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.
WEAKNESSES OF THE PROGRAM
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.
PCAs cannot ask taxpayers for payments on prepaid debit cards or for payments to be sent to the PCA. Rather, PCAs should provide instructions consistent with those provided at irs.gov/payments, and all payments should be payable to the U.S. Treasury and sent directly to the IRS. The Treasury Inspector General for Tax Administration (TIGTA) has established a hotline (1-800-366-4484) for complaints about PCAs.
REPRESENTING PDC TARGETS
Taxpayers who regularly engage a practitioner are unlikely to become a target of the PDC program, but unrepresented taxpayers may pursue professional representation when contacted by a PCA. Tax practitioners can provide a valuable service to these clients by exploring the full array of options for settling their debts. For many clients, this exploration will begin with a referral of the account back to the IRS, as the Service can administer offers in compromise or partial-pay installment agreements or can suspend collection procedures by classifying the account as "currently not collectible — hardship status."
However, a referral to the IRS can be challenging. Practitioners may have difficulty obtaining IRS CAF unit approval for their Form 2848, Power of Attorney and Declaration of Representative. Many taxpayers assigned to PCAs have not been required to file tax returns for several years or may have married, divorced, or changed addresses since the last filed return. If the taxpayer's name and address on Form 2848 do not match IRS records, the CAF unit will not accept the new Form 2848. Calling the IRS Practitioner Priority Service line with the taxpayer present may streamline the process.
For a detailed discussion of the issues in this area, see "D.C. Currents: Navigating the Private Debt Collection Program" in the January 2019 issue of The Tax Adviser.
— Gerard H. Schreiber Jr., CPA; Kristine R. Wolbach, CPA; and Marilyn Young, CPA, Ph.D.
The Tax Adviser is the AICPA's monthly journal of tax planning, trends, and techniques.
Also in the January issue:
- A discussion of how to resolve federal tax liabilities.
- An analysis of the proposed GILTI regulations.
- A look at the substantial-authority standard.
AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section membership includes a one-year subscription to the The Tax Adviser.
