The IRS' private debt collection program.

Author:Schreiber, Gerard H.
Position:From The Tax Adviser

Sec. 6306 requires the Treasury secretary to enter into qualified tax collection contracts with private collection agencies (PCAs) to collect "outstanding inactive tax receivables," and during 2017 the IRS selected four PCAs to participate in the program. Under the statute, a tax receivable means any outstanding assessment included in the "potentially collectible inventory." Eligible receivables for the program meet one of the following criteria:

* The IRS has removed the receivable from the list of collectible inventory at any time after assessment due to either a lack of resources or the inability to locate the taxpayer;

* The tax receivable has not been assigned for collection to any IRS employee, and more than one-third of the applicable statute-of-limitation period has passed; or

* There has been no contact between the IRS and the taxpayer or a representative for more than 365 days with respect to collecting the tax receivable (Sec. 6306(c)(2)(A)).

Thus, the IRS must make an assessment pursuant to its assessment authority under Sec. 6201 or be seeking payment from the taxpayer for an amount due on a previously filed tax return before the account is assigned to a PCA. However, the IRS cannot assign certain accounts, including those of taxpayers who are victims of identity theft, currently under examination, or subject to a pending or active offer in compromise or an installment agreement.


The weaknesses of the private debt collection (PDC) program are the limited payment options the PCA can administer for the IRS, and the use of third parties in tax collection processes. Because of the limited payment options PCAs can offer, the program creates the conditions for taxpayers to enter into payment agreements with PCAs that are less generous than they would receive from the IRS. If the taxpayer is unable to pay the full amount owed, then the guidelines require the PCA to offer the taxpayer an installment agreement for the full payment of the tax due. The term of the agreement can be for a period of up to five years. If the five-year term is insufficient time for the taxpayer to pay, then the PCA is to obtain the taxpayer's relevant financial information and provide this information to the IRS for consideration of further action on the account.


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