Updated February 10, 2023
The Internal Revenue Service’s Private Tax Debt Collection
Program

For the third time in its history, the Internal Revenue
individuals with overdue income tax liabilities who were
Service (IRS) is managing a program to collect certain
not contesting the amount owed, and (2) to arrange for the
delinquent individual income tax debt using private debt
payment of back taxes.
collection agencies (PCAs). Section 32102 of the Fixing
America’s Surface Transportation (FAST) Act (P.L. 114-
Payments went into a revolving fund. The IRS was allowed
94) directed the IRS to revive the private tax debt collection
to use up to 25% of the money in the fund to compensate
program it operated from 2006 to 2009, with several
PCAs for their services, and another 25% of the money to
changes.
fund its enforcement activities.
IRS’s Previous Experiences with Private
In early 2005, the IRS began a PCA program based on the
Debt Collectors
guidelines laid down in IRC Section 6306. After a series of
Before the FAST Act, the IRS twice used PCAs to collect
court challenges to the IRS’s initial solicitation of bids for
delinquent income tax debt. In both cases, the agency
collection contracts, the agency signed one-year contracts
sought the authority to establish and manage the programs,
with three PCAs in March 2006. Collection activities
which Congress granted.
commenced in September 2006. In February 2007, the IRS
extended the contracts with two of the companies through
1996 to 1997
March 2008, and a second time through March 2009.
The first experience was a pilot program known as the
Contracting Out Collection Agencies Project. It was funded
The IRS notified the two contractors in February 2007 that
under the Treasury, Postal Service, and General
it was evaluating the cost-effectiveness of the collection
Government Appropriations Act, 1996 (P.L. 104-52).
program and would let them know by March 6 whether
Although the project was authorized to last two years, the
their contracts would be extended for another year. The
IRS shut it down after one year, citing disappointing results
study found that between the first quarter of FY2004 and
and opposition from Congress and the Clinton
the first quarter of FY2009, the cost to the IRS of
Administration. According a 1997 assessment of the
designing, implementing, and managing the collection
program by the (then-named) General Accounting Office
program totaled $82.9 million, which was $0.4 million
(GAO), the five PCAs hired for the program collected $3.1
more than the $82.5 million in gross revenue the PCAs
million in delinquent taxes from October 1996 to January
collected. A subsequent IRS analysis found that the
1997, but the total cost for the program (i.e., the fees paid to
program had produced a net loss of $4.5 million.
the PCAs, the project’s opportunity cost, and its design,
start-up, and administration expenses) during that period
On March 5, 2009, the IRS informed the two remaining
was $21.1 million, nearly seven times larger than the
PCAs that their contracts would not be extended (IR-2009-
revenue gain.
019). Then-IRS Commissioner Doug Shulman cited three
reasons for terminating the program. First, the total cost of
2006 to 2009
the private tax debt collection program (including start-up
The second experience was more ambitious in scope. It
expenses going back to FY2004 but excluding opportunity
resulted from the creation of Internal Revenue Code (IRC)
costs) exceeded the revenue it collected. Second, as a 2009
Section 6306 by the American Jobs Creation Act of 2004
study by the IRS and an independent reviewer showed, IRS
(AJCA; P.L. 108-357). The provision authorized the IRS to
employees were more cost-effective than PCAs in handling
enter into contracts with qualified PCAs to collect
the same inventory of delinquent tax cases. Third, the
delinquent individual income tax debt that the IRS was not
collection work “was best done by IRS employees who had
pursuing because of a lack of resources. The Treasury
more flexibility in resolving cases,” especially those
Department had asked Congress in its FY2004 budget
involving taxpayers with financial difficulties.
request for statutory authority to hire PCAs for this purpose.
FAST Act and the Third Private Tax
IRC Section 6306 required the IRS to use PCAs in a
Debt Collection Program
manner that protected taxpayer rights, prevented the use of
The FAST Act required the IRS to revive the 2006-2009
abusive collection practices, and complied with federal
PCA program, but with a few changes. According to a Joint
regulations and laws governing the outsourcing of activities
Committee on Taxation revenue estimate, the new program
deemed inherently governmental, such as tax collection.
was expected to collect $2.4 billion in delinquent individual
income tax debt from FY2016 to FY2025.
In addition, the provision specified that the IRS could use
PCAs for two purposes only: (1) to locate and contact
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The Internal Revenue Service’s Private Tax Debt Collection Program
The act required the IRS to enter into “one or more
IRS expenses of $370.2 million, the PCA program collected
qualified collection contracts for the collection of all
$720.8 million in net revenue from FY2017 to FY2021.
outstanding inactive tax receivables” within three months of
The IRS renewed contracts with two of the original PCAs
the act’s enactment.
and entered into a contract with a new PCA in September
2021. The current PCAs are CBE Group, ConServe, and
The act defined such a receivable as any assessment in the
IRS’s inventory
Coast Professional, Inc. Repayment agreements with
of potentially collectible taxes that satisfied
taxpayers reached by the two companies whose contracts
at least one of four criteria: (1) the assessment had been
were not extended are no longer valid, but the tax debts are
removed from the active inventory because the IRS lacked
still collectable.
the resources to collect it or could not locate the taxpayer;
(2) more than one-third of the 10-year statute of limitation
Pros and Cons of the PCA Program
had lapsed; (3) the assessment had not been assigned to an
Proponents of the current PCA program argue that without
IRS employee for collection; and (4) more than 365 days
the use of private debt collectors, little or none of the tens
had passed since the last communication between the IRS
of billions of dollars in the IRS’s inventory of inactive but
and the taxpayer about collecting the tax owed.
collectible individual tax debt would ever be collected.
They maintain that the IRS lacks the resources to collect all
The FAST Act required the IRS to enter into “one or
this debt and thus assigns a low priority to doing so. Some
more qualified collection contracts for the collection
add that private firms are likely to be more efficient than
of all outstanding inactive tax receivables” within three
the IRS in collecting this debt.
months of its enactment.
Critics say that the current PCA program does not serve the
public interest. They contend that it would be more cost-
A PCA was not allowed to collect delinquent taxes from
effective to provide the IRS with the resources needed to
someone who was under the age of 18, served in a combat
collect inactive but potentially collectable tax debt. Another
zone, or was a victim of tax refund fraud related to identity
concern with the program, critics say, is that unlike PCAs,
theft. In addition, a PCA could not collect delinquent taxes
the IRS has the flexibility to enter into installment
from taxpayers who had a pending or active “offer in
agreements and offers in compromise with taxpayers who
compromise” or installment agreement with the IRS, were
cannot pay off their tax debt all at once. Some also charge
classified as an innocent spouse case, or were involved in
that the PCA program imposes economic hardships on low-
an active examination, litigation, criminal investigation,
income taxpayers.
levy, or appeal.
Taxpayer First Act
Like the 2006-2009 PCA program, the IRS could keep up
to 25% of the amount collected through PCAs. The funds
The Taxpayer First Act (TFA, P.L. 116-25) addressed some
had to be deposited in a new account for the hiring and
of the concerns about the PCA program by instituting
training of “special compliance personnel” (SCP), known as
certain changes that affected tax debt accounts assigned to
the SCP Program Fund. Upon completing their training,
PCAs after December 31, 2020.
these employees would be assigned to work as field
collection officers or representatives of the IRS’s
First, the act bars the IRS from assigning to PCAs the tax
Automated Collection System.
debts of taxpayers who receive much of their income from
Supplemental Social Security benefits or Social Security
Amounts collected by PCAs go into the SCP Program Fund
Disability Insurance benefits, or whose adjusted gross
and Cost of Services Fund. The IRS pays PCAs
income is 200% or less of the federal poverty level, which
commissions of up to 25% of the amount collected from the
is $30,000 for a family of four in 2023.
latter fund.
The FAST Act required the IRS to report to the House
Second, the TFA specifies that tax debt eligible for PCA
collection must be at least two years old, from the date of
Ways and Means and the Senate Finance Committees in
initial assessment. Under previous law, PCA-eligible tax
March of each year on the cost of the program, the amount
debt had to be at least one year old.
of revenue it raised in the previous fiscal year, and the
expected cost and revenue collection for the current year. In
Third, the TFA allows taxpayers up to seven years to pay
a separate report, the IRS had to provide details on the total
amount collected by each contractor, the collection costs
off a tax debt assigned to a PCA for collection through an
installment agreement; previous law limited the pay-off
incurred by the IRS, the total amount of fees retained by the
period to five years.
IRS, and the agency’s use of the funds.
The IRS began referring cases to the four PCAs (CBE
In a December 2022 report, the Treasury Inspector General
Group, ConServ, Performant Recovery, and Pioneer Credit
for Tax Administration identified 14,141 low-income
Recovery) with collection contracts in April 2017.
taxpayers whose tax debt should be exempt from collection
under the PCA program. The IRS has disputed the claim by
From the start of private collection activity through the end
noting that those taxpayers’ accounts had been assigned to
of FY2021, the IRS assigned 4.0 million delinquent
PCAs before the income limits began on January 1, 2021.
accounts with total delinquent debt of $36.8 billion to the
PCAs for collection. They collected over $1.0 billion in
commissionable payments and $68.7 million in payments
Gary Guenther, Analyst in Public Finance
not eligible for commissions in that period. After covering
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 12 · UPDATED