Updated February 6, 2020
The Internal Revenue Service’s Private Tax Debt Collection
Program
For the third time in its history, the Internal Revenue
tax liabilities who are not contesting the amount owed, and
Service (IRS) is managing a program to hire private debt
(2) to arrange for the payment of the back taxes.
collection agencies (PCAs) to collect delinquent individual
income taxes. Section 32102 of the Fixing America’s
Payments went into a revolving fund established under the
Surface Transportation (FAST) Act (P.L. 114-94) requires
AJCA. The IRS could use up to 25% of the money in the
the IRS to revive the private tax debt collection program it
fund to compensate the PCAs for their services and another
managed from 2006 to 2009, with several notable changes.
25% of the money to fund its enforcement activities.
IRS’s Previous Experiences with Private
In early 2005, the IRS began a PCA program based on
Debt Collectors
Section 6306. After several court challenges to the IRS’s
Before the enactment of the FAST Act, the IRS twice
initial solicitation of bids for collection contracts, the
experimented with the use of PCAs to collect delinquent
agency signed one-year contracts with three PCAs in March
individual income tax debt. In both cases, the agency
2006. Collection activities commenced the following
sought the authority to establish and manage the programs,
September. In February 2007, the IRS extended the
and Congress granted it.
contracts with two of the companies through March 2008;
the contracts were further extended through March 2009.
1996 to 1997
The first experiment was a pilot program (known as the
In February 2009, the IRS notified the two contractors that
Contracting Out Collection Agencies Project) that was
it was evaluating the cost-effectiveness of the collection
created by the Treasury, Postal Service, and General
program, and would let them know by March 6 whether
Government Appropriations Act, 1996 (P.L. 104-52).
their contracts would be extended for another year. The
Although the project was authorized to last two fiscal years,
study found that between the first quarter of FY2004 and
the IRS ended it after one year, owing to disappointing
the first quarter of FY2009, the total cost to the IRS of
results and mounting opposition from Congress and the
designing, implementing, and managing the collection
Clinton Administration. According to the findings of a 1997
program was $82.9 million, or $0.4 million more than the
assessment of the program by the (then-named) General
$82.5 million in gross revenue collected by the PCAs in
Accounting Office, the five PCAs hired for the project had
that period. A subsequent IRS analysis found that the
collected $3.1 million in delinquent taxes through January
program produced a net loss of $4.5 million.
1997, whereas the total cost for the program (i.e., the fees
paid to the PCAs, the project’s opportunity cost, and its
By contrast, the Joint Committee on Taxation (JCT)
design, start-up, and administration expenses) during the
estimated in 2004 that the program (as specified in the
same period was $21.1 million, or nearly seven times
AJCA) would raise $1.36 billion over 10 years, including
greater than the revenue gain.
$621 million between FY2005 and FY2009.
2006 to 2009
On March 5, 2009, the IRS informed the two remaining
The second experiment was more ambitious in scope. It
PCAs that their contracts would not be extended (IR-2009-
resulted from the addition of Section 6306 to the federal tax
019). Then-IRS Commissioner Doug Shulman cited three
code by the American Jobs Creation Act of 2004 (AJCA;
reasons for terminating the program. First, the total cost of
P.L. 108-357). Section 6306 authorized the IRS to enter
the private tax debt collection program (including start-up
into contracts with qualified PCAs to collect delinquent
expenses going back to FY2004 but excluding opportunity
individual income tax debt that the IRS was not pursuing
costs) exceeded the revenue it collected. Second, as a 2009
because of a lack of resources. The Treasury Department
study by the IRS and an independent reviewer showed, IRS
had asked Congress in its FY2004 budget request for the
employees were more cost-effective than PCAs in handling
statutory authority to hire PCAs for this purpose.
the same inventory of delinquent tax cases. Third, the
collection work “was best done by IRS employees who
Under the act, the IRS was required to use PCAs in a
have more flexibility in handling cases,” especially those
manner that protected taxpayer rights, prevented the use of
involving taxpayers facing financial difficulties.
abusive collection practices, and was consistent with federal
regulations and laws governing the outsourcing of activities
FAST Act and the New Private Tax Debt
deemed inherently governmental, such as tax collection.
Collection Program
The enactment of the FAST Act required the IRS to revive
In addition, the IRS could use PCAs for two purposes only:
the 2006-2009 PCA program, but with a few modifications.
(1) to locate and contact individuals with overdue income
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The Internal Revenue Service’s Private Tax Debt Collection Program
According to an estimate by the JCT, the new program was
Four debt collection companies have signed contracts with
expected to raise $2.4 billion from FY2016 to FY2025.
the IRS to collect eligible debt: CBE Group, Pioneer Credit
Recovery, ConServe, and Performant.
Under the act, the IRS was required to enter into “one or
The IRS began referring cases to the firms for collection on
more qualified collection contracts for the collection of all
outstanding inactive tax receivables” within three months of
April 10, 2017. The companies receive a commission for
the tax debt they collect equal to as much as 25% of that
the enactment of the act.
amount. When the program began, the debt eligible for
collection totaled nearly $138 billion from about 14 million
Such a receivable is defined in the act as any tax assessment
in the IRS’s inventory
taxpayer accounts.
of potentially collectible taxes that
meets at least one of the following four criteria: (1) the
From the start of private collection activity through
assessment has been removed from the active inventory
September 30, 2019, the four companies collected a total of
because the IRS lacks the resources to collect it or cannot
$301.8 million in revenue. The total cost of the program
locate the taxpayer; (2) more than one-third of the statute of
came to $131.7 million, leaving a net balance of $170.0
limitation has lapsed; (3) the assessment has not been
million, which was transferred to the Treasury general fund.
assigned to an IRS employee for collection; and (4) if an
Among the costs were $54.6 million in commissions paid to
assessment has been assigned to an IRS employee for
the PCAs and $11.5 million in retained revenue for a fund
collection, more than 365 days have passed since the last
used by the IRS to hire and train special compliance agents.
communication between the IRS and the taxpayer for the
purpose of collecting the tax owed.
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
The FAST Act required the IRS to enter into “one or
collectible individual tax debt would be collected. They
more qualified collection contracts for the collection
claim that the IRS lacks the resources to collect this tax
of all outstanding inactive tax receivables” within three
debt on its own and thus assigns a low priority to doing so.
months of its enactment.
Some argue that private firms would be more efficient than
the IRS in collecting delinquent tax debt.
A PCA may not collect delinquent taxes from cases
involving a deceased person, someone under the age of 18,
Critics of the third PCA program say that it fails to serve
someone serving in a combat zone, or someone who is the
the public interest or the interest of affected taxpayers. They
victim of tax refund fraud related to identity theft. Nor is a
contend that hiring new IRS personnel to collect the
PCA permitted to collect taxes from taxpayers who have a
targeted tax debt would be more cost-effective than using
pending or active “offer in compromise” or installment
PCAs. Critics also note that unlike PCAs, the IRS has the
agreement with the IRS; are classified as an innocent
flexibility to reach installment agreements with, or extend
spouse case; or are the focus of an active examination,
offers in compromise to, taxpayers who cannot afford to
litigation, criminal investigation, levy, or appeal.
pay off their entire debt all at once.
Contrary to the operating procedures for the PCAs hired for
Some charge that the PCA program imposes economic
the 2006-2009 collection effort, the employees of PCAs
hardships on low-income taxpayers and makes them
participating in the new program may identify themselves
vulnerable to aggressive targeting by PCAs.
as contractors of the IRS when contacting taxpayers by
phone and disclose the reason for the call.
The Taxpayer First Act (TFA, P.L. 116-25) addressed these
concerns in several ways. First, the IRS is barred from
Taxpayers residing in presidentially declared disaster areas
assigning eligible tax debt for collection by PCAs for
are eligible for an immediate cessation of PCA collection
taxpayers who receive “substantially all” of their income
activities against them and a return of their cases to the
from Supplemental Social Security benefits or Social
inventory of active cases worked on by IRS employees.
Security Disability Insurance benefits, or whose adjusted
Like the 2006-2009 PCA program, the IRS is allowed to
gross income is 200% or less of the federal poverty level.
keep up to 25% of the amount collected under the new
Second, the act redefines tax debt eligible for collection by
program. But unlike that program, the funds will be placed
a PCA as debt for which two or more years have passed
in a new account (set up under newly added Section 6307)
since the tax liability was assessed; under previous law, tax
for the hiring and training of “special compliance
debt became eligible for PCA collection one or more years
personnel.” These employees will work as field collection
after assessment. Third, the act requires PCAs to allow
officers or representatives of the IRS’s Automated
taxpayers up to seven years to pay off their tax debt through
Collection System, collecting delinquent tax debt.
an installment agreement, rather than the five years allowed
under previous law. Each of these changes applies only to
In March of each year, the IRS Commissioner must report
tax debt referred to PCAs for collection after December 31,
to the House Ways and Means and the Senate Finance
2020.
Committees on the cost of the program and the amount of
revenue it raised in the previous fiscal year and the

expected cost and tax collection for the current year. In a
separate report, the agency must provide details on the total
Gary Guenther, Analyst in Public Finance
amount collected by each contractor, the collection costs
incurred by the IRS, the total amount of fees retained by the
IF10339
IRS, and the agency’s use of the funds.
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The Internal Revenue Service’s Private Tax Debt Collection Program


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https://crsreports.congress.gov | IF10339 · VERSION 8 · UPDATED

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