Federal Manager's Daily Report

The latest iteration of a program in which private collection agencies, or PCAs, are used to attempt to collect on overdue tax debt has yielded about $170 million to the Treasury but controversy remains over such programs, the Congressional Research Service has said.

It said that the latest program, started in 2017, collected $302 million as of last September, of $132 million went to expenses including $54.6 million in commissions to the four participating collection firms and $11.5 million to an IRS fund for hiring and training special compliance agents.

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The first of the two earlier programs ended up costing more to implement than it collected, while the second barely broke even, causing both to be canceled among questions about whether any form of tax debt collection should be considered an inherently governmental function.

Said CRS: “Proponents of the new PCA program contend that without the use of private debt collectors, little or none of the billions of dollars in the IRS’s inventory of inactive but collectible individual tax debt would be collected. They claim that the IRS lacks the resources to collect this tax debt on its own and thus assigns a low priority to doing so. Some argue that private firms would be more efficient than the IRS in collecting delinquent tax debt.”

However, “Critics of the third PCA program say that it fails to serve the public interest or the interest of affected taxpayers. They contend that hiring new IRS personnel to collect the targeted tax debt would be more cost-effective than using PCAs. Critics also note that unlike PCAs, the IRS has the flexibility to reach installment agreements with, or extend offers in compromise to, taxpayers who cannot afford to pay off their entire debt all at once. Some charge that the PCA program imposes economic hardships on low-income taxpayers and makes them vulnerable to aggressive targeting by PCAs.”

It noted that a law enacted last year, the Taxpayer First Act, ordered several changes in the program, although not to be effective until calendar year 2021.

Those will include:
– barring the IRS from assigning eligible tax debt for collection by PCAs for taxpayers who receive “substantially all” of their income from Supplemental Social Security benefits or Social Security Disability Insurance benefits, or whose adjusted gross income is 200 percent or less of the federal poverty;
– redefining tax debt eligible for collection by a PCA as debt for which two or more years have passed since the tax liability was assessed, rather than one year; and – requiring PCAs to allow taxpayers up to seven years to pay off their tax debt through an installment agreement, rather than the five years.

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2020 Federal Employees Handbook