The Internal Revenue Service’s Private Tax Debt Collection Program

The Internal Revenue Service’s Private Tax Debt Collection Program

Updated February 26, 2024
The Internal Revenue Service’s Private Tax Debt Collection
Program
For the third time in its history, the Internal Revenue
Payments went into a revolving fund. The IRS was allowed
Service (IRS) is managing a program to collect certain
to use up to 25% of the money in the fund to compensate
delinquent individual income tax debt using private debt
PCAs for their services, and another 25% of the money to
collection agencies (PCAs). Section 32102 of the Fixing
fund its enforcement activities.
America’s Surface Transportation (FAST) Act (P.L. 114-
94) directed the IRS to revive the private tax debt collection
In early 2005, the IRS began a PCA program based on the
program it operated from 2006 to 2009, with several
guidelines laid down in IRC Section 6306. After a series of
changes.
court challenges to the IRS’s initial solicitation of bids for
collection contracts, the agency signed one-year contracts
IRS’s Previous Experiences with Private
with three PCAs in March 2006. Collection activities
Debt Collectors
commenced in September 2006. In February 2007, the IRS
Before the FAST Act, the IRS twice used PCAs to collect
extended the contracts with two of the companies through
delinquent income tax debt. In both instances, the agency
March 2008, and again through March 2009.
sought the authority to establish and manage the programs,
which Congress granted.
The IRS notified the two contractors in February 2007 that
it was evaluating the cost-effectiveness of the collection
1996 to 1997
program and would let them know by March 6 whether
The first experience was a pilot program known as the
their contracts would be extended for another year. The
Contracting Out Collection Agencies Project. It was funded
study found that between the first quarter of FY2004 and
under the Treasury, Postal Service, and General
the first quarter of FY2009, the cost to the IRS of
Government Appropriations Act, 1996 (P.L. 104-52).
designing, implementing, and managing the collection
Although the project was authorized to last two years, the
program totaled $82.9 million, which was $0.4 million
IRS shut it down after one year, citing disappointing results
more than the $82.5 million in gross revenue the PCAs
and opposition from Congress and the Clinton
collected. A subsequent IRS analysis found that the
Administration. According a 1997 assessment of the
program had a net loss of $4.5 million.
program by the (then-named) General Accounting Office
(GAO), the five PCAs hired for the program collected $3.1
On March 5, 2009, the IRS informed the two remaining
million in delinquent taxes from October 1996 to January
PCAs that their contracts would not be extended (IR-2009-
1997, but the total cost for the program (i.e., the fees paid to
019). Then-IRS Commissioner Doug Shulman cited three
the PCAs, the project’s opportunity cost, and its design,
reasons for terminating the program. First, the total cost of
start-up, and administration expenses) during that period
the private tax debt collection program (including start-up
was $21.1 million.
expenses going back to FY2004 but excluding opportunity
costs) exceeded the revenue it collected. Second, as a 2009
2006 to 2009
study by the IRS and an independent reviewer showed, IRS
The second private debt collection effort was more
employees were more cost-effective than PCAs in
ambitious in scope. It resulted from the creation of Internal
managing the same inventory of delinquent tax cases.
Revenue Code (IRC) Section 6306 by the American Jobs
Third, the collection work “was best done by IRS
Creation Act of 2004 (AJCA; P.L. 108-357). The provision
employees who had more flexibility in resolving cases,”
authorized the IRS to enter into contracts with qualified
especially those involving taxpayers with financial
PCAs to collect delinquent individual income tax debt that
difficulties.
the IRS was not pursuing because of a lack of resources.
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 several changes. According to a
regulations and laws governing the outsourcing of activities
Joint Committee on Taxation revenue estimate, the new
deemed inherently governmental, such as tax collection.
program 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
The act required the IRS to enter into “one or more
individuals with overdue income tax liabilities who were
qualified collection contracts for the collection of all
not contesting the amount owed, and (2) to arrange for the
outstanding inactive tax receivables” within three months of
payment of back taxes.
the act’s enactment.
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The Internal Revenue Service’s Private Tax Debt Collection Program
The act defined such a receivable as any assessment in the
The IRS renewed contracts with two of the original PCAs
IRS’s inventory of potentially collectible taxes that satisfied
and entered into a contract with a new PCA in September
at least one of four criteria: (1) the assessment had been
2021. The current PCAs are CBE Group, ConServe, and
removed from the active inventory because the IRS lacked
Coast Professional, Inc.
the resources to collect it or could not locate the taxpayer;
Pros and Cons of the PCA Program
(2) more than one-third of the 10-year statute of limitation
Proponents of the current private tax debt collection
for tax collection had lapsed; (3) the assessment had not
program argue that without the use of private debt
been assigned to an IRS employee for collection; and (4)
collectors, little of the tens of billions of dollars in the IRS’s
more than 365 days had passed since the last
inventory of inactive but collectible individual tax debt
communication between the IRS and the taxpayer about
would ever be collected. They maintain that the primary
collecting the tax debt.
justification for the program is that the IRS lacks the
resources to collect all this debt and thus assigns a low
The FAST Act required the IRS to enter into “one or
priority to doing so.
more qualified collection contracts for the collection
of all outstanding inactive tax receivables” within three
Critics say that the current PCA program fails to serve the
months of its enactment.
public interest. They contend that it would be more cost-
effective to provide the IRS with the resources needed to
There were limits on PCA collection activities. A PCA was
collect inactive but potentially collectable tax debt. Another
not allowed to collect delinquent taxes from someone who
concern about the program, critics say, is that unlike PCAs,
was under the age of 18, served in a combat zone, or was a
the IRS has the authority to enter into installment
victim of tax refund fraud related to identity theft. In
agreements and offers in compromise with taxpayers who
addition, a PCA could not collect delinquent taxes from
cannot pay off their tax debt all at once. Some claim that
taxpayers who had a pending or active “offer in
the PCA program does too little to shield low-income
compromise” or installment agreement with the IRS, were
taxpayers from PCA collection.
classified as an innocent spouse case, or were involved in
Taxpayer First Act
an active examination, litigation, criminal investigation,
levy, or appeal.
The Taxpayer First Act (TFA, P.L. 116-25) addressed some
concerns about the PCA program by making certain
Like the 2006-2009 PCA program, the IRS could keep up
changes that affected tax debt accounts assigned to PCAs
to 25% of the amount collected through PCAs. The funds
after December 31, 2020.
had to be deposited in a new account for the hiring and
training of “special compliance personnel” (SCP), known as
First, the act bars the IRS from assigning to PCAs the tax
the SCP Program Fund. Upon completing their training,
debts of taxpayers who receive much of their income from
these employees would be assigned to work as field
Supplemental Social Security benefits or Social Security
collection officers or representatives of the IRS’s
Disability Insurance benefits, or whose adjusted gross
Automated Collection System.
income is 200% or less of the federal poverty level, which
is $31,200 for a family of four in 2024.
Amounts collected by PCAs were to go into the SCP
Program Fund and Cost of Services Fund. The IRS was
Second, TFA specifies that the tax debt eligible for PCA
permitted to pay PCAs commissions of up to 25% of the
collection must be at least two years old from the date of
amount they helped collect from the latter fund.
the initial assessment. Under previous law, PCA-eligible
The FAST Act required the IRS to report to the House
tax debt had to be at least one year old.
Ways and Means and the Senate Finance Committees in
March of each year on the cost of the program, the amount
Third, TFA gives taxpayers up to seven years to pay off a
of revenue it raised in the previous fiscal year, and the
tax debt assigned to a PCA through an installment
expected cost and revenue collection for the current year. In
agreement, rather than five years under previous law.
a separate report, the IRS had to provide details on the total
amount collected by each contractor, the collection costs
Taxpayers in the Private Tax Debt
incurred by the IRS, the total amount of fees retained by the
Collection Program
IRS, and the agency’s use of the funds.
A 2024 GAO report provided certain details about the
taxpayers subject to PCA collection from 2017 to 2023.
The IRS began referring cases to the four PCAs (CBE
About 70% of individual taxpayers in the program during
Group, ConServ, Performant Recovery, and Pioneer Credit
that period identified as male, and 78% of them were
Recovery) with collection contracts in April 2017.
between the ages of 30 and 59. The average tax debt for
Through the end of FY2021, the IRS had assigned 4.0
individuals was $5,000. Joint filers represented 7% of all
million delinquent accounts with total delinquent debt of
taxpayers in the program.
$36.8 billion to the PCAs for collection. The PCAs helped
collect over $1.0 billion in commissionable payments and

$68.7 million in payments not eligible for commissions.
After covering IRS expenses of $370.2 million, the PCA
Gary Guenther, Analyst in Public Finance
program collected $720.8 million in net revenue from
FY2017 to FY2021.
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 13 · UPDATED