Updated December 12, 2018
The Internal Revenue Service’s Private Tax Debt Collection
Program
For the third time in its history, the Internal Revenue
In addition, the IRS could use PCAs for two purposes only:
Service (IRS) is managing a program to hire private debt
(1) to locate and contact individuals with overdue income
collection agencies (PCAs) to collect delinquent individual
tax liabilities who are not contesting the amount owed, and
income taxes. Section 32102 of the Fixing America’s
(2) to arrange for the payment of the back taxes.
Surface Transportation (FAST) Act (P.L. 114-94) requires
the IRS to revive the private tax debt collection program it
Payments went into a revolving fund established under the
managed from 2006 to 2009, with several notable changes.
AJCA. The IRS could use up to 25% of the money in the
fund to compensate the PCAs for their services and another
IRS’s Previous Experiences with Private
25% of the money to fund its enforcement activities.
Debt Collectors
Before the enactment of the FAST Act, the IRS twice
In early 2005, the IRS began a PCA program based on
experimented with the use of PCAs to collect delinquent
Section 6306. After several court challenges to the IRS’s
individual income tax debt. In both cases, the agency
initial solicitation of bids for collection contracts, the
sought the authority to establish and manage the programs,
agency signed one-year contracts with three PCAs in March
and Congress granted it.
2006. Collection activities commenced the following
September. In February 2007, the IRS extended the
1996 to 1997
contracts with two of the companies through March 2008;
The first experiment was a pilot program (known as the
the contracts were further extended through March 2009.
Contracting Out Collection Agencies Project) that was
created by the Treasury, Postal Service, and General
In February 2009, the IRS notified the two contractors that
Government Appropriations Act, 1996 (P.L. 104-52).
it was evaluating the cost-effectiveness of the collection
Although the project was authorized to last two fiscal years,
program, and would let them know by March 6 whether
the IRS ended it after one year, owing to disappointing
their contracts would be extended for another year. The
results and mounting opposition from Congress and the
study found that between the first quarter of FY2004 and
Clinton Administration. According to the findings of a 1997
the first quarter of FY2009, the total cost to the IRS of
assessment of the program by the (then-named) General
designing, implementing, and managing the collection
Accounting Office, the five PCAs hired for the project had
program was $82.9 million, or $0.4 million more than the
collected $3.1 million in delinquent taxes through January
$82.5 million in gross revenue collected by the PCAs in
1997, whereas the total cost for the program (i.e., the fees
that period. A subsequent IRS analysis found that the
paid to the PCAs, the project’s opportunity cost, and its
program produced a net loss of $4.5 million.
design, start-up, and administration expenses) during the
same period was $21.1 million, or nearly seven times
By contrast, the Joint Committee on Taxation (JCT)
greater than the revenue gain.
estimated in 2004 that the program (as specified in the
AJCA) would raise $1.36 billion over 10 years, including
2006 to 2009
$621 million between FY2005 and FY2009.
The second experiment was more ambitious in design and
scope. It resulted from the addition of Section 6306 to the
On March 5, 2009, the IRS informed the two remaining
federal tax code by the American Jobs Creation Act of 2004
PCAs that their contracts would not be extended (IR-2009-
(AJCA; P.L. 108-357). Section 6306 authorized the IRS to
019). Then-IRS Commissioner Doug Shulman cited three
enter into contracts with qualified PCAs to collect
reasons for terminating the program. First, the total cost of
delinquent individual income tax debt that the IRS was not
the private tax debt collection program (including start-up
pursuing because of a lack of resources. The Treasury
expenses going back to FY2004 but excluding opportunity
Department had asked Congress in its FY2004 budget
costs) exceeded the revenue it collected. Second, as a 2009
request for the statutory authority to hire PCAs for this
study by the IRS and an independent reviewer showed, IRS
purpose.
employees were more cost-effective than PCAs in handling
the same inventory of delinquent tax cases. Third, the
Under the act, the IRS was required to use PCAs in a
collection work “was best done by IRS employees who
manner that protected taxpayer rights, prevented the use of
have more flexibility in handling cases,” especially those
abusive collection practices, and was consistent with federal
involving taxpayers facing financial difficulties.
regulations and laws governing the outsourcing of activities
deemed inherently governmental, such as tax collection.
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The Internal Revenue Service’s Private Tax Debt Collection Program
FAST Act and the New Private Tax Debt In March of each year, the IRS Commissioner must report
Collection Program
to the House Ways and Means and the Senate Finance
The enactment of the FAST Act required the IRS to revive
Committees on the cost of the program and the amount of
the 2006-2009 PCA program, but with a few modifications.
revenue it raised in the previous fiscal year and the
According to an estimate by the JCT, the new program was
expected cost and tax collection for the current year. In a
expected to raise $2.4 billion from FY2016 to FY2025.
separate report, the agency must provide details on the total
amount collected by each contractor, the collection costs
Under the act, the IRS was required to enter into “one or
incurred by the IRS, the total amount of fees retained by the
more qualified collection contracts for the collection of all
IRS, and the agency’s use of the funds.
outstanding inactive tax receivables” within three months of
Four debt collection companies have signed contracts with
the enactment of the act.
the IRS to collect eligible debt: CBE Group, Pioneer Credit
Recovery, ConServe, and Performant.
Such a receivable is defined in the act as any tax assessment
in the IRS’s inventory of potentially collectible taxes that
The IRS began referring cases to the four firms in April
meets at least one of the following four criteria: (1) the
2017. The companies receive a commission for the tax debt
assessment has been removed from the active inventory
they collect equal to 25% of that amount. At the outset of
because the IRS lacks the resources to collect it or cannot
the program, the debt eligible for collection totaled nearly
locate the taxpayer; (2) more than one-third of the statute of
$138 billion from about 14 million taxpayer accounts.
limitation has lapsed; (3) the assessment has not been
assigned to an IRS employee for collection; and (4) if an
From the start of private collection activity on April 10,
assessment has been assigned to an IRS employee for
2017, through September 30, 2018, the four companies
collection, more than 365 days have passed since the last
collected $88.8 million in overdue taxes, while the total
communication between the IRS and the taxpayer for the
cost of the effort came to $66.5 million, leaving a net
purpose of collecting the tax owed.
balance of $22.3 million. In the same period, the IRS paid
$16.0 million in fees to the companies. The IRS retained
$14.6 million for hiring and training special compliance
The FAST Act required the IRS to enter into “one or
agents.
more qualified collection contracts for the collection
of all outstanding inactive tax receivables” within three
Proponents of the new PCA program contend that without
months of its enactment.
the use of private debt collectors, little or none of the
billions of dollars in the IRS’s inventory of inactive but
A PCA may not collect delinquent taxes from cases
collectible individual tax debt would be collected. They
involving a deceased person, someone under the age of 18,
claim that the IRS lacks the resources to collect this tax
someone serving in a combat zone, or someone who is the
debt on its own and thus assigns a low priority to doing so.
victim of tax refund fraud related to identity theft. Nor is a
Some argue that private firms would be more efficient than
PCA permitted to collect taxes from taxpayers who have a
the IRS in collecting delinquent tax debt.
pending or active “offer in compromise” or installment
Critics of the third PCA program say that it fails to serve
agreement with the IRS, are classified as an innocent
the public interest or the interest of affected taxpayers. In
spouse case, or are the focus of an active examination,
their view, the program is likely to cost more than the
litigation, criminal investigation, levy, or appeal.
revenue it collects. They also contend that hiring new IRS
In awarding collection contracts, the IRS must give priority
collection personnel to collect the targeted tax debt would
to PCAs and debt collection centers currently used by the
be more cost-effective than using PCAs for the same
Bureau of the Fiscal Service at the Treasury Department to
purpose. In addition, critics note that unlike PCAs, the IRS
collect federal non-tax debt.
has the flexibility to reach installment agreements with, or
extend offers in compromise to, taxpayers who cannot
Contrary to the operating procedures for the PCAs hired for
afford to pay off their entire debt all at once.
the 2006-2009 collection effort, the employees of PCAs
participating in the new program may identify themselves
Some claim that the PCA program imposes unjustified
as contractors of the IRS when contacting taxpayers by
economic hardships on low-income taxpayers. The National
phone and disclose the reason for the call.
Taxpayer Advocate has noted that about one-third of the tax
debt collected by PCAs in 2018 came from individuals with
Taxpayers residing in presidentially declared disaster areas
incomes below 250% of the federal poverty level.
are eligible for an immediate cessation of PCA collection
activities against them and a return of their cases to the
Two reports by the Treasury Inspector General for Tax
inventory of active cases worked on by IRS employees.
Administration released in September 2018 criticized the
Like the 2006-2009 PCA program, the IRS is allowed to
IRS for (1) failing to discipline the PCAs for 14 possible
keep 25% of the amount collected under the new program.
violations of the Fair Debt Collection Practices Act and fair
But unlike the earlier program, those funds will be placed in
tax debt collection practices under Section 6304; and (2)
a new account (set up under newly added Section 6307) for
adopting policies and procedures that impede the collection
the hiring and training of “special compliance personnel.”
of targeted tax debt.
These employees will work for the IRS as field collection
officers, or as representatives of the IRS’s Automated
Gary Guenther, Analyst in Public Finance
Collection System, collecting delinquent tax debt.
IF10339
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The Internal Revenue Service’s Private Tax Debt Collection Program


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https://crsreports.congress.gov | IF10339 · VERSION 7 · UPDATED

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