IRS initiative for private debt collection.

• Author: Yuskewich, J. Matthew

The American Jobs Creation Act of 2004 (AJCA), Section 881 (a)(1), created Sec. 6306, permitting private collection agencies (PCAs) to collect Federal tax debts. On Nov. 2, 2005, at the AICPA National CPA/IRS Tax Issues Meeting in Washington, DC, the IRS announced it expects to award the first three contracts for private debt collection in February 2006 and begin implementation in June 2006. The IRS will enter into "qualified tax collection contracts" (QTCCs) (as defined in Sec. 6306(b)) with PCAs that will locate and contact taxpayers owing outstanding tax liabilities and arrange payment from them.

For there to be an outstanding tax liability, there must first be an assessment under Sec. 6201. The new legislation generally allows PCAs to collect any type of tax imposed under the Code. It is anticipated, however, that implementation will focus on taxpayers who have (1) filed a return showing a balance due, but failed to pay it in full; and (2) been assessed additional tax by the IRS and made several voluntary payments toward satisfying their obligation, but have not paid in full.

Collection Process

According to the AJCA Conference Report, in the first step in the collection process, the PCA contacts the taxpayer by letter; see Conf. Rep't No. 108-755, 108th Cong., 2d Sess. (2004). If the taxpayer's last known address is incorrect, the PCA will search for a correct one. Next, the PCA will call the taxpayer to request full payment. The PCA cannot accept payment directly; rather, payments have to be processed by IRS employees. If taxpayers cannot pay in full immediately, the PCA will offer them an installment agreement providing for full payment of the taxes over as much as five years. If the taxpayer is unable to pay the outstanding tax liability in full over five years, the PCA will obtain financial information from the taxpayer and provide it to the IRS for further processing and action.

Taxpayer protection: Use of subcontractors by PCAs will be limited. Subcontractors will not be allowed to contact taxpayers, provide quality assurance services or compose collection notices. These provisions will lessen the burden on the Service employees charged with oversight activities. Also, taxpayers are further protected, because direct contact with taxpayers and access to taxpayer-sensitive information will be afforded only to PCAs that have accepted all the obligations imposed by the contracts.

There are several specific procedural conditions under...