In my October 14 blog, The IRS and Private Collection Agencies: Four Contracts Lapsed and Three New Ones Are in Place: What Does That Mean for Taxpayers?, I noted that the IRS’s contracts with two private collection agencies (PCAs) had expired, which prompted the IRS to recall 1.2 million accounts that had been assigned to those companies (Performant and Pioneer). I also reported that taxpayers who had entered into payment arrangements with these two PCAs were sent letters from the PCAs (but not from the IRS) informing them that the payment arrangements were terminated. I advised taxpayers, among other things, to contact the IRS to resolve their tax debts, to be aware that their accounts could be assigned to one of three other PCAs in the future, and of their right to work with the IRS rather than with a PCA. Approximately 17,000 taxpayers had informal payment arrangements with a PCA whose contract was terminated.
Since publication of the blog, the IRS has finalized steps to address the uncertainty the termination of these agreements has created. In this follow-up blog, we are reporting what the IRS agreed to do for these taxpayers.
How Does the IRS Intend to Mitigate the Harm to Taxpayers?
I am happy to report the IRS has confirmed the steps it will take to try to get taxpayers back into a payment arrangement that mirrors the informal agreement they entered into with the PCA. In November, the IRS will send each of these taxpayers a letter, which will include a designated phone number they can call, staffed by IRS employees who can assist them. The IRS has agreed to:
- Notify taxpayers that the PCA returned their account to the IRS and that their payment arrangement with the PCA is no longer in effect.
- Allow taxpayers to enter into an installment agreement (IA) with the IRS on the same terms they had with the PCA without having to provide financial data. The letter sent to taxpayers with terminated agreements will include Form 9465, Installment Agreement Request, for those who wish to correspond in writing, and directions for taxpayers who want to resolve their accounts via the Online Payment Agreement Application. Taxpayers may, however, be eligible for an IA that provides better terms than the payment agreement with the PCA, such as a partial pay installment agreement under IRC § 6159.
- Refrain from filing a new notice of federal tax lien if taxpayers opt to enter into an IA with the IRS.
- Delay imposing certain automated levies, including levies pursuant to the Federal Payment Levy Program, for four months.
- Explore its options for reducing the penalty that accrues at a higher rate during the gap in time between the cancellation of the PCA payment arrangement and the establishment of the IRS IA. (Given the age of these debts, and the 25 percent cap on this penalty, it’s not clear how many taxpayers would benefit from this reduction; however, we strongly recommend the IRS reduce the failure to pay penalty for these taxpayers as was the arrangement permitted while the taxpayers had an active payment agreement with the PCA. While in a payment agreement with the PCA, the IRS administratively reduced the .5 percent per month failure to pay penalty to .25 percent per month similar to a penalty reduction under IRC § 6651(h) applicable to IAs made with the IRS).
- Allow taxpayers who do not want to enter into an IA with the IRS to request another type of account resolution such as a determination that the debt be placed in currently not collectible status, or an offer in compromise (in which case they may be asked for additional financial information, and a notice of federal tax lien may be required).
- Inform taxpayers that if they do not contact the IRS, or if their account remains unresolved, the case will remain in collection status, and if required by statute it will be reassigned to another private collection agency at some point in the future, while penalties and interest continue to accrue.
But the IRS Needs to Do More
When taxpayers enter into an IA with the IRS, they are subject to user fees, although fee waivers are available under IRC § 6159. Most notably, a waiver of the fee is available for taxpayers whose incomes are below 250 percent of the federal poverty level and meet other criteria. In contrast to IAs with the IRS, taxpayers do not pay a user fee when they enter into a payment arrangement with a PCA. As of this writing, the IRS cannot commit to reducing or eliminating the IA user fee for taxpayers whose PCA payment arrangements have been terminated (other than as required by statute or Treasury regulations) and who enter into an IA with the IRS. This is because the IRS does not have the authority to waive collection of the fees for IAs. Under Office of Management and Budget (OMB) guidance, the IRS can submit to OMB a request for a waiver if the Agency head determines that a waiver would be justified. However, there is no requirement for the exception to be granted.
Moreover, as welcome as the IRS’s letter to the 17,000 taxpayers who had payment arrangements is, the IRS is not planning to send a letter to the remaining taxpayers whose accounts were recalled because the contracts with the PCAs expired. At a minimum, the IRS should advise these taxpayers that their accounts have been recalled. These taxpayers should also be reminded that they can enter into an IA or seek collection alternatives with the IRS, informed of the benefits of working with the IRS, and warned of the possible consequences of not taking steps to resolve their liabilities. If required by statute, taxpayers’ accounts will be reassigned to a new PCA. The IRS will then issue a letter informing them of the assignment or will be issuing the Annual Reminder Notice.
Recommendations to Avert This Problem the Next Time a Contract With a PCA Expires
TAS and the IRS are discussing establishing internal procedures to create steps to lessen the burden on taxpayers from future contractual changes that are out of their control, including:
- Ensuring that upon expiration of PCA contracts in the future, payment arrangements taxpayers entered into with the PCAs will continue uninterrupted;
- Pursuing an OMB waiver of the user fee for taxpayers who enter into IAs with the IRS after the termination of their PCA payment arrangement; and
- Not imposing levies on taxpayers with informal agreements when their accounts are returned to the IRS.
Ideally, the IRS should have announced its plan of action for these terminated agreements prior to the expiration of the two lapsed contracts by timely informing affected taxpayers of their options. However, albeit a little late, I welcome the IRS’s efforts to make these taxpayers whole, and I appreciate the IRS’s willingness to continue to work with my office to protect the rights of all taxpayers.