TIGTA: 14,000 taxpayers improperly subject to private collection agencies

The Treasury Inspector General for Tax Administration (TIGTA) called on the IRS to withdraw over 14,000 low-income taxpayers from being subject to private collection agencies (PCAs), a recommendation the IRS disputed.

“If the IRS does not recall the 14,141 low-income taxpayers from PCA inventory, it is potentially burdening these taxpayers by PCA attempts to collect on debts that are not legally collectible by the PCAs under I.R.C. § 6306(d)(3)(F),” TIGTA’s audit report says.

The report, titled Fiscal Year 2023 Biannual Independent Assessment of Private Collection Agency Performance, is dated Dec. 27, 2022.

TIGTA’s assertion is based on the timing of the Taxpayer First Act, P.L. 116-25, which was signed into law on July 1, 2019, and became effective on Jan. 1, 2021.

That law was preceded by the 2015 Fixing America’s Surface Transportation Act, P.L. 114-94, which required the IRS to use PCAs to collect inactive tax receivables from taxpayers. When the Taxpayer First Act was signed into law, changes to the use of PCAs included language to protect some low-income taxpayers from PCA debt collectors. These taxpayers included those whose income substantially consists of Social Security Disability Insurance benefits or Supplemental Security Income benefits along with those with adjusted gross income (AGI) that does not exceed 200% of the applicable poverty level.

In its audit report, TIGTA said it found 14,141 taxpayers whose accounts should be recalled from PCAs. IRS management disagreed, saying the recall process does not apply in those cases because they were assigned before the effective date of the Taxpayer First Act.

“Although these taxpayers were assigned to the PCAs prior to the Taxpayer First Act provision taking effect, they should be removed from PCA inventory because their AGI from the most recent return identifies them as low income,” TIGTA’s audit report says.

The IRS “is not following the plain letter of the law which provides that ‘a tax receivable shall not be eligible for collection … if the adjusted gross income of the taxpayer does not exceed 200 percent of the applicable poverty level,'” TIGTA said.

The audit report specifically recommends that the IRS Director, Collection, Small Business/Self-Employed Division, should “ensure that programming is in place to recall accounts of taxpayers who reflect income beneath the legal amount required for PCA assignment but whose accounts were assigned prior to January 1, 2021.”

The biannual assessment of PCA performance recommended 12 changes, including the one involving PCAs and low-income taxpayers. The IRS disagreed with three other recommendations and agreed with eight.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.