IRS moves tax processing work back in-house

The Internal Revenue Service announced on Friday that it will not renew a multimillion-dollar contract to manage taxpayer files at seven regional tax return processing centers, returning that work to agency employees.

Effective Oct. 1, the IRS said it would return work performed since 2006 by Florida-based IAP Worldwide Services Inc. back in-house. IRS employees will resume direct management over taxpayer files at sites in Andover, Mass.; Atlanta; Austin, Texas; Covington, Ky.; Fresno, Calif.; Kansas City, Mo.; and Ogden, Utah. About 700 permanent and temporary jobs are expected to be added at the locations.

"In the interest of putting a long-term solution in place and doing so in the most cost-effective manner, the IRS determined that conversion of this function from contract to in-house performance without public-private competition was the best solution," the agency said in a memo.

The bid process for the contract began in 2003. In 2005, IRS employees won the bid to complete the work, but IAP protested the decision. In 2006, the IRS reversed its decision and awarded IAP a 5-year, $103 million contract.

"The Internal Revenue Service has advised IAP of its intent to self-perform the files management contract initiative," Arlene J. Mellinger, a spokeswoman for IAP, said on Wednesday. "IAP continues to fully perform our contractual obligations in support of this critical contract effort as we await additional IRS direction incident to our contract transition activity."

National Treasury Employees Union officials praised the IRS' decision, noting that they believed the contract was a mistake from the beginning.

"This marks the first time since this administration launched its aggressive contracting-out program that I have seen a major contract in-sourced," said NTEU President Colleen Kelley. "Turning over the sensitive work of filing and maintaining tax returns and their related documents and correspondence was a bad idea from the start."

The IRS is in discussions with NTEU about hiring employees for the new positions. The agency said it will recruit internally and externally from October through December, and individuals who previously performed the work for IAP are eligible to apply for the positions.

Kelley noted that federal agencies have legislative authority to take back work previously contracted out, and she called on them to be more assertive in using their contractor oversight responsibilities.

"Federal agencies should take a long look at the private sector companies doing the work of the federal government and bring that work back in-house," she said. "When federal employees are given the tools and resources to do their jobs, there is no one who can do the work of the federal government better than federal employees."