Private debt collectors recovered fraction of outstanding tax debts

Private collection agencies have recovered only about $2.4 billion in tax debt payments since April 2017 out of the $64.9 billion assigned to them by the Internal Revenue Service, according to a new report.

The report, released Thursday by the Treasury Inspector General for Tax Administration, examined the impact of the IRS’s private debt collection program. A 2015 highway transportation law known as the Fixing America’s Surface Transportation Act, or FAST Act, revived the program after the IRS had shut it down in 2009 due to claims that taxpayers were being harassed by private collection agencies and the IRS could do a more cost effective job of collecting outstanding tax debts. TIGTA found that since April 2017, the IRS has assigned the PCAs more than 7.6 million taxpayer accounts, worth more than $64.9 billion. By March 2024, the PCAs had successfully collected more than $2.4 billion in payments. 

The 2015 law requires TIGTA to conduct a biannual review of the program. On July 1, 2019, President Trump signed into law the Taxpayer First Act, which contains significant changes to the administration of the IRS’s private debt collection program, TIGTA noted. The changes included adjustments to PCA case inventory criteria intended to protect certain low-income taxpayers from being subject to PCA collections as well as an increase in the maximum length of installment agreements that private collectors can offer taxpayers. 

TIGTA reviewed 100 randomly selected telephone call recordings from Oct. 1, 2021, to Sept. 30, 2023, for all three private collection agencies under contract with the IRS, and found that assistors generally adhered to the guidelines and provided quality service to taxpayers, achieving an overall accuracy rate of 97.8%. The IRS also conducted operational reviews of the PCAs and made 45 and 88 recommendations, in fiscal years 2022 and 2023, respectively. Recommendations included revisions to and refresher training on policy and procedures and programming updates. Over 92% of the recommendations were implemented on a timely basis. 

The IRS mandates background checks for all PCA employees working on taxpayer accounts. Before their background checks are completed, the IRS can grant interim staff-like access to personally identifiable information such as a taxpayer’s name and Social Security Number provided PCA employees pass prescreening checks. TIGTA’s review found that 796 PCA employees were granted access. Of those granted access, 11 PCA employees received a Proposal to Deny Letter due to security concerns identified in their background investigation, and staff-like access should have been immediately suspended. However, TIGTA found the IRS does not readily track when interim staff-like access is suspended and whether it is immediate. These 11 PCA employees could have retained access to sensitive taxpayer information.  

TIGTA’s review of PCA incident logs identified 10 incidents that were improperly categorized and potentially violated the Fair Debt Collection Practices Act for disclosing tax debt information to unauthorized third parties. The IRS issued a procedural update in May 2024 to clarify incident reporting and categorization. 

The IRS and/or the PCAs didn’t always follow policies and procedures for handling misdirected payments, TIGTA found. In eight of the 45 misdirected payments reviewed, the IRS did not post the payment to either the taxpayer’s account or the tax year listed on Form 3210, Document Transmittal, and Form 4287, Record of Discovered Remittances.  

TIGTA made five recommendations in the report, suggesting the IRS should develop a process to confirm that PCA employee system access is suspended immediately upon the issuance of a Proposal to Deny Letter. TIGTA also recommended ongoing reviews of the private debt collection program include a review of contracting officer representative and PCA responsibilities, and establish a review process that ensures that PCA misdirected payments are properly posted to the taxpayer’s account. The IRS agreed with all five of TIGTA’s recommendations and has either taken or plans to take corrective actions. 

“We are fully committed to ensuring all contractors meet federal security and suitability standards,” wrote Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. “Initial background investigations are performed prior to the contractor working on the contract and are revalidated every five years thereafter.”