Outsourced tax collection adds up nicely for IRS

The IRS has effectively developed and implemented several aspects of an outsourced tax-collection program that is projected to result in an additional $1.4 billion in taxes by 2015, according to a new audit report.

The Treasury Department Inspector General for Tax Administration's report, released late last week, approved the IRS plan to use private collection agencies as an additional resource to go after delinquent tax payers.

President Bush signed the American Jobs Creation Act in October 2004, which revised the IRS tax code to permit outside contractors to help collect federal tax debts.

The IG said contractors were adequately trained and that their background investigations were thorough and completed properly. The IRS also established computer and physical security procedures before contractors were assigned to cases.

But the report urged the IRS to pay more attention to computer security issues and update its procedural guides, as well as the software used to calculate projected revenue from the outsourcing program.

Overall, the IG reported, as of Dec. 31, 2006, contractors had collected $11.4 million of the $105 million in liabilities placed with them by the IRS, or a collection rate of 10.5 percent.

Based on the ramp-up factor, which allows contractors time to reach optimum performance and productivity of 10 percent to 15 percent, the rate is expected to continue to increase, the report said.

IRS said it agreed with the IG's recommendations and will take up the security issues in follow-up meetings and negotiations with the contractors. The agency also agreed to update its policy guidelines for contractors regarding taxpayer complaints and telephone contacts.

A total of 33 firms took part in the competitive bidding process for the outsourced work. IRS awarded contracts in March 2006 to the CBE Group Inc., Waterloo, Iowa; Linebarger Goggan Blair and Sampson LLP, Austin, Texas; and Pioneer Credit Recovery Inc., Arcade, N.Y. IRS extended the contracts of CBE and Pioneer Credit in February 2007.