A report to Congress says that in its third iteration, a program of private collection of tax debt remains controversial.
Under the latest version of the program—which previously was tried but abandoned in 1996-1997 and 2006-2009—the private collection agencies can keep up to 25 percent of the amount collected in debts that the IRS otherwise would not pursue. The IRS assigned 3.5 million delinquent accounts, with total delinquent debt of $32 billion, to the PCAs for collection, which had collected $581 million in payments eligible for a commission through fiscal 2020, the Congressional Research Service said.
Three collection agencies currently are participating, with contracts of two of the original four when the latest program started in 2017 recently not renewed and one new company added.
Said the CRS, “Proponents of the current PCA program argue that without the use of private debt collectors, little or none of the tens of billions of dollars in the IRS’s inventory of inactive but collectible individual tax debt would ever be collected. They claim that the IRS lacks the resources to collect all tax debt and thus assigns a low priority to doing so. Some add that private firms are likely to be more efficient than the IRS in collecting this debt.
“Critics say that the current PCA program does not serve the public interest. They contend that requiring the IRS to hire people to collect inactive but potentially collectable tax debt would be more cost-effective than using PCAs. Another concern is that unlike PCAs, the IRS has the flexibility to reach installment agreements with or extend offers in compromise to taxpayers who cannot pay off their debt all at once. Some say the current PCA program imposes economic hardships on low-income taxpayers,” it said.
It noted that a law enacted late last year added restrictions including a ban on assigning to the collectors debt owed by those below certain income levels or debt less than two years past due, and giving individuals seven years rather than five to pay in installments.