Updated March 31, 2022
The Internal Revenue Service’s Private Tax Debt Collection
Program
For the third time in its history, the Internal Revenue
In addition, the provision specified that the IRS could use
Service (IRS) is managing a program to collect certain
PCAs for two purposes only: (1) to locate and contact
delinquent individual income tax debt using private debt
individuals with overdue income tax liabilities who were
collection agencies (PCAs). Section 32102 of the Fixing
not contesting the amount owed, and (2) to arrange for the
America’s Surface Transportation (FAST) Act (P.L. 114-
payment of back taxes.
94) directed the IRS to revive the private tax debt collection
program it operated from 2006 to 2009 with several
Payments went into a revolving fund. The IRS could use up
changes.
to 25% of the money in the fund to compensate PCAs for
their services and another 25% of the money to fund its
IRS’s Previous Experiences with Private
enforcement activities.
Debt Collectors
Before the enactment of the FAST Act, the IRS twice had
In early 2005, the IRS began a PCA program based on the
experimented with using PCAs to collect delinquent
guidelines laid down in IRC Section 6306. After a series of
individual income tax debt. In both cases, the agency
court challenges to the IRS’s initial solicitation of bids for
sought authority to establish and manage the programs,
collection contracts, the agency signed one-year contracts
which Congress granted.
with three PCAs in March 2006. Collection activities
commenced in September 2006. And in February 2007, the
1996 to 1997
IRS extended the contracts with two of the companies
The first experiment was a pilot program known as the
through March 2008, and then 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 initially authorized to last two
program and would let them know by March 6 whether
years, the IRS shut it down after one year, owing to
their contracts would be extended for another year. The
disappointing results and 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 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
program 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 that
period was $21.1 million, nearly seven times greater than
On March 5, 2009, the IRS informed the two remaining
the revenue gain.
PCAs that their contracts would not be extended (IR-2009-
019). Then-IRS Commissioner Doug Shulman cited three
2006 to 2009
reasons for terminating the program. First, the total cost of
The second experiment was more ambitious in scope. It
the private tax debt collection program (including start-up
resulted from the creation of Internal Revenue Code (IRC)
expenses going back to FY2004 but excluding opportunity
Section 6306 by the American Jobs Creation Act of 2004
costs) exceeded the revenue it collected. Second, as a 2009
(AJCA; P.L. 108-357). The new provision authorized the
study by the IRS and an independent reviewer showed, IRS
IRS to enter into contracts with qualified PCAs to collect
employees were more cost-effective than PCAs in handling
delinquent individual income tax debt that the IRS was not
the same inventory of delinquent tax cases. Third, the
pursuing because of a lack of resources. The Treasury
collection work “was best done by IRS employees who
Department had asked Congress in its FY2004 budget
have more flexibility in handling cases,” especially those
request for statutory authority to hire PCAs for this purpose.
involving taxpayers facing financial difficulties.
Under IRC Section 6306, the IRS was required to use PCAs
FAST Act and the Third Private Tax
in a manner that protected taxpayer rights, prevented the
Debt Collection Program
use of abusive collection practices, and complied with
The FAST Act required the IRS to revive the 2006-2009
federal regulations and laws governing the outsourcing of
PCA program, but with a few changes. According to a JCT
activities deemed inherently governmental, such as tax
revenue estimate, the new program was expected to collect
collection.
$2.4 billion in delinquent individual income tax debt from
FY2016 to FY2025.
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The Internal Revenue Service’s Private Tax Debt Collection Program
Under the act, the IRS was required to enter into “one or
another $345.1 million in delinquent tax debt. After
more qualified collection contracts for the collection of all
covering all expenses, the PCA program transferred $678.7
outstanding inactive tax receivables” within three months of
million to the Treasury General Fund from FY2017 to
the act’s enactment.
FY2020.
The IRS renewed contracts with two of the original PCAs
Such a receivable was any tax assessment in the IRS’s
and entered into a contract with a new PCA in September
inventory of potentially collectible taxes that satisfied at
2021. The current PCAs are CBE Group, ConServe, and
least one of four criteria: (1) the assessment had been
Coast Professional, Inc. It is not clear why the IRS decided
removed from the active inventory because the IRS lacked
not to renew its contracts with Performant Recovery and
the resources to collect it or could not locate the taxpayer;
Pioneer Credit Recovery. The repayment agreements these
(2) more than one-third of the 10-year statute of limitation
two companies had reached with taxpayers are no longer in
had lapsed; (3) the assessment had not been assigned to an
force, but their tax debts are still collectable.
IRS employee for collection; and (4) more than 365 days
had passed since the last communication between the IRS
Pros and Cons of the PCA Program
and the taxpayer about collecting the tax owed.
Proponents of the current PCA program argue that without
the use of private debt collectors, little or none of the tens
The FAST Act required the IRS to enter into “one or
of billions of dollars in the IRS’s inventory of inactive but
more qualified collection contracts for the collection
collectible individual tax debt would ever be collected.
of all outstanding inactive tax receivables” within three
They claim that the IRS lacks the resources to collect all tax
months of its enactment.
debt and thus assigns a low priority to doing so. Some add
that private firms are likely to be more efficient than the
A PCA was not allowed to collect delinquent taxes from
IRS in collecting this debt.
someone under the age of 18, someone serving in a combat
Critics say that the current PCA program does not serve the
zone, or a victim of tax refund fraud related to identity
public interest. They contend that requiring the IRS to hire
theft. In addition, a PCA could not collect delinquent taxes
people to collect inactive but potentially collectable tax debt
from taxpayers who had a pending or active “offer in
would be more cost-effective than using PCAs. Another
compromise” or installment agreement with the IRS, were
concern is that unlike PCAs, the IRS has the flexibility to
classified as an innocent spouse case, or were involved in
reach installment agreements with or extend offers in
an active examination, litigation, criminal investigation,
compromise to taxpayers who cannot pay off their debt all
levy, or appeal.
at once. Some say the current PCA program imposes
Like the 2006-2009 PCA program, the IRS could keep up
economic hardships on low-income taxpayers.
to 25% of the amount collected through PCAs. The funds
Taxpayer First Act
had to be deposited in a new account for the hiring and
training of “special compliance personnel” (SCP), known as
The Taxpayer First Act (TFA, P.L. 116-25) addressed some
the SCP Program Fund. Upon completing their training,
significant concerns about the PCA program.
these employees would be assigned to work as field
collection officers or representatives of the IRS’s
First, the TFA bars the IRS from assigning to PCAs the tax
Automated Collection System.
debts of taxpayers who get much of their income from
Supplemental Social Security benefits or Social Security
The FAST Act required the IRS to report to the House
Disability Insurance benefits, or whose adjusted gross
Ways and Means and the Senate Finance Committees in
income is 200% of the federal poverty level or less.
March of each year on the cost of the program, the amount
of revenue it raised in the previous fiscal year, and the
Second, the TFA specifies that tax debt eligible for PCA
expected cost and revenue collected for the current year. In
collection must be at least two years old, from the date of
a separate report, the IRS also had to provide details on the
initial assessment. Under previous law, PCA-eligible tax
total amount collected by each contractor, the collection
debt had to be only year old.
costs incurred by the IRS, the total amount of fees retained
by the IRS, and the agency’s use of the funds.
Third, the TFA allows taxpayers up to seven years to pay
off tax debt assigned to a PCA for collection through an
The IRS began referring cases to the four PCAs (CBE
Group, ConServ, Performant Recovery, and Pioneer Credit
installment agreement; under previous law, taxpayers
contacted by a PCA had five years to pay off their tax debt
Recovery) with which it had collection contracts on April
under an installment agreement.
10, 2017. Amounts collected by PCAs go into the SCP
Program Fund and Cost of Services Fund. The IRS pays
Each of these changes applies to tax debt referred to PCAs
PCA commissions of up to 25% of the amount collected
for collection after December 31, 2020.
from the latter fund.
From the start of private collection activity in April 2017

through the end of FY2020, the IRS assigned 3.5 million
delinquent accounts with total delinquent debt of $32.0
Gary Guenther, Analyst in Public Finance
billion to the PCAs for collection. They collected $580.6
million in payments eligible for a commission in that
IF10339
period; agents working in the SCP program collected


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The Internal Revenue Service’s Private Tax Debt Collection Program


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https://crsreports.congress.gov | IF10339 · VERSION 11 · UPDATED

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