Back in 2006 the IRS began using private debt collection companies to collect unpaid tax debts. Then, after a study suggested that the costs for hiring private companies was higher than the IRS's collection efforts, the agency let their agreements expire in 2009. However, according to a new report from the Government Accountability Office, the IRS's study of private debt collectors was not designed to support its decision.
The GAO found that the IRS study was not originally intended or designed as the primary support for its decision on whether to continue with the private debt collection program, but IRS officials nonetheless used it as such. The IRS did not have guidance for program managers on the type of analysis that should be done to support their decisions to create, renew or expand programs. The IRS also had not retained sufficient documentation on the sample used in the study or documented some analyses that would have been helpful if performed.
“According to this report, the IRS used a flawed study to justify ending its contracts with private agencies to collect owed taxes that the IRS wasn’t collecting on its own,” said Senate Finance Committee ranking member Charles Grassley, R-Iowa, in a statement. “The IRS knew the study was flawed because the GAO told the IRS how to do the study. But the IRS didn’t implement the GAO’s recommendations to fix the study, even though it agreed with them. The IRS used the results from the defective cost-effectiveness study to defend its decision to terminate the use of private collection agencies, even though that wasn’t the primary purpose of the study.”
The study results may have been overstated or understated because the study sample was not generalizable to the program as a whole, said the GAO. The study had a narrow objective of comparing the results for the IRS working the same cases as PCAs had, and as a result, the study design did not consider other factors recommended by the Office of Management and Budget and other guidance on conducting program analysis. For example, the study did not analyze alternatives to program scale, such as expanding it or scaling it back. Program analysis guidance states that to the extent possible, all costs and benefits should be counted and alternative means of achieving a program’s goals should be considered.