCING COLLECTION EFFORTS WITH
TAXPAYER PROTECTIONS
============================================================ Chapter 4

The Congress has authorized IRS to take drastic measures in
collecting delinquent taxes.  For example, IRS can seize and sell an
individual taxpayer's car or home or a business taxpayer's equipment,
inventory, or physical plant to satisfy tax debts. 

To prevent unwarranted use of IRS' collection authority, the Congress
has held numerous oversight hearings and established a number of
statutory safeguards which have been strengthened over time, most
recently in the Taxpayer Bill of Rights in 1988.  An unintended
result of these congressional actions has been to hamper collections. 

As we reported in the 1992 high-risk report, one provision of the
1988 legislation prohibits IRS from evaluating staff on the basis of
dollars collected, even though IRS already had a similar policy.  But
the Congress was concerned that IRS employees, perceiving a "quota"
system, were too harsh in their collection efforts.  We have
consistently stated that we believe that the amount of taxes
collected is a reasonable basis on which to judge the performance of
employees whose job it is to collect taxes, as long as other
criteria, such as fair and courteous treatment of taxpayers, are also
evaluated.  Few private sector collection managers we talked to
believed one could have an effective collection operation if dollars
collected could not be used to evaluate performance. 

Without the use of dollars collected, IRS' staff evaluation system
does not discern a difference between collection actions that
essentially write off the current collection of tax debt (for
example, reclassifying a collections case as "currently not
collectible") and actions to resolve a case by collecting taxes
owed--both actions are considered case closings.  Such a practice may
be one reason why IRS field collection staff have been declaring more
tax debts "currently not collectible" each year than they collect. 
(See figure 3.) Our review of "currently not collectible" cases
showed that IRS employees allowed some taxpayers who were earning
more than $70,000 a year to pay nothing toward their tax debts. 

   Figure 3:  District Office
   Collection Case
   Closures--Amounts Collected Vs. 
   Reclassifications to Currently
   Not Collectible Status

   (See figure in printed
   edition.)

Source:  GAO analysis of IRS data. 

Recently, IRS has taken other steps that tend to be more lenient to
delinquent taxpayers than in the past--allowing more delinquent
taxpayers to compromise their liability (that is, settle their tax
debt for something less than what they owe) and to pay their tax
debts in installments.  An indication of this trend is shown in the
drop in the number of cases in which IRS seized property since 1990
and the significant increase in the number of cases where IRS has
allowed taxpayers to pay less than what they owed.  (See figure 4.)
We recognize that such programs could be beneficial--if IRS collects
monies that otherwise would not be collected.  However, we are
concerned that IRS may be sending the wrong message to its collection
employees.  IRS is also concerned about this and has recently started
an internal campaign to emphasize that firmer collection efforts
should be used when appropriate. 

   Figure 4:  Comparison of the
   Use of Two Collection
   Methods--Seizures and Offers in
   Compromise

   (See figure in printed
   edition.)

Source:  GAO analysis of IRS data. 

The struggle to balance the need to protect the rights of taxpayers
with the need to collect tax debts is not easy.  IRS must be fair;
its employees should follow appropriate laws and procedures and not
harass taxpayers.  On the other hand, taxpayers must also accept
their respective tax obligations because, to the extent they do not,
all other taxpayers must bear a disproportionate burden.  This is why
taxpayers need to know that IRS is serious about collecting taxes. 
In this regard, in response to one of our past recommendations, IRS
has announced its intent to change its offers in compromise program
so that taxpayers' lifestyles, among other things, will be considered
before their offers to pay less tax than what they owe can be
accepted.  Taxpayers could be required, depending on where they live
and their income levels, to change their lifestyles, for example,
sell property, before IRS accepts their offers. 


DECENTRALIZED ORGANIZATION
STRUCTURE
============================================================ Chapter 5

Given IRS' highly decentralized operations and the number of
components that may have a role (either directly or indirectly) in
dealing with problems that cut across the agency, such as accounts
receivable, IRS recognizes that key managers need to know what they
are responsible for and to be held accountable for making necessary
changes to their operations.  Presently, IRS has two ways--the
Federal Managers' Financial Integrity Act (FMFIA) and IRS' strategic
management planning process--that could be used to focus managers'
efforts, but neither specifically address the interrelationship of
the underlying causes of the accounts receivable problem. 

IRS has traditionally operated through a highly decentralized
organizational structure.  In IRS' National Office, various Chiefs
administer programs that directly or indirectly affect accounts
receivable and the collection of tax debts--including processing
returns and payments, accounting for the taxes and payments,
assisting taxpayers, identifying delinquent taxpayers, and collecting
the taxes.  However, these officials have no direct line authority
over the people who carry out these programs in the field.  All 7
regions, 63 districts, and 10 service centers share responsibility
for collecting tax debts.  Each has a great deal of independence in
deciding how to pursue and resolve tax delinquencies. 

In 1991, IRS attempted to deal with the decentralized issue by
establishing an Accounts Receivable Executive Officer position.  This
official looked at the problems across functional and geographical
boundaries and provided the various responsible officials with
information and suggestions for improvement projects.  However, under
a major reorganization project, the position was abolished at the end
of fiscal year 1993 and its responsibilities were turned over to
three senior IRS officials-- Chief Compliance Officer, Chief
Financial Officer, and Chief of Taxpayer Service.  These officials
have only recently agreed on the distribution of responsibilities
involving accounts receivable. 

The FMFIA and IRS' strategic planning process provide two ways for
senior management officials to reach agreement on what needs to be
done to resolve significant problems facing IRS.  Under the integrity
act process, IRS' senior management officials confer quarterly on
progress to eliminate material weaknesses and to resolve high risk
matters.  Annually, an overall assessment of progress is made and
long-term corrective actions identified.  Under the strategic
planning process, IRS develops an annual plan designed to help top
management set agencywide goals, establish mission priorities, and
create a benchmark for measuring progress in achieving objectives. 

IRS, however, has yet to fully use either the FMFIA or strategic
planning processes to effectively deal with the accounts receivable
problem.  While the annual plans identify initiatives that could help
ameliorate the problem, it is unclear that they reach to all parts of
the organization that contribute to the problem or that they will be
enough.  IRS' decentralized organization requires a clear focus on
accounts receivable, with specific goals and measurements for dealing
with all the underlying causes of the problem. 


UNEVEN STAFFING
============================================================ Chapter 6

As we reported in our December 1992 high-risk report, IRS' solution
to dealing with tax debts was to add more staff, particularly field
collection staff.  This resulted in staffing imbalances among the
field offices, allowing staff in some offices to pursue small as well
as large debts, while in other offices large debts went uncollected
because staff were not available.  We pointed out that adding more
staff, particularly in the field, was not a long-term solution and
would not guarantee that collections would increase.  We recommended
that any additional staff be allocated to telephone collections
rather than field collections until information is available to allow
IRS to determine the optimum mix of staff for collections.  Telephone
collections is a less costly and more productive means of collecting
tax debts and more in line with what is done in the private sector. 

IRS has started to take actions to address staffing imbalances among
its field offices.  Based on our recommendations, IRS placed hiring
freezes on offices that were relatively overstaffed and allowed
understaffed offices to fill positions that arose through attrition. 
IRS disagreed with our assessment that it should limit the size of
the field collection staff and continued to seek additional field
staff.  The Congress, however, in IRS' fiscal year 1995
appropriations directed IRS to utilize any additional collection
staff for telephone collections and not for field collections. 


FURTHER ACTION NEEDED
============================================================ Chapter 7

We recognize that IRS has numerous initiatives under way that could
help to resolve the accounts receivable problem and we support those
efforts.  But, we also recognize that IRS has pursued many
initiatives over the years without bringing about desired change. 
And, it is not clear that IRS' current efforts will be enough. 

In sum, IRS has yet to clearly demonstrate the institutional focus
that we believe is necessary to effectively deal with the underlying
causes of the problem--causes that cut across the agency and across
lines of managerial authority and responsibility.  Continued
congressional oversight could help assure that IRS moves forward on
its efforts and provides the resources necessary for their success. 

Equally important is that the strategy address ways to best
reengineer IRS' outmoded tax collection processes.  Because most of
these processes were designed decades ago, they have not kept pace
with advances in technology or communications.  As a result, IRS'
ability to collect taxes has been hampered.  IRS has also not taken
full advantage of the vast experience that private sector collection
companies have in areas such as locating debtors and managing
accounts receivable.  Testing the use of such companies to locate and
contact delinquent taxpayers may be an appropriate step in
reengineering IRS' tax collection processes. 

The lack of accurate and reliable information continues to be IRS'
foremost problem and hinders most of its efforts to effectively deal
with tax debts.  Priority must be given to this area because so many
of IRS' modernization efforts rely heavily on accurate and reliable
information.  While modernizing IRS' computer systems should help
improve its ability to access and process information, IRS cannot
wait until that program is completed--sometime after the turn of the
century--for accurate and reliable information. 


RELATED GAO PRODUCTS
============================================================ Chapter 8

Financial Audit:  Examination of IRS' Fiscal Year 1993 Financial
Statements (GAO/AIMD-94-120, June 15, 1994). 

Tax Administration:  State Tax Administrators' Views on Delinquent
Tax Collection Methods (GAO/GGD-94-59FS, Feb.  2, 1994). 

Tax Administration:  Changes Needed to Cope With Growth in Offer in
Compromise Program (GAO/GGD-94-47, Dec.  23, 1993). 

Tax Administration:  Collecting Delinquent Taxes and Communicating
With Taxpayers (GAO/T-GGD-94-50, Nov.  9, 1993). 

Tax Administration:  IRS Can Do More to Collect Taxes Labelled
"Currently Not Collectible" (GAO/GGD-94-2, Oct.  8, 1993). 

Financial Audit:  Examination of IRS' Fiscal Year 1992 Financial
Statements (GAO/AIMD-93-2, June 30, 1993). 

Tax Administration:  New Delinquent Tax Collection Methods for IRS
(GAO/GGD-93-67, May 11, 1993). 

Financial Audit:  IRS Significantly Overstated Its Accounts
Receivable Balance (GAO/AFMD-93-42, May 6, 1993). 

Tax Administration:  Improved Staffing of IRS' Collection Function
Would Increase Productivity (GAO/GGD-93-97, May 5, 1993). 

Tax Administration:  Status of Tax Systems Modernization, Tax
Delinquencies, and Tax Gap (GAO/T-GGD-93-4, Feb.  3, 1993). 

Government Management:  Status of Progress in Correcting Selected
High-Risk Areas (GAO/T-AFMD-93-1, Feb.  3, 1993). 

High-Risk Series:  Internal Revenue Service Receivables
(GAO/HR-93-13, Dec.  1992). 

Tax Administration:  An Update on IRS' Progress on Accounts
Receivable and Strategic Management (GAO/T-GGD-92-26, Apr.  2, 1992). 

Tax Systems Modernization:  Progress Mixed in Addressing Critical
Success Factors (GAO/IMTEC-92-13, Apr.  2, 1992). 

Tax Administration:  IRS' System Used in Prioritizing Taxpayer
Delinquencies Can Be Improved (GAO/GGD-92-6, Mar.  26, 1992). 

Federal Contractor Tax Delinquencies and Status of the 1992 Tax
Return Filing Season (GAO/T-GGD-92-23, Mar.  17, 1992). 

Tax Administration:  Federal Agency Tax Compliance Problems Remain;
Improvements Are Planned (GAO/GGD-92-29, Feb.  18, 1992). 

Tax Administration:  IRS' Implementation of Certain Compliance
Initiatives (GAO/GGD-92-45FS, Jan.  30, 1992). 


1995 HIGH-RISK SERIES
============================================================ Chapter 9

An Overview (GAO/HR-95-1)

Quick Reference Guide (GAO/HR-95-2)

Defense Contract Management (GAO/HR-95-3)

Defense Weapons Systems Acquisition (GAO/HR-95-4)

Defense Inventory Management (GAO/HR-95-5)

Internal Revenue Service Receivables (GAO/HR-95-6)

Asset Forfeiture Programs (GAO/HR-95-7)

Medicare Claims (GAO/HR-95-8)

Farm Loan Programs (GAO/HR-95-9)

Student Financial Aid (GAO/HR-95-10)

Department of Housing and Urban Development (GAO/HR-95-11)

Superfund Program Management (GAO/HR-95-12)

The entire series of 12 high-risk reports can be ordered by using the
order number GAO/HR-95-20SET. 

