Background on IRS’s Private Collection Agencies

In December 2015, Congress required the IRS to hire private collection agencies (PCAs) to collect some of its inactive tax receivables. An inactive tax receivable includes, for example, a tax debt that the IRS removed from its active inventory because of a lack of resources or inability to locate the taxpayer; because a year has passed since the taxpayer or his or her representative interacted with the IRS; or because more than two years have passed since assessment and the account was not assigned for collection.

PCAs do not have the same authority to resolve taxpayers’ debts that the IRS does. For example, PCAs cannot:

• Enter into an offer in compromise;
• Offer a partial payment installment agreement;
• Place accounts into currently not collectible status due to hardship; or
• Consider claims for innocent spouse relief.

PCAs can only request that the taxpayer fully pay the liability, or alternatively, offer the taxpayer a “payment arrangement” (which is an installment agreement (IA), discussed below).

In September 2016, the IRS selected four PCAs: CBE Group, Inc. (CBE); Continental Service Group (ConServe); Performant Recovery, Inc. (Performant); and Pioneer Credit Recovery (Pioneer) to assist in collecting certain overdue tax accounts.  Once ten days have elapsed after the IRS notifies taxpayers their debts have been assigned to a PCA, the payment is “commissionable.” At this point:

• The IRS retains up to 25 percent of the commissionable amounts PCAs collect from taxpayers to cover the costs of PCA services, including commissions;
• The IRS retains an additional amount of up to 25 percent of commissionable amounts to fund a “special compliance personnel program account.” The special compliance personnel fund is used to pay for IRS compliance personnel such as revenue officers and employees assigned to the IRS’s Automated Collection Systems function; and
• The remaining funds collected by PCAs, after these amounts are retained by the IRS, go to the Treasury General Fund.

By the end of fiscal year (FY) 2020 (i.e., from April 2017 through September 30, 2020), the IRS had assigned $32,004,349,273 in delinquent tax debt (3,487,956 accounts) to the PCAs. During that period, the PCAs collected a total of $580,583,025 of commissionable payments, or about two percent of the dollars assigned.

The Private Debt Collection (PDC) program reported an additional $345,096,675 in revenues attributable to special compliance personnel activity. Even taking this additional revenue into account and counting the $43,335,129 of payments taxpayers made that were not subject to commissions (because the payments were made within ten days of notification of the assignment), the program generated revenues of $969,014,829, or about three percent of the value of the assigned debts. The IRS reported that $678,723,316 was the net revenue to the Treasury General Fund, after considering the amounts retained by the IRS.

The contracts the IRS entered into with the four PCAs in 2016 expired on September 22, 2021. On that same day, the IRS announced three new PCA contracts. Two of the new contracts are with companies the IRS originally hired, CBE and ConServe. The third new contract is with Coast Professional, Inc. (Coast). Because Performant and Pioneer will no longer collect tax debts, due to the expiration of their contracts with the IRS, the IRS recalled 1,255,541 accounts that had been assigned to them.

Does the Expiration of the Private Collection Agencies Contracts Mean That Tax Debts Are Being Extinguished?

No. This does not mean the tax debt is forgiven; rather, the PCA is no longer collecting the monies and the account is transferred back to the IRS for future collection. However, CBE and ConServe will continue to service any prior installment agreements whereas Performant and Pioneer will be sending letters informing taxpayers that “we will no longer be collecting this debt on behalf of the Internal Revenue Service.”

This means that any payment arrangement a taxpayer entered into with Performant or Pioneer will no longer be in force – but it doesn’t mean that the tax debt has been extinguished.

Once these accounts are transferred back to the IRS, and, if the debt meets the criteria set out in IRC § 6306, the IRS may assign the debt to another PCA (CBE, ConServe, or Coast) or hold the account in its collection inventory. See IRS Frequently Asked Questions for additional information. Taxpayers whose accounts are being recalled from Performant or Pioneer can still make payments to the IRS, and those payments will be credited to their accounts.

Challenges Associated With Private Collection Agencies

In 2018, TAS reported that a third of the dollars collected by PCAs were collected from taxpayers whose incomes were less than or equal to their “allowable living expenses (ALE).”  ALEs are the standards the IRS uses to determine how much money taxpayers need for basic living expenses such as housing and utilities, food, transportation, and healthcare, based on family size and where they live. Not surprisingly, many taxpayers defaulted on the “streamlined” IAs the PCAs set up for them. (A “streamlined” IA is the only payment arrangement PCAs can offer taxpayers. It currently refers to an IA to repay a tax liability of up to $250,000 within seven years and within the period of limitations on collection). Defaults for accounts assigned to PCAs were at 37 percent, whereas the default rate for taxpayers who entered into streamlined IAs with the IRS and whose debts were not assigned to a PCA was 14 percent.

Taxpayer First Act and Private Collection Agencies

In 2019, Congress restricted the PDC program to protect vulnerable taxpayers. Congress changed the law to exclude debts of taxpayers with adjusted gross incomes at or below 200 percent of the Federal Poverty Level from assignment to PCAs, consistent with TAS’s longstanding recommendations. The law excludes debts owed by taxpayers whose income mainly consists of Social Security Disability Insurance (SSDI) or Supplemental Security Income payments. These changes took effect January 1, 2021. TAS estimated that as of September 12, 2019, there were 1,162,606 accounts in PCA inventory of individual taxpayers whose adjusted gross income was at or below 200 percent of the Federal Poverty Level and about 105,587 accounts of individual taxpayers who received SSDI. TAS will continue to monitor the impact of the law change for default rates of streamlined installment agreements taxpayers entered into post-January 2021 while their accounts are assigned to PCAs or handled by the IRS.

Taxpayer Collection Options With IRS

Taxpayers can visit the TAS website or IRS.gov to learn more about collection options – including options that are not available when the debt is in the hands of a PCA. For example, taxpayers may qualify to be placed into currently not collectible status due to hardship, or they may be approved for a collection alternative such as an offer in compromise or a partial-pay installment agreement. They can request innocent spouse relief or seek audit reconsideration, both avenues of relief not available from PCAs. Taxpayers can also set up an IA with the IRS online, although they may be required to pay a setup fee (there is no fee for low-income taxpayers to set up an IA with payments made automatically each month from their checking accounts).

Any of these outcomes will prevent the debt from being reassigned to a PCA and will avert enforced collection action like levies by the IRS. Taxpayers without internet access can contact the IRS directly by either calling 800-829-1040 (individuals) or 800-829-4933 (businesses), although the IRS is struggling to answer these phone lines. For all of FY 2021, IRS employees had answered less than five percent of the roughly 105 million taxpayer calls to the IRS’s 1040 telephone line, and the IRS reported an official Level of Service of slightly over nine percent. In other words, only about one out of every 20 calls got through to a telephone assistor, and the taxpayers who got through waited on hold an average of nearly 23 minutes.

What If My Account Is Still With a Private Collection Agency or Is Assigned to a Private Collection Agency?

Under 15 U.S.C. 1692c, part of the Fair Debt Collection Practice Act, taxpayers have the right to demand that a PCA stop contacting them. Taxpayers may work with the IRS rather than with a PCA, and taxpayers have more options for resolving their tax debt when they work directly with the IRS. There is a wealth of information about the PDC program on TAS’s Roadmap page that explains the IRS’s PDC program and includes a link to a sample no-contact letter that taxpayers can use to instruct a PCA to  stop contacting them. Once the PCA receives a written request to stop contacting the taxpayer, the account will be returned to the IRS. For additional information on PCAs, see the IRS’s Frequently Asked Questions page.

Conclusion

If you are facing an outstanding tax debt, you should consult with a tax advisor or Low Income Taxpayer Clinic for assistance in determining which of the several collection options are available to you and best suited for your financial situation. Additional information is available through IRS Publication 594, which generally describes the IRS collection process and various collection options. For more information on Private Collection Agencies, you can view TAS PCA video or the IRS’s PCA video. Remember, private collection agencies should be courteous, professional, and respectful of your taxpayer rights while following the laws. The PCA should work with you to resolve your overdue taxes. They should not threaten you  If you feel the private collection agency acted inappropriately, here’s how to report it.

Ignoring the IRS and hoping your collection issues go away is usually not a good strategy.