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Private debt collectors recovered fraction of outstanding tax debts

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Private collection agencies have recovered only about $2.4 billion in tax debt payments since April 2017 out of the $64.9 billion assigned to them by the Internal Revenue Service, according to a new report.

The report, released Thursday by the Treasury Inspector General for Tax Administration, examined the impact of the IRS’s private debt collection program. A 2015 highway transportation law known as the Fixing America’s Surface Transportation Act, or FAST Act, revived the program after the IRS had shut it down in 2009 due to claims that taxpayers were being harassed by private collection agencies and the IRS could do a more cost effective job of collecting outstanding tax debts. TIGTA found that since April 2017, the IRS has assigned the PCAs more than 7.6 million taxpayer accounts, worth more than $64.9 billion. By March 2024, the PCAs had successfully collected more than $2.4 billion in payments. 

The 2015 law requires TIGTA to conduct a biannual review of the program. On July 1, 2019, President Trump signed into law the Taxpayer First Act, which contains significant changes to the administration of the IRS’s private debt collection program, TIGTA noted. The changes included adjustments to PCA case inventory criteria intended to protect certain low-income taxpayers from being subject to PCA collections as well as an increase in the maximum length of installment agreements that private collectors can offer taxpayers. 

TIGTA reviewed 100 randomly selected telephone call recordings from Oct. 1, 2021, to Sept. 30, 2023, for all three private collection agencies under contract with the IRS, and found that assistors generally adhered to the guidelines and provided quality service to taxpayers, achieving an overall accuracy rate of 97.8%. The IRS also conducted operational reviews of the PCAs and made 45 and 88 recommendations, in fiscal years 2022 and 2023, respectively. Recommendations included revisions to and refresher training on policy and procedures and programming updates. Over 92% of the recommendations were implemented on a timely basis. 

The IRS mandates background checks for all PCA employees working on taxpayer accounts. Before their background checks are completed, the IRS can grant interim staff-like access to personally identifiable information such as a taxpayer’s name and Social Security Number provided PCA employees pass prescreening checks. TIGTA’s review found that 796 PCA employees were granted access. Of those granted access, 11 PCA employees received a Proposal to Deny Letter due to security concerns identified in their background investigation, and staff-like access should have been immediately suspended. However, TIGTA found the IRS does not readily track when interim staff-like access is suspended and whether it is immediate. These 11 PCA employees could have retained access to sensitive taxpayer information.  

TIGTA’s review of PCA incident logs identified 10 incidents that were improperly categorized and potentially violated the Fair Debt Collection Practices Act for disclosing tax debt information to unauthorized third parties. The IRS issued a procedural update in May 2024 to clarify incident reporting and categorization. 

The IRS and/or the PCAs didn’t always follow policies and procedures for handling misdirected payments, TIGTA found. In eight of the 45 misdirected payments reviewed, the IRS did not post the payment to either the taxpayer’s account or the tax year listed on Form 3210, Document Transmittal, and Form 4287, Record of Discovered Remittances.  

TIGTA made five recommendations in the report, suggesting the IRS should develop a process to confirm that PCA employee system access is suspended immediately upon the issuance of a Proposal to Deny Letter. TIGTA also recommended ongoing reviews of the private debt collection program include a review of contracting officer representative and PCA responsibilities, and establish a review process that ensures that PCA misdirected payments are properly posted to the taxpayer’s account. The IRS agreed with all five of TIGTA’s recommendations and has either taken or plans to take corrective actions. 

“We are fully committed to ensuring all contractors meet federal security and suitability standards,” wrote Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. “Initial background investigations are performed prior to the contractor working on the contract and are revalidated every five years thereafter.”

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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