The IRS will soon begin using private collection agencies (PCA) to collect delinquent tax debts. The IRS has not yet announced a specific date, but said it will begin using PCAs as early as the spring of this year.
This is not the first time the IRS will try using PCAs. An independent study on cost effectiveness of using PCAs was conducted in 2009 that led to the IRS discontinuing use of PCAs. IRS Commissioner at the time, Doug Shulman, concluded based on the study that the IRS is more effective than the PCAs. Nevertheless, FAST Act was passed in December of 2015 and mandates the IRS to begin contracting with PCAs for help collecting on certain tax debts.
The relevant section of the FAST Act is incorporated in the Internal Revenue Code (IRC) at section 6306. The FAST Act also included in the new law which mandates the IRS to certify certain tax delinquencies to the State Department for passport revocation. You can find my blog on that topic here.
IRC Section 6306 states in part “notwithstanding any other provision of law, the Secretary shall enter into one or more qualified tax collection contracts for the collection of all outstanding inactive tax receivables.” Basically, this means the tax debts that the IRS is no longer actively trying to collect will be referred to a PCA.
What criteria will the IRS use to determine cases that will be referred to a PCA?
Three specifically designated types of cases will meet the criteria for referral:
1. At any time after assessment, the Internal Revenue Service removes a case from active inventory because of lack of
resources or inability to locate the taxpayer;
2. More than one-third of the applicable statute of limitation has lapsed and the case has not been assigned to an IRS
3. For a case assigned to an IRS employee for collection, more than 365 days have passed without interaction with the
taxpayer or a third party in furtherance of collecting delinquent tax.
There are also designated categories of cases that are not eligible for referral to a PCA:
1. A case with a pending or active offer in compromise or installment agreement;
2. A case classified as innocent spouse;
3. Deceased taxpayers;
4. Minor taxpayers;
5. Taxpayers serving in a combat zone; and
6. Victims of tax-related identity theft.
The IRS will provide the taxpayer and the taxpayer’s representative notice of assignment of the case to a PCA. The PCA will then send a second notice and begin trying to collect on the tax debt.
Who are the Private Collection Agencies?
So far, The IRS has entered in to contracts with four companies:
1. ConServe based in Fairport, New York;
2. Pioneer based in Horseheads, New York;
3. Performant Recovery based in Livermore California; and
4. CBE Group based in Cedar Falls, Iowa.
What can the private collection agencies do?
A private collection agency does not have the power of the IRS. The IRS can issue liens and levies, and summon records in its effort to collect on a delinquent tax debt. A private debt collector has none of those powers. A private debt collector must also adhere to the Fair Debt Collection Practices Act. Fair tax collection practices set forth in Internal Revenue Code section 6304 are also applicable limitations on PCAs. They can do no more than try to track down a taxpayer, send letters and make calls. They are prohibited from contacting third parties. There is no authority to file liens or issue levies. They cannot file a lawsuit to reduce a tax debt to judgment or foreclose on a tax lien. Their effectiveness rests solely in their persistence to collect a buck.
PCAs can collect financial information from a taxpayer, but only for the purpose of transmitting that information to the IRS. They can also negotiate installment agreements for agreements of less than 60 months that will result in full payment of the tax debt. However, the IRS reserves the right to approve or deny any installment agreement. According to IRS announcement 2006-63, all installment agreements on debts over $25,000 or covering a period of more than 36 months must be approved by the IRS. The IRS will likely continue following that framework.
What to do if your case is assigned to a private debt collector?
Assignment to a PCA may interfere with efforts to resolve a tax debt. In that case, a request should be made to refer the case back to the IRS in order to work out a resolution. In other cases, it may be advantageous to work with the PCA directly. A tax professional can help evaluate all available options.
There are many on-going scams targeting taxpayers and practitioners. A concern with the IRS’s use of PCAs is that it will be more difficult to distinguish between legitimate contacts and scammers. It is important to be vigilant to avoid falling victim to a tax scam. Taxpayers suspecting a scam or dealing with misconduct by a PCA employee can make a report by calling the TIGTA hotline 1-800-366-4484 or visiting the TIGTA website.