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1 1 (February 10, 2023)

handle is hein.crs/govekob0001 and id is 1 raw text is: Congression I Research Service Informing 1h legislative debatesince 1914 0 Updated February 10, 2023 The Internal Revenue Service's Private Tax Debt Collection Program For the third time in its history, the Internal Revenue Service (IRS) is managing a program to collect certain delinquent individual income tax debt using private debt collection agencies (PCAs). Section 32102 of the Fixing America's Surface Transportation (FAST) Act (P.L. 114- 94) directed the IRS to revive the private tax debt collection program it operated from 2006 to 2009, with several changes. IRS's Previous Experiences with Private Debt Collectors Before the FAST Act, the IRS twice used PCAs to collect delinquent income tax debt. In both cases, the agency sought the authority to establish and manage the programs, which Congress granted. 1996 to 1997 The first experience was a pilot program known as the Contracting Out Collection Agencies Project. It was funded under the Treasury, Postal Service, and General Government Appropriations Act, 1996 (P.L. 104-52). Although the project was authorized to last two years, the IRS shut it down after one year, citing disappointing results and opposition from Congress and the Clinton Administration. According a 1997 assessment of the program by the (then-named) General Accounting Office (GAO), the five PCAs hired for the program collected $3.1 million in delinquent taxes from October 1996 to January 1997, but the total cost for the program (i.e., the fees paid to the PCAs, the project's opportunity cost, and its design, start-up, and administration expenses) during that period was $21.1 million, nearly seven times larger than the revenue gain. 2006 to 2009 The second experience was more ambitious in scope. It resulted from the creation of Internal Revenue Code (IRC) Section 6306 by the American Jobs Creation Act of 2004 (AJCA; P.L. 108-357). The provision authorized the IRS to enter into contracts with qualified PCAs to collect delinquent individual income tax debt that the IRS was not pursuing because of a lack of resources. The Treasury Department had asked Congress in its FY2004 budget request for statutory authority to hire PCAs for this purpose. IRC Section 6306 required the IRS to use PCAs in a manner that protected taxpayer rights, prevented the use of abusive collection practices, and complied with federal regulations and laws governing the outsourcing of activities deemed inherently governmental, such as tax collection. In addition, the provision specified that the IRS could use PCAs for two purposes only: (1) to locate and contact individuals with overdue income tax liabilities who were not contesting the amount owed, and (2) to arrange for the payment of back taxes. Payments went into a revolving fund. The IRS was allowed to use up to 25% of the money in the fund to compensate PCAs for their services, and another 25% of the money to fund its enforcement activities. In early 2005, the IRS began a PCA program based on the guidelines laid down in IRC Section 6306. After a series of court challenges to the IRS's initial solicitation of bids for collection contracts, the agency signed one-year contracts with three PCAs in March 2006. Collection activities commenced in September 2006. In February 2007, the IRS extended the contracts with two of the companies through March 2008, and a second time through March 2009. The IRS notified the two contractors in February 2007 that it was evaluating the cost-effectiveness of the collection program and would let them know by March 6 whether their contracts would be extended for another year. The study found that between the first quarter of FY2004 and the first quarter of FY2009, the cost to the IRS of designing, implementing, and managing the collection program totaled $82.9 million, which was $0.4 million more than the $82.5 million in gross revenue the PCAs collected. A subsequent IRS analysis found that the program had produced a net loss of $4.5 million. On March 5, 2009, the IRS informed the two remaining PCAs that their contracts would not be extended (IR-2009- 019). Then-IRS Commissioner Doug Shulman cited three reasons for terminating the program. First, the total cost of the private tax debt collection program (including start-up expenses going back to FY2004 but excluding opportunity costs) exceeded the revenue it collected. Second, as a 2009 study by the IRS and an independent reviewer showed, IRS employees were more cost-effective than PCAs in handling the same inventory of delinquent tax cases. Third, the collection work was best done by IRS employees who had more flexibility in resolving cases, especially those involving taxpayers with financial difficulties. FAST Act and the Third Private Tax Debt Collection Prograrm The FAST Act required the IRS to revive the 2006-2009 PCA program, but with a few changes. According to a Joint Committee on Taxation revenue estimate, the new program was expected to collect $2.4 billion in delinquent individual income tax debt from FY2016 to FY2025.

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