Updated February 24, 2021
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 collect certain
(1) to locate and contact individuals with overdue income
delinquent individual income tax debt using private debt
tax liabilities who are not contesting the amount owed, and
collection agencies (PCAs). Section 32102 of the Fixing
(2) to arrange for the payment of back taxes.
America’s Surface Transportation (FAST) Act (P.L. 114-
94) directed the IRS to revive the private tax debt collection
Payments went into a revolving fund. The IRS could use up
program it operated from 2006 to 2009, but with several
to 25% of the money in the fund to compensate PCAs for
changes.
their services and another 25% of the money to fund its
enforcement activities.
IRS’s Previous Experiences with Private
Debt Collectors
In early 2005, the IRS began a PCA program based on the
Before the enactment of the FAST Act, the IRS twice
guidelines laid down in IRC Section 6306. After a series of
experimented with the use of PCAs to collect delinquent
court challenges of the IRS’s initial solicitation of bids for
individual income tax debt. In both cases, the agency
collection contracts, the agency signed one-year contracts
sought authority to establish and manage the programs, and
with three PCAs in March 2006. Collection activities
Congress granted it.
commenced in September 2006. In February 2007, the IRS
extended the contracts with two of the companies through
1996 to 1997
March 2008, and those contracts were further extended
The first experiment was a pilot program known as the
through March 2009.
Contracting Out Collection Agencies Project. It was funded
under the Treasury, Postal Service, and General
The IRS notified the two contractors in February 2007 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 years, the
program and would let them know by March 6 whether
IRS ended it after one year, owing to disappointing results
their contracts would be extended for another year. The
and opposition from Congress and the Clinton
study found that between the first quarter of FY2004 and
Administration. According to the findings of a 1997
the first quarter of FY2009, the cost to the IRS of
assessment of the program by the (then-named) General
designing, implementing, and managing the collection
Accounting Office (GAO), the five PCAs hired for the
program totaled $82.9 million, or $0.4 million more than
project collected $3.1 million in delinquent taxes through
the $82.5 million in gross revenue collected by PCAs. A
January 1997, but the total cost for the program (i.e., the
subsequent IRS analysis found that the program had
fees paid to the PCAs, the project’s opportunity cost, and its
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
This finding was inconsistent with a 2004 estimate by the
greater than the revenue gain.
Joint Committee on Taxation (JCT) that the program (as
specified in the AJCA) would raise $1.36 billion over 10
2006 to 2009
years, including $621 million between FY2005 and
The second experiment was more ambitious in scope. It
FY2009.
resulted from the addition of Section 6306 to the Internal
Revenue Code (IRC) by the American Jobs Creation Act of
On March 5, 2009, the IRS informed the two remaining
2004 (AJCA; P.L. 108-357). IRC Section 6306 authorized
PCAs that their contracts would not be extended (IR-2009-
the IRS to enter into contracts with qualified PCAs to
019). Then-IRS Commissioner Doug Shulman cited three
collect delinquent individual income tax debt that the IRS
reasons for terminating the program. First, the total cost of
was not pursuing because of a lack of resources. The
the private tax debt collection program (including start-up
Treasury Department had asked Congress in its FY2004
expenses going back to FY2004 but excluding opportunity
budget request for statutory authority to hire PCAs for this
costs) exceeded the revenue it collected. Second, as a 2009
purpose.
study by the IRS and an independent reviewer showed, IRS
employees were more cost-effective than PCAs in handling
Under IRC Section 6306, the IRS was required to use PCAs
the same inventory of delinquent tax cases. Third, the
in a manner that protected taxpayer rights, prevented the
collection work “was best done by IRS employees who
use of abusive collection practices, and was consistent with
have more flexibility in handling cases,” especially those
federal regulations and laws governing the outsourcing of
involving taxpayers facing financial difficulties.
activities deemed inherently governmental, such as tax
collection.
https://crsreports.congress.gov

---

The Internal Revenue Service’s Private Tax Debt Col ection Program
FAST Act and the Third Private Tax
the taxes they collect equal to as much as 25% of that
Debt Collection Program
amount. When the program began, the debt eligible for
The FAST Act required the IRS to revive the 2006-2009
collection totaled nearly $138 billion from about 14 million
PCA program, but with a few modifications. According to a
taxpayer accounts.
JCT revenue estimate, the new program is expected to raise
From the start of private collection activity through
$2.4 billion in delinquent individual income tax debt from
September 30, 2019, the four companies collected a total of
FY2016 to FY2025.
$301.8 million in revenue. The cost of the program totaled
$131.7 million, leaving a net balance of $170.0 million,
Under the act, the IRS is required to enter into “one or more
which was transferred to the Treasury general fund. Among
qualified collection contracts for the collection of all
outstanding inactive tax receivables” with
the costs were $54.6 million in commissions paid to the
in three months of
PCAs and $11.5 million in retained revenue for a fund to
the act’s enactment.
hire and train special compliance agents.
Such a receivable is defined as any tax assessment in the
Proponents of the current PCA program argue that without
IRS’s inventory of potentially collectible taxes that satisfies
the use of private debt collectors, little or none of the tens
at least one of four criteria: (1) the assessment has been
of billions of dollars in the IRS’s inventory of inactive but
removed from the active inventory because the IRS lacks
collectible individual tax debt would ever be collected.
the resources to collect it or could not locate the taxpayer;
They claim that the IRS lacks the resources to collect all tax
(2) more than one-third of the 10-year statute of limitation
debt and thus assigns a low priority to doing so. Some add
has lapsed; (3) the assessment has not been assigned to an
that private firms are likely to be more efficient than the
IRS employee for collection; and (4) more than 365 days
IRS in collecting this debt.
have passed since the last communication between the IRS
and the taxpayer about collecting the tax owed.
Critics say that the current PCA program fails to serve the
public interest. They contend that mandating that the IRS
The FAST Act required the IRS to enter into “one or
hire people to collect the targeted tax debt would be more
more qualified col ection contracts for the col ection
cost-effective than using PCAs. Another concern is that
of al outstanding inactive tax receivables” within three
unlike PCAs, the IRS has the flexibility to reach installment
agreements with or extend offers in compromise to
months of its enactment.
taxpayers who cannot pay off their debt all at once. Some
argue that the PCA program imposes economic hardships
A PCA may not collect delinquent taxes from someone
on low-income taxpayers.
under the age of 18, someone serving in a combat zone, or
someone who is the victim of tax refund fraud related to
Taxpayer First Act
identity theft. In addition, a PCA may not collect delinquent
The Taxpayer First Act (TFA, P.L. 116-25) addressed some
taxes from taxpayers who have a pending or active “offer in
concerns about the current PCA program.
compromise” or installment agreement with the IRS, are
classified as an innocent spouse case, or are involved in an
First, the act bars the IRS from assigning tax debt for PCA
active examination, litigation, criminal investigation, levy,
collection held by taxpayers who receive “substantially all”
or appeal.
of their income from Supplemental Social Security benefits
Like the 2006-2009 PCA program, the IRS may keep up to
or Social Security Disability Insurance benefits, or whose
25% of the amount collected under the new program. But
adjusted gross income is up to 200% of the federal poverty
the funds must be deposited in a new account (set up under
level.
newly added IRC Section 6307) for the hiring and training
of “special compliance personnel.” These employees will
Second, the act redefines tax debt eligible for PCA
eventually work as field collection officers or
collection as debt for which two or more years have passed
representatives of the IRS’s Automated Collection System.
since the tax liability was assessed. Under previous law, tax
debt became eligible for PCA collection one year after
In March of each year, the IRS Commissioner must report
assessment.
to the House Ways and Means and the Senate Finance
Committees on the cost of the program and the amount of
Third, the act allows taxpayers up to seven years to pay off
revenue it raised in the previous fiscal year, as well as the
tax debt assigned to a PCA for collection through an
expected cost and revenue collected for the current year. In
installment agreement, rather than the five years allowed
a separate report, the IRS is required to provide details on
under previous law.
the total amount collected by each contractor, the collection
costs incurred by the IRS, the total amount of fees retained
Each of these changes applies to tax debt referred to PCAs
by the IRS, and the agency’s use of the funds.
for collection after December 31, 2020.
Four debt collection companies are working with the IRS to
collect tax debt: CBE Group, Pioneer Credit Recovery,

ConServe, and Performant.
Gary Guenther, Analyst in Public Finance
The IRS began referring cases to the firms for collection on
April 10, 2017. The companies receive a commission for
IF10339


https://crsreports.congress.gov

---

The Internal Revenue Service’s Private Tax Debt Col ection Program


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10339 · VERSION 9 · UPDATED

---