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IRS Scales Back Outsourcing Plans

By Martin H. Bosworth
ConsumerAffairs.com

December 4, 2006

Income Tax • IRS Faulted for Lax Identity Theft Protection Efforts • IRS Loses Nearly 500 Computers Over Three Years • GAO: IRS Still Not Doing Enough to Secure Data • Taxpayer Advocate Targets IRS Collection Policies • IRS Scales Back Outsourcing Plans • December is Tax-Prep Time • IRS Has Refunds for 95,746 "Missing" Taxpayers • GAO: IRS Needs More Oversight of Private Debt Collectors • IRS Gives Away Millions Due To Failed Software Upgrade • New IRS Online Payment System Raises Privacy Fears • Taxpayers Can Get an Automatic Six-Month Filing Extension • April 15th Should Be Just Another Day, Taxpayer Groups Argue • "Tax Freedom Day" Three Days Late This Year • Senators Push for Electronic Tax Filing • Paying Taxes With Your Credit Card Can Get Expensive • GAO Finds Tax Preparers Prone to Error • Consumer Group to Taxpayers: Don�t Borrow Your Own Money • States Oppose IRS Plan to Loosen Privacy Rules on Taxpayers' Returns • More ...

The mad push by the Internal Revenue Service to privatize or outsource the majority of its functions has slowed somewhat.

The agency reports that it is planning to reduce a $103 million contract with IAP Worldwide Services, changing the plan to outsource its data collections from seven centers to just two.

The IRS said that the outsourcing was reduced to ensure "to ensure that a sufficient number of employees with the required training and security clearances are in place to manage the files during the upcoming filing season."

In addition, the IRS also announced that it was terminating a plan to outsource the technical support of over 100,000 of its computer workstations to a third party, according to Information Week.

Federal IRS employees hailed the decisions and criticized the IRS for pushing so heavily to contract out the bulk of its duties.

Colleen Kelley, president of the National Treasury Employees' Union (NTEU), chided the agency for contracting with IAP despite the fact that IAP recently admitted it would not have five of the original seven data centers ready by the beginning of tax filing season.

Kelley also criticized the agency for not performing better oversight of the contractors it works with, especially in terms of ensuring the privacy of individuals' Social Security numbers.

"For an agency like the IRS, with such a poor record of contractor oversight, these actions are virtually open invitations to disaster for taxpayers," Kelley said.

The Government Accountability Office (GAO) has issued several reports warning that government agencies, particularly the IRS, have not been doing enough to protect Social Security numbers, due to differing internal rules and lack of oversight.

The IRS was singled out for not providing better oversight and training for its contractor partners, as well as for employees with security-sensitive duties, according to the GAO. The watchdog office did note that the IRS made "significant progress" in remedying the issues.

Debt Collection

Of particular concern was the IRS' controversial plan to outsource some of its debt collection operations to private contractors.

The practice has been criticized for being too costly to the IRS, and for opening up Americans to privacy risks and abuse from debt collectors who are not bound by government regulations.

The GAO found that though the IRS had made progress in improving the rollout of the private collection program, it failed to properly account for its costs. The fees the debt collection agencies may charge could wipe out any cost savings from the program.

The IRS has had no better luck with contracting out software upgrades. An attempt to upgrade the agency's "Electronic Fraud Detection System" was botched due to the contractors' failure to get the system rolled out on time, as well as repeated cost overruns and lack of oversight.

The failure meant the IRS gave out as much as $318 million for fraudulent returns in 2005.

A recent survey commissioned by the IRS Oversight Board found that 41 percent of taxpayers have contacted the IRS at least once in the past two years, and that 80 percent of the respondents rated the IRS' service as good or better than other government agencies.

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