Private collection agencies that contract with the Internal Revenue Service to collect overdue tax debts have collected nearly $500 million since 2017, according to a new report, but that’s only a fraction of the most $30 billion owed.
the report, of the Treasury Inspector General for Tax Administration, found that as of May 14, 2020, the IRS has assigned more than 3.28 million taxpayer accounts totaling more than $30.1 billion in delinquencies to private collectors since the program launched in April 2017. Collection agencies have collected approximately $498.4 million from these accounts and established more than 130,000 payment agreements, but taxpayers have subsequently defaulted on more half of them.
The IRS began contracting with debt collection agencies following a 2015 law, Fixing America’s Surface Transportation Act, which required the IRS to begin using private collection agencies, or PCAs, to collect dormant tax claims from taxpayers, despite the objections of the Obama administration. The IRS had twice previously had programs involving PCAs, but closed the programs due to complaints about harassment of taxpayers by collection agents and because collection agencies failed to report the amount of revenue. promised.
Andrew Harrer/Bloomberg
Nonetheless, some members of Congress lobbied for the program to be revived, and provisions to that effect were inserted into the Highway Funding Bill of 2015. Four collection agencies now operate as contractors under the programme: CBE Group, Conserve, Performant and Pioneer. TIGTA has conducted a semi-annual evaluation of the program since its relaunch, and the latest annual report was released on Thursday.
Last year, President Trump signed into law the Taxpayer First Act, which includes significant changes to the administration of the IRS’ private debt collection program. They include adjustments to the PCA case inventory criteria to protect certain low-income taxpayers from being subject to PCA collections as well as an increase in the maximum length of installment agreements that private collectors can offer to taxpayers.
The report found that collection agencies continue to perform well on phone calls in terms of quality measures. The four agencies have an average of 99.4% for quality, and each PCA has a quality score close to 100%. The IRS introduced a new payment method in fiscal year 2019 that it calls the Pre-Authorized Direct Debit Payment Option. However, TIGTA sees a risk with this program that too many PCA employees have access to taxpayers’ banking information, which increases the risk of fraud.
The report noted that in fiscal year 2019, the IRS failed to follow the plain language of the tax code, allowing PCAs to take commissions on unstructured payments that are not associated with a contract. qualified collection.
“The law allowing PCAs to solicit payments from taxpayers is clear about what PCAs are authorized to do, and the law does not provide for PCAs to provide taxpayers with the ability to make unstructured payments,” the statement said. report. “During our site visits and discussions with APC management, they acknowledged that their employees have experienced circumstances where taxpayers cannot meet the minimums to initiate a payment arrangement, but can make reduced monthly payments Continuing to allow CPAs to accept unstructured payments without review of a taxpayer’s financial circumstances increases the likelihood that such taxpayers will be placed in financial hardship and eventually default.”
The IRS has begun excluding cases of taxpayers with Social Security disability insurance from PCA inventory, in accordance with new Taxpayer First Act requirements. However, the IRS said the Social Security Administration does not have the legal authority to provide Supplemental Security Income information so that the IRS can exclude such taxpayers from the PCA inventory.
“As a result, the IRS is entirely dependent on PCAs to ensure that the accounts of taxpayers receiving Supplemental Security Income are returned to the IRS,” the report said. “Further, TIGTA has determined that the methodology used by the IRS to exclude low-income taxpayers at or below 200% of the federal poverty level cannot prevent all such taxpayers from being assigned to PCAs.”
Taxpayers subject to a tax levy are supposed to be exempted from being assigned to a private collection agency. However, TIGTA identified 14,586 taxpayers who were subject to the state income tax collection program while assigned to the PCA inventory. The IRS received levy proceeds from these taxpayers amounting to $6,228,806. TIGTA also identified seven taxpayers with levy payments totaling $7,419 while in active payment agreements with PCAs.
TIGTA made seven recommendations in the report to improve the effectiveness of the program and the protection of taxpayers’ rights. The IRS agreed with two of the seven recommendations and disagreed with five recommendations. The IRS plans to review collection agency procedures during the annual security review to ensure that they comply with official IRS policy and procedure guidance and appropriate security measures for protect the information needed to set up pre-authorized direct debits. The IRS also plans to update its Policy and Procedures Guide and PDC Operations Guide and conduct reviews to ensure collection agencies are protecting themselves against the potential disclosure of taxpayer information.
The Partnership for Tax Compliance, an industry lobby group representing private collection agencies, highlighted several of the successes described in the report.
“TIGTA’s latest semi-annual report highlights key successes of the IRS Private Debt Collections (PDC) program,” the group said. “This program, in which the IRS partners with private collection agencies (PCAs), has significantly expanded the IRS’ customer service capability and provides taxpayers with personalized and flexible payment plans that allow them to repay the tax debt over time.
To date, the PDC program has supported taxpayers in their efforts to meet their tax obligations, resulting in the direct collection of nearly half a billion dollars in underpaid taxes that the previously believed to be irrecoverable. Fifty percent of that revenue directly bolsters the U.S. Treasury, while an additional 25 percent enabled the IRS to hire, train, and retain 383 new collections-focused employees through the IRS Special Compliance Personnel program. (SCP). This department funded by the IRS’ PDC program collected $218 million in additional outstanding tax revenue.
In addition to highlighting the financial successes of the PDC program, TIGTA also highlights the exemplary performance of the PCAs, with program quality and customer satisfaction scores averaging consistently 99% and 93%, respectively. Ultimately, the TIGTA report makes it clear that the PDC program is a success – for taxpayers, the IRS and the federal government.
Eric Hylton, commissioner of the IRS’ Small Business and Self-Employed Division, also responded to the report and said the IRS would take steps to protect taxpayer information. “We make protecting sensitive information and protecting taxpayers from fraud a priority,” he wrote. “While there are safeguards in place to protect against the misuse of this information, we will review the procedures for acquiring banking information in relation to pre-authorized direct debit payments to determine if changes are warranted. . We will also update our procedures for quality reviewers to monitor to ensure that background phone noise cannot be heard to further protect taxpayer information.
