IRS Studies Privatization

An IRS study found that outsourcing tax return processing could save the government money but would have to be done cautiously so the agency would not become dependent on unreliable or unscrupulous contractors.

The IRS report, "Study of the Feasibility of Outsourcing Submissions Processing," was mandated in its fiscal 1997 appropriations law. While outsourcing may be a long-term solution to the embattled agency's problems, the IRS said, its own systems must be replaced in the meantime to prevent their collapse. For example, one of the agency's primary information systems is not Year 2000-compliant, so it will not function after 1999.

The IRS recommended sending out requests for information to private firms to see if any are interested in taking over tax return processing and if they have the means to process returns more effectively than the agency itself could.

But IRS officials noted in the report that since the agency processes more than $1.4 trillion in revenue a year and issues more than $130 billion in refunds, outsourcing must be studied very carefully.

Robert Tobias, president of the National Treasury Employees Union, said the money which would be spent on evaluating outsourcing should be used instead to strengthen the IRS's own ability to process returns.

"Surely, there would be no one to suggest that we privatize the military and turn this inherent government function over to the private sector when equipment becomes outdated and worn," Tobias said. "The investments are made to make the necessary purchases in equipment and technology from the private sector, but the defense of our nation is not outsourced to the private sector. It remains an inherent government function. Given the necessary technological tools, I am confident that IRS employees can get the job done, and that the American taxpayer will be well served."

The IRS report identified six major risks of outsourcing and the ways the agency could deal with those risks:

IRS could fail to make private firms interested in taking over aspects of return processing. Issue comprehensive requests for information, meet with industry, split up the work among various contractors, develop a funding strategy.
Once contracts are awarded, contractors could miss deadlines and slow down processing. Define business requirements, monitor contractors, require program pilots, make contracts performance-based.
Contractors could run the program poorly. Use IRS staff to oversee contractor operations, gradually outsource processing, provide backup system.
Contractors could stall processing and demand more money. Define the fee structure early on, cap fees, provide for dispute resolution, retain IRS backup systems.
Systems crashes or disasters could destroy data. Require comprehensive backup and data recovery plans, strictly enforce testing of backup systems.
IRS could become "captive" to contractors Award multiple contracts, negotiate IRS authority, use IRS oversight.
Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.


When you download a report, your information may be shared with the underwriters of that document.