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1 1 (December 12, 2018)

handle is hein.crs/govxzb0001 and id is 1 raw text is: Cogesoa Resarc Servic Updated December 12, 2018 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 hire private debt collection agencies (PCAs) to collect delinquent individual income taxes. Section 32102 of the Fixing America's Surface Transportation (FAST) Act (P.L. 114-94) requires the IRS to revive the private tax debt collection program it managed from 2006 to 2009, with several notable changes. IRS's Previous Experiences with Private Debt Collectors Before the enactment of the FAST Act, the IRS twice experimented with the use of PCAs to collect delinquent individual income tax debt. In both cases, the agency sought the authority to establish and manage the programs, and Congress granted it. 1996 to 1997 The first experiment was a pilot program (known as the Contracting Out Collection Agencies Project) that was created by the Treasury, Postal Service, and General Government Appropriations Act, 1996 (P.L. 104-52). Although the project was authorized to last two fiscal years, the IRS ended it after one year, owing to disappointing results and mounting opposition from Congress and the Clinton Administration. According to the findings of a 1997 assessment of the program by the (then-named) General Accounting Office, the five PCAs hired for the project had collected $3.1 million in delinquent taxes through January 1997, whereas 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 the same period was $21.1 million, or nearly seven times greater than the revenue gain. 2006 to 2009 The second experiment was more ambitious in design and scope. It resulted from the addition of Section 6306 to the federal tax code by the American Jobs Creation Act of 2004 (AJCA; P.L. 108-357). Section 6306 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 the statutory authority to hire PCAs for this purpose. Under the act, the IRS was required to use PCAs in a manner that protected taxpayer rights, prevented the use of abusive collection practices, and was consistent with federal regulations and laws governing the outsourcing of activities deemed inherently governmental, such as tax collection. In addition, the IRS could use PCAs for two purposes only: (1) to locate and contact individuals with overdue income tax liabilities who are not contesting the amount owed, and (2) to arrange for the payment of the back taxes. Payments went into a revolving fund established under the AJCA. The IRS could use up to 25% of the money in the fund to compensate the 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 Section 6306. After several 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 the following September. In February 2007, the IRS extended the contracts with two of the companies through March 2008; the contracts were further extended through March 2009. In February 2009, the IRS notified the two contractors 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 total cost to the IRS of designing, implementing, and managing the collection program was $82.9 million, or $0.4 million more than the $82.5 million in gross revenue collected by the PCAs in that period. A subsequent IRS analysis found that the program produced a net loss of $4.5 million. By contrast, the Joint Committee on Taxation (JCT) estimated in 2004 that the program (as specified in the AJCA) would raise $1.36 billion over 10 years, including $621 million between FY2005 and FY2009. 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 have more flexibility in handling cases, especially those involving taxpayers facing financial difficulties. https://crsreports.congress go 0

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