Audit finds few problems with IRS outsourcing program

The Internal Revenue Service has done an effective job in setting up a program for private sector companies to collect federal tax debts, according to a recent audit, but some members of Congress and an employee union are hoping to end the program before its planned expansion later this year.

The Treasury Inspector General for Tax Administration this week published a review of IRS' implementation of the pilot program, under which three companies have been contracted to collect unpaid taxes.

"Overall, the IRS has taken proactive measures to effectively develop and implement the program," the IG found, though the audit noted several areas where additional steps are needed to ensure that contractors meet standards for, among other things, sound computer security and professional interactions with taxpayers.

The IG expressed satisfaction with IRS' training, background checks and performance oversight for contractors, recommending the agency ensure that contractors use approved scripts for telephone contacts with taxpayers.

IRS officials have said they expect private debt collection to generate $1.4 billion in revenues over 10 years. But the IG audit recommended the agency adjust its model as actual data becomes available to replace estimates.

Specifically, auditors urged that the model be updated to account for taxpayers who exercise their right to deal directly with IRS employees and the facts that some of the cases being turned over for private collection are older than the one-year age that was initially anticipated under the program and companies' collection rates will vary from projections depending partly on the complexity of cases referred.

In a response to the audit, IRS officials concurred with the recommendation and said adjustments would be made to the model starting in July, with a revised model to be available in November 2007.

That timeline would mean the updated revenue predictions might not be completed before the IRS signs contracts with additional companies for the full implementation phase. Officials have said the pilot program would be expanded to include about 10 companies, with contracts to be signed this calendar year. A spokesman confirmed that some officials have discussed hiring just an additional three to five firms.

The IRS recently announced that two of the three contractors in the pilot program were signed for one-year extensions that will carry through to March 2008, when work will begin under the program expansion.

The contract of Austin, Texas-based Linebarger Goggan Blair & Sampson LLP was not extended. "By mutual agreement, we will not be performing on this contract under the extended limited implementation phase . . . When and if the IRS moves forward with the full implementation phase of this public-private partnership, we will consider pursuing another contract at that time," the company said in a statement.

At hearings this month, IRS officials have faced tough questions from lawmakers opposed to the outsourcing. Rep. Charles Rangel, D-N.Y., who chairs the House Ways and Means Committee, has launched an investigation into allegations of improper conduct by contractors in the program.

"We understand that there have been numerous complaints from taxpayers about the tactics used by contract employees and instances of violation of law . . . we are aware of one serious violation of law that the IRS complaint panel has validated," Rangel wrote in a March 22 letter to IRS Commissioner Mark Everson, informing him of the investigation.

IRS spokesman John Lipold said the agency "does have a panel set up to review complaints and certainly looks at any complaints that have or may come in," but said he did not have information on particular cases.

Rangel urged Everson not to issue additional contracts, citing an intention to block the authority under which the program operates. Legislation to that effect has been introduced in the House (H.R. 695) and Senate (S. 335).

The National Treasury Employees Union has pushed hard to overturn the program, frequently citing testimony by Everson that IRS employees could collect the back taxes at lower cost than contractors, if the agency were given funds to hire additional staff.

The Tax Fairness Coalition, an organization representing the private collection agencies in the IRS program, hailed the IG report, saying in a statement that it "clearly shows that not only is the program making progress collecting delinquent taxes for the benefit of the American taxpayer, but [it] is doing so in an ethical, professional and security-focused way."