Popular search terms:

MSP #1: PRIVATE DEBT COLLECTION

The IRS’s Private Debt Collection Program Is Not Generating Net Revenues, Appears to Have Been Implemented Inconsistently with the Law, and Burdens Taxpayers Experiencing Economic Hardship

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #1-1

Do not pay commissions on payments taxpayers make that are the result of interaction with the IRS, rather than with PCAs.

IRS RESPONSE TO RECOMMENDATION: The contract requires commissions to be paid based on the timing of the payment. Other potential methods for calculating commissions would be more labor-intensive and require additional resources. For example, with respect to the NTA’s recommended method, it would be difficult to determine the impetus for the taxpayer making a payment (e.g., reaction to IRS Notice CP40, contact with the PCA, or an independent decision) without interviewing every taxpayer.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS can make assumptions about the impetus for payments — without interviewing the taxpayer — and already does so when the assumption benefits the IRS and the PCAs. For example, the IRS assumes that when a taxpayer makes a payment more than ten days after the IRS issues its initial contact letter, the payment was the result of PCA efforts. The payment is treated as commissionable. It is entirely possible that the letter from the IRS, rather than any action by the PCA, triggered the payment, but the IRS assumes otherwise.

The same assumption, that PCA action triggered a payment, is made even where information in IRS databases establishes that an IRS employee organized an IA for a taxpayer during a call. In this situation, the assumption that the ensuing payments are attributable to IRS action, rather than PCA action, would be robust. The IRS should use data it has to better identify payments that are not due to PCA action and should not be commissionable. Any other approach robs the public fisc of much needed revenue.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

2
2.

TAS RECOMMENDATION #1-2

Provide that the IRS will receive a credit for any improperly paid commissions, such as where a taxpayer enters into an installment agreement directly with the IRS and makes a payment before the recall of the cases is reflected on IRS databases.

IRS RESPONSE TO RECOMMENDATION: ​​A process is already in place to adjust commissions paid, when required. In the event a commission was paid and is not in keeping with the contract, an adjustment can be made to credit either the IRS or PCA, as appropriate. TAS asked the IRS to review several accounts and verify that commissions were paid correctly. The IRS conducted a complete review of the accounts provided by TAS and did not identify any situations in which commissions were paid incorrectly.

CORRECTIVE ACTION: N/A

TAS RESPONSE: If the IRS’s contract with PCAs provides for commissions on payments that taxpayers make as a result of interactions with the IRS, rather than a PCA, then the National Taxpayer Advocate has doubts about the qualification of the contract as a “qualified collection contract.” The example given in the recommendation is a situation in which commissions are being paid inappropriately. The IRS response demonstrates that the IRS has not adopted the recommendation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

3
3.

TAS RECOMMENDATION #1-3

Without waiting for collaboration from the Social Security Administration, use available IRS data to exclude the debts of SSDI recipients from assignment to PCAs.

IRS RESPONSE TO RECOMMENDATION: ​The IT system used to apply exclusion criteria when identifying potential new inventory for the PDC program is not able to access reliable data on SSDI recipients. The IRS has implemented a manual process that requires the PCA to stop collection efforts and return an account to the IRS when the taxpayer states they receive SSDI or SSI. As of January 25, 2018, the PCAs returned 2,109 accounts because the taxpayer self-reported receipt of SSDI or SSI. There are no plans to develop a systemic method to program the exclusion of SSDI recipients that is not required in the law and would require resources for IT programming.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The approach described in the IRS response is not a “process,” but a random outcome determined by whether a taxpayer, in speaking with a PCA, volunteers the information that he or she receives SSDI or SSI. The IRS has not taken action to address the concern raised by the National Taxpayer Advocate.

The IRS states that as of January 25, 2018, PCAs had returned 2,109 cases because the taxpayer was a recipient of SSDI or SSI. As discussed in the National Taxpayer Advocate’s 2019 Objectives report, as of March 29, 2018, PCAs had returned 2,663 cases because the taxpayer was a recipient of SSDI or SSI. This means that in a period of about two months (January 25-March 29, 2018), PCAs returned only 554 cases to the IRS because the taxpayer was a recipient of SSDI or SSI, an average of 277 cases per month.

As discussed in the National Taxpayer Advocate’s Objectives report, in the six-month period October 1-March 29, 2018, the IRS assigned debts of 12,107 SSDI recipients alone (i.e., not including the debts of SSI recipients), an average of 2,018 per month.

The disparity between the number of SSDI and SSI cases assigned and the number returned indicates that the current approach of relying on PCAs to learn that taxpayers receive SSDI or SSI, and then return the case, does not appear to be effective in preventing PCAs from attempting to collect from these vulnerable taxpayers.

In any event, where there are methods to systemically identify recipients of SSDI or SSI benefits, it is profoundly negligent on the part of the IRS to allow the determination of whether a case is returned to the IRS to turn on whether a taxpayer, in talking with a PCA employee, happens to mention that he or she receives SSDI or SSI benefits. SSDI and SSI recipients are among the most vulnerable taxpayers the IRS deals with. They may be fearful that challenging a PCA may result in levies on or loss of their benefits, and thus agree to amounts they cannot afford to pay. This, in fact, is what the data discussed in the 2017 Annual Report to Congress show. Moreover, it is an abdication of the IRS’s oversight responsibilities to rely on PCAs to return these taxpayers’ debts, which would require the PCA to forego a potential commission on a payment. The IRS can and should systemically prevent the debts of SSDI taxpayers from being assigned to PCAs and should work with SSA to identify the debts of taxpayers who receive SSI.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

4
4.

TAS RECOMMENDATION #1-4

Adopt a definition of “potentially collectible inventory” that does not include debts of Social Security retirement recipients whose incomes are less than 250 percent of the federal poverty level.

IRS RESPONSE TO RECOMMENDATION: ​”Potentially collectible inventory” refers to the inventory of accounts to which Collection could apply resources; it does not include accounts in payment arrangements or determined to be uncollectible by the IRS. The fact that a taxpayer receives Social Security and reports income of below a certain level is not sufficient to conclude that the account is uncollectible. Moreover, section 6306(d) does not exclude taxpayers receiving Social Security retirement from the PDC program. Nonetheless, there are protections in place for taxpayers receiving Social Security benefits who are unable to pay. Accounts the IRS has identified as “currently not collectible” are not assigned to a PCA. In addition, when a taxpayer self-identifies they are receiving SSDI or SSI, the PCA is required to return the account to the IRS. Additionally, the PCA will return any account to the IRS when the taxpayer states they are unable to pay, regardless of the reason.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS posits for the first time a definition of “potentially collectible inventory” as not including “debts determined to be uncollectible by the IRS.” Assuming this definition is correct, the IRS does not explain why, in the face of the data presented in this and other Annual Reports to Congress, it has not determined that the debts of Social Security retirement recipients whose incomes are less than 250 percent of the poverty level should be treated as uncollectible. Accordingly, we have determined the IRS has not taken action to address the National Taxpayer Advocate’s concern.

Since publication of the 2017 Annual Report to Congress, the National Taxpayer Advocate has reevaluated her assessment and now recommends that the debts of all taxpayers (not only Social Security retirement recipients) whose incomes are less than 250 percent of the federal poverty level should be excluded from referral to a PCA. On April 23, 2018, the National Taxpayer Advocate issued a Taxpayer Advocate Directive (TAD) ordering the IRS to not assign to PCAs the debt of any taxpayer whose income was less than 250 percent of the federal poverty level. The U.S. House of Representatives apparently agrees with this position. In a bipartisan vote, the House passed the Taxpayer First Act, H.R. 5444, which adopts this recommendation. With the clear bipartisan support of at least one House of Congress, the IRS could exercise its discretion to exclude taxpayers whose incomes are less than 250 percent of the federal poverty level from the PDC program and focus the program on those who can afford to pay, instead of people who, by IRS’s own definition, cannot afford to pay.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

5
5.

TAS RECOMMENDATION #1-5

Require PCA employees to actively inquire, when speaking with taxpayers, whether a proposed payment arrangement will leave the taxpayer unable to pay reasonable basic living expenses, and to return such cases to the IRS.

IRS RESPONSE TO RECOMMENDATION: ​​​The PCAs offer payment arrangements to taxpayers in a manner consistent with IRS installment agreement procedures for similarly situated taxpayers who call the IRS. As is the practice within the IRS, a taxpayer’s proposal to pay is accepted without questioning the ability to pay if the case meets certain criteria. If a taxpayer reports an inability to pay in full or through a payment arrangement, procedures are in place for the PCA to return the account to the IRS. Further inquiry into the taxpayer’s financial circumstances is not required.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Leaving aside the IRS’s and PCA’s business practice of blindly accepting payment proposals without regard to the taxpayer’s ability to pay violates the taxpayer’s right to privacy and to a fair and just tax system, PCAs do not have access to taxpayer financial information, cannot request it, and have no incentive to return a case to the IRS because of the taxpayer’s fragile financial condition. Thus, no taxpayer whose account is assigned to a PCA is “similarly situated” to a taxpayer whose debt is not assigned to a PCA. As discussed earlier in the National Taxpayer Advocate’s 2019 Objectives report, the IRS does not know how many cases PCAs return because the taxpayer is unable to pay and thus cannot determine whether procedures that require cases to be returned to the IRS are being followed. The IRS relies on taxpayers to volunteer the information that they are unable to pay. The IRS has not taken action to address the National Taxpayer Advocate’s concern.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

6
6.

TAS RECOMMENDATION #1-6

Develop procedures for including a TAS representative in the process of monitoring or reviewing phone calls between taxpayers and PCAs.

IRS RESPONSE TO RECOMMENDATION: ​The IRS will not grant access to TAS employees to listen to calls between the PCA and taxpayer. The IRS provides oversight of the PCAs’ interactions with taxpayers, contractual compliance, and adherence to policies and procedures. The IRS Campus Quality staff conducts quality reviews and the PCAs conduct their own reviews using the same quality measures. Additionally, the PDC Operations team conducts periodic operational and targeted reviews of account activities. The IRS does not find additional reviews are necessary. Overall, the PCAs are performing at a 98.5% accuracy rate. In the event a concern is raised about the treatment of a taxpayer, the issue is reviewed by the Treasury Inspector General for Tax Administration (TIGTA), which oversees the complaint process for the PDC program.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The IRS’s continuing refusal to include TAS in the process for listening to calls between taxpayers and PCAs is impeding the National Taxpayer Advocate from doing her job of ensuring the IRS treats taxpayers fairly and respects their rights. As the IRS’s responses to this Most Serious Problem demonstrate, TAS and the IRS have very different ideas about how taxpayers should be treated (for example, as discussed above, the IRS and TAS have dissimilar views on how the debts of SSDI and SSI recipients should be handled). Congress clearly intended for the National Taxpayer Advocate to exercise authority with respect to PCAs: IRC § 7811(g) provides that the National Taxpayer Advocate’s authority to issue Taxpayer Assistance Orders extends to PCAs. As discussed in the National Taxpayer Advocate’s 2019 Objectives report, taxpayers who enter into IAs while their debts are assigned to PCAs default more frequently than other taxpayers with IAs. TAS is interested in understanding the reason for this, and the PCA phone calls with taxpayers may shed light on this.

As noted above, if a taxpayer cannot immediately full pay the tax liability, the only alternative PCAs can suggest is an IA, and PCAs receive commissions on payments made pursuant to those IAs. PCAs cannot know the taxpayer’s financial circumstances without asking the taxpayer. Despite the obvious risk that PCAs will offer taxpayers IAs they cannot afford, there are no quality measures that address this risk.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

7
7.

TAS RECOMMENDATION #1-7

Develop procedures for sending letters to taxpayers soliciting payment of their past due taxes more frequently than annually.

IRS RESPONSE TO RECOMMENDATION: ​​​​Collection recently worked with the IRS’s Office of Research, Applied Analytics, and Statistics (RAAS), in conjunction with TAS Research, on a test of various letters sent in lieu of filing notices of federal tax lien. Based on preliminary results, it is not clear that additional notices would be cost-effective, particularly when not linked to clear action by the IRS. The current annual reminder notice process can result in taxpayer and practitioner confusion, particularly for those who have already worked with the IRS to have their outstanding liabilities placed in a not collectible or installment agreement status. This confusion can drive incoming correspondence, by telephone and by mail, for accounts that are not in active collection status. Additional reminder letters would run the risk of generating more taxpayer confusion and create unnecessary taxpayer burden.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As discussed in the National Taxpayer Advocate’s 2018 Purple Book, and contrary to the IRS’s assertion above, a recent IRS lien study showed that monthly collection notices generated more revenue than notices that were sent just once. Moreover, the preliminary results the IRS references above indicate that additional notices would be cost-effective in some cases. In any event, the IRS has not taken any action to address the National Taxpayer Advocate’s concern in the context of the PDC program.

According to the PDC Program Scorecard for fiscal year (FY) 2018 (through March 15, 2018), the IRS’s initial letter to taxpayers advising them their debts were being assigned to PCAs generated more than $2.5 million of payments. The National Taxpayer Advocate acknowledges that some IRS correspondence may create confusion if not drafted in light of behavioral economics research findings, or not written with the taxpayer’s perspective in mind, or not tailored to the taxpayer’s situation. TAS research studies have shown that targeted, educational letters can be effective in reducing noncompliance.

The National Taxpayer Advocate is troubled by the collection philosophy that underlies the IRS’s response. The IRS believes that more frequent reminders would confuse taxpayers. This is a problem, according to the IRS, because taxpayers would then seek clarification by contacting the IRS. Taxpayers contacting the IRS is a problem because the IRS has no interest in working with these taxpayers to resolve their liabilities, as their accounts “are not in active collection status.”

As a preliminary observation, we note that a private business that operated this way — refusing to take measures that might induce customers to inquire about their liability — would be out of business in short order. For credit card companies and other creditors the world over, monthly reminder notices are standard practice. As an agency whose Strategic Plan includes “modernizing our approach to make taxpayers’ experiences similar to the way they interact with private sector institutions,” the IRS should not be ignoring such customary collection tools.

Of even more concern is that for the IRS, it is an unwelcome development if taxpayers who owe a tax debt either call or write the IRS. The National Taxpayer Advocate’s position is that this is exactly what the IRS should be seeking — to work with taxpayers to learn about their situations and address their debts. This is the approach that supports taxpayers’ rights to privacy and to a fair and just tax system. By refusing to encourage taxpayers to contact the IRS, the IRS ignores an entire universe of debt. The IRS is also expressing the preference of diverting from public coffers up to 50 cents on each dollar the PCAs collect (by paying up to 25 percent in commissions to PCAs and retaining up to 25 percent for itself), rather than spending 43 cents overall for a letter that might bring in either a payment or a response from the taxpayer that allows the IRS to resolve the debt fully through a collection alternative.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

en English
X