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.”

The Internal Revenue Service’s program for destroying sensitive paper documents needs to be improved after an inspector general’s report found its contractor was leaving many of the documents easily accessible from open containers and storage bins.

The Treasury Inspector General for Tax Administration released a report Thursday faulting the IRS’s sensitive document destruction program. TIGTA found during some of its site visits to IRS facilities that sensitive documents had been stored in open containers. During other site visits, TIGTA discovered bin disposal slots that had been altered or left in poor condition, allowing ready access to discarded sensitive documents. TIGTA evaluators found bins in which they were able to reach their hands through the bin disposal slot and easily retrieve discarded sensitive documents.

TIGTA

The inspection came after TIGTA’s Office of Inspections and Evaluations received a referral from its Office of Audit regarding concerns about the IRS’s sensitive document destruction program. The evaluation found that improved management oversight is necessary to ensure sensitive documents are properly safeguarded prior to destruction. 

The problems seem to be related to a change in contract terms. The IRS changed its billing criteria in its national contract for sensitive document destruction in fiscal year 2022. The national contract, which covers 387 IRS facilities across the country, went from weight-based billing to billing based on the number and type of bins. 

“When the IRS pays for actual sensitive document destruction services rendered, it is being good stewards of its operating budget,” said the report. “In addition, the proper collection and destruction of sensitive documents ensures the protection of tax information until it is destroyed. However, when billing concerns arise or when sensitive documents get exposed to unauthorized disclosure or access prior to destruction, the IRS could be paying for services not received or disclosure law fines. In addition, the IRS could face an erosion of the public trust, which could adversely affect voluntary compliance, the foundation of our nation’s tax system.”

The report comes at a critical time for the IRS, when it faces the prospect of a $20.2 billion cut in its enforcement funding from the Inflation Reduction Act because the continuing resolution that Congress passed last week to avoid a government shutdown repeated language from an earlier continuing resolution that had mandated a previous $20.2 billion cut. 

TIGTA noted that the IRS receives and creates a significant volume of sensitive documents and is responsible for protecting sensitive documents from receipt to disposal. It found the IRS has not established or communicated to personnel at its various facilities the standard operating procedures for sensitive document destruction to ensure uniformity and consistency. IRS officials did not know what specific sensitive document destruction procedures were used at 110 of its facilities. 

The IRS no longer performs on-site inspections at facilities where sensitive documents are brought for destruction to ensure proper disposal, the report noted. Instead it seems to leave the job to its contractor and subcontractors. The IRS contracts the job to a national vendor that relies on local subcontractors to complete the destruction of sensitive documents. 

But the IRS didn’t put in place appropriate processes and procedures to ensure billing with its main contractor was accurate. TIGTA’s review of invoices paid for October 2023 found charges for more bins than reported by the vendor as being retrieved for destruction. The IRS didn’t determine the optimal number, type or size of bins needed at its facilities. 

TIGTA made 12 recommendations in the report, suggesting the chief of facilities management and security services at the IRS should develop standard operating procedures for sensitive document safeguarding and destruction; immediately evaluate the 110 facilities to ensure sensitive document safeguards and destruction procedures are in place; replace bins that have been damaged and altered; perform annual inspections of all facilities used by subcontractors for sensitive document destruction; complete a cost-benefit analysis to ensure optimal bin size and number of bins at all facilities; and develop processes and procedures to ensure that the IRS is only paying for full bins serviced. IRS officials agreed with seven of TIGTA’s 12 recommendations and agreed in principle to the other five recommendations. 

The IRS’s most recent contract includes provisions requiring site inspections by a National Association for Information Destruction certified inspector, the IRS noted in response to the report. The IRS contract now requires for the first time that all vendors be NAID certified. 

“IRS staff who discard [sensitive but unclassified] materials with regular trash and recycling are violating long-established policies on which they were trained during orientation and about which they receive refresher training annually,” wrote Julia Caldwell, acting chief of facilities management and security services at the IRS, in response to the report.

The IRS agreed to establish a communication plan to provide more frequent periodic reminders to employees as well as put up posters on sensitive document destruction at all IRS locations. 

Caldwell noted that due to a change in industry standards from billing by weight to billing by bin, bin fill rate data are not required for contract performance, and contended that requiring the contractor to document bin fill rates for all bins serviced would not add value to the sensitive document destruction process. Her department does not have enough personnel to staff every IRS location, she pointed out, especially the smaller, remote locations, and it would be too costly to travel to those locations to verify service on the document bins.

The risks accountants face multiply and morph over time, and keeping up with them — and the insurance necessary to protect your firm from them — can be difficult.

For a look at some of the profession’s biggest risks, see our feature story, and our story on the best approach to buying appropriate coverage.

For a deeper dive on some other new and emerging risks, Stephen Vono, senior vice president at McGowanPro, put together a panel of experts to answer additional questions regarding the current liability scene for accountants. In addition to Vono, the team consists of Gary Sutherland, a head underwriter at McGowanPro, Anthony Carolei, the risk manager for Hanover Insurance, and attorney Ralph Picardi, a defense attorney for accounting firms with Picardi LLC.

The team highlighted a number of areas of risk: