Private debt collection is one of five “serious” problems at the Internal Revenue Service, according to the National Taxpayer Advocate in her annual report to Congress, arguing that the program of outsourcing unpaid debts to one of four collection agencies “continued to burden taxpayers who are likely experiencing economic hardship while inactive private collection agency inventory accumulates.”
The Taxpayer Advocate’s Office is dedicated to helping taxpayers who have problems with the IRS. The office has had issues with the private collection agency placement program since its inception.
The report goes as far as to hint that the four agencies are holding onto accounts and not working them on the chance that an individual makes a payment in the future, which would generate a commission to the agency holding that account.
At the end of FY 2018, PCAs’ inventories included over 400,000 cases in which there was no payment by the taxpayer and no agreement to pay, even though the case had been assigned for at least 90 days. In fact, these cases had been in PCA inventory for 244 days on average. Retaining cases without resolving taxpayers’ liabilities allows PCAs to receive commissions on any payments taxpayers happen to make in the future in the absence of any recent PCA collection activity. Had these cases remained in the IRS queue and not assigned to PCAs, the public fisc would be credited with the full amount of collected funds.
Along with attempting to collect debts from individuals who can’t afford to make payments, based on their incomes, the collection agencies are not doing as well at collecting as the IRS’s Automated Collection System, the report argues.
PCAs do not appear to be particularly effective in generating payments, especially in view of the burden the PDC program places on taxpayers, discussed below. Only a little more than 1% of the dollar value of the debt assigned to PCAs since inception of the program has been collected. By comparison, the Automated Collection System (ACS), the IRS function that issues collection notices and receives calls from taxpayers with delinquent tax liabilities, collects 7% of the dollar value of tax liabilities assigned to it. Taxpayers whose cases are assigned to PCAs enter into [installment agreements] 6% of the time. In contrast, the ACS function places taxpayers into [installment agreements] about 10% of the time.
Among other accusations made by the Taxpayer Advocate in the report are:
- Collection agencies may be impermissibly retaining cases and not returning them to the IRS after soliciting more than one voluntary payment
- Collection agencies may be retaining cases where an individual has defaulted on an installment agreement without informing the IRS as required
It should be noted that, overall, the revenue generated by the private collection agency program has exceeded the program’s expenses, and the four agencies collected $82 million on behalf of the IRS in the 2018 fiscal year, up from $6.6 million a year earlier.
The report recommends that the IRS no longer place accounts for individuals whose incomes are below the allowable living expenses limit with private collection agencies, require collection agencies to return accounts where no installment agreement or payment is made within six months of the account being assigned to a collection agency, and require collection agencies to return accounts where an individual has defaulted on an installment agreement.