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MSP #12: PRIVATE DEBT COLLECTION (PDC)

The IRS Is Implementing a PDC Program in a Manner That Is Arguably Inconsistent With the Law and That Unnecessarily Burdens Taxpayers, Especially Those Experiencing Economic Hardship

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #12-1

Revise the Policy and Procedure Guide (PPG) to allow Private Collection Agencies (PCAs) to offer IAs of up to five years — rather than for the period that remains on the collection statute expiration date — to comply with the law.

IRS RESPONSE TO RECOMMENDATION: The IRS revised the Private Collection Agency Policy and Procedures Guide (PPG) to permit the PCA to set up and monitor a payment arrangement with terms of five years. Payment arrangements with terms of five to seven years require technical analyst approval to set up and monitor.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate appreciates that the IRS is seeking to accommodate her insistence that the PDC program operate in compliance with the law. However, she does not find any statutory authority for the IRS’s current position that PCAs may, with the approval of an IRS technical analyst, set up and monitor payment arrangements in excess of five years, or receive commissions on payments made under those circumstances. She believes these actions fall outside of the authority granted to PCAs under the law.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #12-2

Revise the Policy and Procedure Guide (PPG) to clarify that Private Collection Agencies (PCAs) are not authorized to monitor installment agreements (IAs) arranged by the IRS or TAS, and are not entitled to commissions on payments taxpayers make pursuant to those IAs.

IRS RESPONSE TO RECOMMENDATION: PCAs are not authorized to monitor IAs arranged by the IRS or TAS. When a taxpayer establishes an IA with the IRS or TAS, the case is recalled and returned to the IRS.  The commission description is detailed in the Request for Quote (RFQ).

CORRECTIVE ACTION: N/A

TAS RESPONSE: As noted above, the National Taxpayer Advocate acknowledges that the IRS will no longer allow open TAS cases to be sent to, or remain with, PCAs. However, the IRS permits PCAs to organize payment arrangements in excess of five years if they obtain approval from the IRS and to receive commissions on the ensuing payments. Thus, PCAs will receive commissions on installment agreements that require the IRS’s involvement to organize. As noted above, whether or not these procedures could be permitted by contract, they are not authorized by IRC § 6306. Because it appears the IRS has not issued a new or revised contract, any actions and payments are unauthorized and unlawful. Moreover, the IRS response does not indicate, and it is not clear, that the IRS will be able to determine the extent to which PCAs fail to seek IRS approval of payment arrangements that exceed five years.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #12-3

Revise the Policy and Procedure Guide (PPG) to remove the option of soliciting voluntary payments that do not satisfy the liability and are not made pursuant to an IA in order to comply with the law.

IRS RESPONSE TO RECOMMENDATION: PCA will make one attempt to secure a voluntary payment, as described in section 10.2.1 of the PPG, which states “If the taxpayer cannot full pay, within 120 days or with a payment arrangement, the PCA will make one attempt to verbally secure a voluntary payment. Taxpayers will be verbally advised that a voluntary payment will not suspend the further accrual of interest or penalties the taxpayer may owe on the unpaid balance due.  The PCA will make one verbal request to secure a voluntary payment when the taxpayer cannot resolve their account by either full payment or with a payment arrangement. A voluntary payment will only be requested verbally to ensure it does not have the implication of a payment arrangement. The PCA will document the attempt to secure a voluntary payment in the record of account. After making the one attempt to secure a voluntary payment, the PCA will initiate the return of the account back to the IRS. The PCA will not attempt to secure a voluntary payment when the taxpayer expresses they are unable to pay. Instead, the PCA will initiate the return of the case to the IRS.”

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased that the Commissioner decided that PCAs will be allowed to request only one voluntary payment. It is not clear, however, that the IRS will be able to determine the extent to which PCAs actually solicit more than one voluntary payment, and the IRS response does not indicate that the IRS is planning any actions to ensure that PCAs solicit only one voluntary payment. Additionally, the National Taxpayer Advocate reiterates that she does not see any authority under IRC § 6306 for the PCAs to request even one voluntary payment.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #12-4

Revise the Policy and Procedure Guide (PPG) to provide that Private Collection Agencies (PCAs) must refer taxpayers to TAS where the taxpayer so requests, where payment of the balance due immediately or through a payment arrangement would create a significant hardship, including long term or adverse impact, where the taxpayer is unable to pay necessary living expenses, or where the taxpayer is experiencing systemic burden in resolving his or her issue.

IRS RESPONSE TO RECOMMENDATION: The PCA is required to inform the taxpayer of the purpose and existence of TAS in their initial contact letter. The PCA will refer taxpayers to TAS when the taxpayer requests assistance from TAS.

CORRECTIVE ACTION: N/A

TAS RESPONSE: This is another example of an area in which taxpayers whose debts are assigned to PCAs are further penalized. IRS employees, who have no financial incentive to put taxpayers in installment agreements, can consider collection alternatives in light of taxpayers’ financial information. Where it appears the taxpayer is experiencing significant hardship, the IRS employees are required to refer the taxpayer to TAS the taxpayer is not required to ask to be referred to TAS. If the IRS were interested in restoring similarity in treatment between taxpayers whose debts are assigned to PCAs and other taxpayers, it would require PCA employees to proactively consider whether the taxpayer is likely facing economic hardship and should therefore be referred to TAS. Treating taxpayers differently in this respect is not mandated by IRC § 6306. On the contrary, the IRS’s approach violates taxpayers’ right to a fair and just tax system, which specifically includes the right “to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty.” The March 2016 version of the PPG required PCA employees to refer cases to TAS not only when the taxpayer states that he or she is experiencing economic hardship, but also when the PCA employee identifies that condition. Over TAS’s objections, the IRS removed that provision from later versions of the PPG.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #12-5

Assign a Master File code to open TAS cases and systemically prevent open TAS cases from being assigned to Private Collection Agencies (PCAs).

IRS RESPONSE TO RECOMMENDATION: The IRS and the NTA have agreed that TAS will input a transaction code on all open cases in the TAS’s inventory to prevent assignment to a PCA.  If the taxpayer’s case is assigned to a PCA and the taxpayer contacts TAS, TAS will input a transaction code to recall the case from the PCA.  TAS also will reverse the code upon completion of its actions.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased that open TAS cases will not be included in PCA inventory and interprets this recommendation as having been adopted by the IRS.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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6.

TAS RECOMMENDATION #12-6

Recall cases from Private Collection Agencies (PCAs) when taxpayers request assistance from TAS and TAS opens a case.

IRS RESPONSE TO RECOMMENDATION: The IRS and the NTA have agreed that if the taxpayer’s case is assigned to a PCA and the taxpayer contacts TAS, TAS will input a transaction code to recall the case from the PCA.  TAS will reverse the code upon completion of its actions.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate is pleased that the IRS adopted this recommendation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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7.

TAS RECOMMENDATION #12-7

Implement the necessary programming as soon as possible to remove recipients of SSDI or SSI payments from the population of accounts that are eligible for assignment to Private Collection Agencies (PCAs).

IRS RESPONSE TO RECOMMENDATION: The PCA will return the account to IRS when the taxpayer informs they are a recipient of SSI/SSDI.  Additional research is being conducted to determine if a systemic process can be put in place.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As noted above, the National Taxpayer Advocate is pleased that the Commissioner decided the debts of SSDI or SSI recipients should not be assigned to PCAs. TAS interprets the IRS’s statement that “additional research is being conducted” as an Action Planned or Underway in Response to Recommendation 12-7. TAS is available to assist the IRS as it conducts additional research to determine how these debts can be systemically excluded from assignment to PCAs. In the meantime, TAS will gather data on the number of these debts that are assigned to PCAs and  the number returned to the IRS by PCAs for this reason.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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8.

TAS RECOMMENDATION #12-8

Adopt an interpretation of “potentially collectible inventory” that excludes the accounts of taxpayers whose SSA and RRB retirement benefits are not subject to FPLP levies because their incomes are less than 250 percent of the federal poverty level and develop a filter to identify those who appear to have significant assets.

IRS RESPONSE TO RECOMMENDATION: Section 6306(d) lists certain tax receivables that are not eligible for collection by a PCA. Taxpayers receiving Social Security Administration (SSA) and Railroad Retirement Board (RRB) retirement benefits are not listed as legislative exclusions. The PCA will return the case to the IRS if collection is unsuccessful. The account is then returned to the inactive shelved status it was in prior to PCA assignment. Additionally, the PCA offers zero threat of enforcement action, such as a lien or levy. To improve PCA collection efforts and minimize returned cases, the feasibility of filtering accounts based on collection potential is being discussed. The policy decisions to permit the PCA to attempt collection and return the account when all reasonable efforts are exhausted are outlined in the PPG Section 14.2.

CORRECTIVE ACTION: N/A

TAS RESPONSE: IRC § 6306 requires the assignment of “potentially collectible inventory,” a term that is not defined in the statute, Treasury regulations, or other relevant guidance. The IRS has already determined that debts in CNC-Hardship status are not required to be assigned to PCAs. The Commissioner decided that the debts of SSDI and SSI recipients will also not be assigned to PCAs. That the PCA may return cases to the IRS does not mitigate the inappropriateness of subjecting these vulnerable taxpayers to PCA contact in the first place. It is disappointing that the IRS is considering filtering accounts, not to avoid harming vulnerable taxpayers who, as TAS studies have shown, enter into installment agreements they cannot actually afford, but to enhance the PCAs’ likelihood of success. The IRS’s stated objection to affording the same treatment to debts of this group of taxpayers — SSA retirement and RRB recipients whose incomes are less than 250 percent of the federal poverty level — is that the IRS cannot easily determine that these taxpayers do not have substantial assets that would nevertheless allow them to pay the tax debt. The National Taxpayer Advocate is perplexed by this reasoning: if these taxpayers have substantial assets, then the IRS should still not assign these debts to a PCA. The IRS should use its collection alternatives like offers in compromise and partial pay installment agreements, and, in the appropriate instances, its enforcement powers such as liens and levies, to address those assets to pay the tax debt, thus avoiding paying a commission to a PCA. In any event, the IRS’s response overlooks the fact that the Commissioner decided that these taxpayers’ debts could be assigned to PCAs for the first six months of the program to allow the IRS time to explore how to screen for SSA recipients with incomes below 250 percent of the federal poverty level who also have substantial assets. The IRS should have included this commitment as an Action Planned or Underway in Response to Recommendation 12-8.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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9.

TAS RECOMMENDATION #12-9

Revise the contract with PCAs to require PCAs to disclose all materials that impact taxpayers’ contacts with Private Collection Agencies (PCAs), including operational plans, training materials, instructions to staff, the content and format of taxpayer letters, and calling scripts.

IRS RESPONSE TO RECOMMENDATION: Contract revisions are not required to disclose materials that impact taxpayer contacts. The following deliverables were provided by the PCAs and reviewed by TAS and other stakeholders: operating plans, quality review plans, training plans, letters and calling scripts. The task orders outline the specific deliverables and performance requirements in the Performance Work Statement and PCA Policy and Procedures Guide that are reviewed and approved by the Contracting Officer Representative (COR) and the PDC Project Office.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS has indeed shared materials submitted by PCAs with TAS. Regrettably, the IRS often rejected TAS’s suggested changes to those materials. Moreover, at least one PCA’s training materials referenced and contained links to job aids that were not provided. When TAS requested the material, the IRS responded that the contract with the PCAs does not require the job aids to be provided, and they would not be requested or reviewed by the IRS. Thus, the IRS has abdicated its responsibility to oversee how these PCA employees are being instructed to collect federal tax debts.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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10.

TAS RECOMMENDATION #12-10

Include in required training for all Private Collection Agency (PCA) employees the National Taxpayer Advocate’s taped training on taxpayer rights.

IRS RESPONSE TO RECOMMENDATION: PCA representatives received TAS training discs at the PCA Engagement Conference in January 2017. NTA’s recorded training highlighted elements of the Taxpayer’s Bill of Rights relating to PDC. The discs were provided for consideration in the PCA’s employee training sessions.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS response simply reiterates that the National Taxpayer Advocate’s video on the Taxpayer Bill of Rights is not mandatory training for all PCA employees without giving any rationale for this position. In the absence of requiring this training, it is difficult to understand how the IRC § 7803(a) requirement that the Commissioner ensure that IRS employees are familiar with and act in accord with taxpayer rights, and the provision in the IRS’s contracts with PCAs that imposes the same requirement on PCA employees, is being satisfied. The National Taxpayer Advocate posted this training on the TAS website so all taxpayers can see how she wanted PCA employees to be instructed in protecting the rights of U.S. taxpayers. The training is available on the IRS website at: https://www.irsvideos.gov/Individual/Resources/NTAMessageToPCAContractors-TaxpayerBillOfRights

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

11
11.

TAS RECOMMENDATION #12-11

Send taxpayers whose accounts will be assigned to Private Collection Agencies (PCAs) the IRS initial contact letter at least 14 days before transferring their accounts to PCAs and do not pay commissions to PCAs on any payments received after the initial IRS contact letter is sent and before the first PCA contact with the taxpayer.

IRS RESPONSE TO RECOMMENDATION: The IRS initial contact letter is mailed seven days prior to PCA assignment. The PCA is not permitted to mail their initial contact letter to the taxpayer during the first 10 calendar days following the PCA’s receipt of a new or subsequent case/module. The timing of the letters was established to allow the taxpayer time to receive both letters and to have a level of confidence when authenticating the PCA when phone contact is made. Initial contact guidelines are outlined in the PPG section below.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS response does not explain how waiting for 14 days after the IRS letter is sent before assigning the case to PCAs is inconsistent with its stated objective of allowing taxpayers time to receive both letters. The response does make clear that the timing of the letters was not established with the objective of identifying taxpayer payments made in response to a letter from the IRS, rather than from the PCA. By better identifying payments made in response to the IRS letter, the IRS could avoid paying commissions on payments that were inspired by the IRS notice and not by any PCA contact, thus protecting the public fisc, but it has chosen to forego this opportunity, thereby harming all U.S. taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

12
12.

TAS RECOMMENDATION #12-12

Designate a group of Collection employees to work to completion cases that are recalled from Private Collection Agencies (PCAs).

IRS RESPONSE TO RECOMMENDATION: When a case is recalled, the account is returned to the inactive shelved status it was in prior to PCA assignment. The recalled accounts that are returned to inactive shelved status will be worked per current prescribed policy and as IRS resources permit.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS response does not explain how waiting for 14 days after the IRS letter is sent before assigning the case to PCAs is inconsistent with its stated objective of allowing taxpayers time to receive both letters. The response does make clear that the timing of the letters was not established with the objective of identifying taxpayer payments made in response to a letter from the IRS, rather than from the PCA. By better identifying payments made in response to the IRS letter, the IRS could avoid paying commissions on payments that were inspired by the IRS notice and not by any PCA contact, thus protecting the public fisc, but it has chosen to forego this opportunity, thereby harming all U.S. taxpayers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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