2018 - MSP #19: Private Debt Collection

MSP #19: Private Debt Collection

The IRS’s Expanding Private Debt Collection Program Continues to Burden Taxpayers Who Are Likely Experiencing Economic Hardship While Inactive PCA Inventory Accumulates.

TAS Recommendations and IRS Responses

TAS RECOMMENDATION #19-1

Exclude from assignment to PCAs the debts of taxpayers whose incomes are at or below their allowable living expenses.

IRS RESPONSE TO RECOMMENDATION: Congress defined the debts that must be collected under qualified tax collection contracts in Internal Revenue Code (Code) section 6306(c) and those that may not be collected under such contracts in Code section 6306(d). The law does not exclude taxpayers whose incomes are at or below allowable living expenses. Therefore, the IRS will not implement this exclusion. There are procedures in place for PCAs to return accounts where the taxpayer states they are unable to pay.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate recognizes that the IRS is required to outsource the collection of some tax debt. Internal Revenue Code (IRC) § 6306 specifies the accounts that are required to be assigned to private collection agencies, and also provides for some exclusions. The IRS states that it does not have the statutory authority to exclude from the program taxpayers whose incomes are below their ALEs, yet it already excludes taxpayers whose accounts are in Currently Not Collectible (CNC) status and proposes to exclude those who are SSDI recipients, categories of taxpayers that are not among the statutory exclusions. Thus, it appears the IRS could exclude other categories of taxpayers from the PDC program but declines to do so, despite data that show how the program burdens taxpayers who are likely in economic hardship.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

TAS RECOMMENDATION #19-2

Work with the Social Security Administration to identify recipients of Social Security Disability Insurance and Supplemental Security Income and exclude those taxpayers’ debts from assignment to PCAs.

IRS RESPONSE TO RECOMMENDATION: The IRS only receives SSDI benefit information via Form 1099-SSA. In January 2019, a Unified Work Request was submitted to our IT function to allow us to identify and systemically exclude SSDI recipients from PCA inventory. SSI is not reported to the IRS and the Social Security Administration (SSA) has indicated they cannot provide such information. The IRS has provided PCAs with guidelines for returning cases where a taxpayer receives income from SSI or SSDI payments.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate applauds the IRS for honoring its 2017 commitment to exclude SSDI taxpayers from the PDC program. The SSA is able to identify SSI recipients, and TAS is willing to assist the IRS in entering into a data sharing agreement with the SSA to obtain that information.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

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

TAS RECOMMENDATION #19-3

Revise PDC procedures to require IRS review of all PCA cases in which the taxpayer made more than one payment that did not fully pay the liability and was not made pursuant to an IA, to determine whether the PCA requested more than one payment from a taxpayer who can make payments, but cannot fully pay the liability within the Collection Statute Expiration Date (CSED) and if so:

a. Recall the case from the PCA;
b. Impose a penalty on the PCA for requesting more than one such payment without returning the case to the IRS; and
c. Assign an IRS employee to work the case.

IRS RESPONSE TO RECOMMENDATION: As the result of a TIGTA audit of the program, the IRS has agreed to revise its policy regarding PCA account retention. The new policy will include criteria as to when the PCAs should return cases and include a specific retention period when a taxpayer is not in a current payment arrangement. In addition, taxpayers will be allowed to make payments outside of a structured payment arrangement within the retention period, which will replace the policy on making only one voluntary payment.

Update: The procedures in the Private Collection Agency (PCA) Policy and Procedure Guide (PPG) were updated to allow the taxpayers the opportunity to make payments outside of a formal payment arrangement to reduce his/her tax liability for up to one year while waiting for his/her financial situation to improve. If the taxpayer is unable to enter into a formal payment arrangement within one year of the initial discussion with the PCA, the account will be returned to the IRS. In addition, if the taxpayer is unable to establish a formal payment arrangement and does not believe his/her financial situation will improve within one year, the PCA will discuss alternative collection resolutions and return the account to the IRS as appropriate. The revised procedures were included in the PPG revision dated August 30, 2019.

CORRECTIVE ACTION: The IRS has agreed to revise its policy regarding PCA account retention. The new policy will include criteria as to when the PCAs should return cases and include a specific retention period when a taxpayer is not in a current payment arrangement. In addition, taxpayers will be allowed to make payments outside of a structured payment arrangement within the retention period, which will replace the policy on making only one voluntary payment.

TAS RESPONSE: The National Taxpayer Advocate welcomes a revision in the IRS’s policy regarding PCA account retention, depending on details, such as the length of the retention period. However, she remains concerned about allowing PCAs to solicit payments that do not resolve the liability. She also remains concerned about the IRS’s current practice of not working cases that are returned by PCAs.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

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

TAS RECOMMENDATION #19-4

Revise PDC procedures to:

a. Require PCAs to return to the IRS cases in which the taxpayer entered into an installment agreement but made no payments for 120 days thereafter; and
b. Assign an IRS employee to work the case.

IRS RESPONSE TO RECOMMENDATION: As with Recommendation #19-3, the IRS has agreed to revise its policy regarding PCA account retention, as the result of a TIGTA audit of the program. The new policy will include criteria as to when the PCAs should return cases and include a specific retention period when a taxpayer is not in a current payment arrangement. In addition, taxpayers will be allowed to make payments outside of a structured payment arrangement within the retention period, which will replace the policy on making only one voluntary payment.

Update: The procedures in the Private Collection Agency (PCA) Policy and Procedure Guide (PPG) were updated to include procedures for the PCAs to return accounts to the IRS when the taxpayer misses three consecutive monthly payments, is unable to establish a new payment arrangement, and does not believe his/her financial situation will improve within one year. The revised procedures were included in the PPG revision dated August 30, 2019. When the PCA returns a case back to the IRS, regardless of any payments made, the account is returned to the previous status (shelved). Subsequent activities on the account will then be handled per IRS business rules.

CORRECTIVE ACTION: The IRS has agreed to revise its policy regarding PCA account retention, as the result of a TIGTA audit of the program. The new policy will include criteria as to when the PCAs should return cases and include a specific retention period when a taxpayer is not in a current payment arrangement. In addition, taxpayers will be allowed to make payments outside of a structured payment arrangement within the retention period, which will replace the policy on making only one voluntary payment.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

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

TAS RECOMMENDATION #19-5

Revise PDC procedures to require PCAs to return to the IRS cases in which the taxpayer did not enter into an IA and did not make any payments within six months of assignment to the PCA.

IRS RESPONSE TO RECOMMENDATION: As above, the IRS has agreed to revise its policy regarding PCA account retention, as the result of a TIGTA audit of the program. The new policy will include criteria as to when the PCAs should return cases and include a specific retention period when a taxpayer is not in a current payment arrangement. In addition, taxpayers will be allowed to make payments outside of a structured payment arrangement within the retention period, which will replace the policy on making only one voluntary payment.

Update: The procedures in the Private Collection Agency (PCA) Policy and Procedure Guide (PPG) were updated to require the PCAs to return accounts to the IRS when the taxpayer is unable to enter into a formal payment arrangement within one year of the initial discussion with the PCA. The revised procedures were included in the PPG revision dated August 30, 2019.

CORRECTIVE ACTION: The National Taxpayer Advocate welcomes a revision in the IRS’s policy regarding PCA account retention, depending on details, such as the length of the retention period. However, she remains concerned about allowing PCAs to solicit payments that do not resolve the liability. She also remains concerned about the IRS’s current practice of not working cases that are returned by PCAs.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

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