The National Taxpayer Advocate (NTA) Nina Olson has recently voiced concerns about the IRS’s private debt collection program, including that private collection agencies (PCAs) are routinely setting up installment agreements for periods that exceed the statutory maximum and aren’t gathering taxpayers’ financial information to determine whether a financial hardship exists.
As described by Ms. Olson, IRS’s current program doesn’t restrict the activities of PCAs to the above-described statutory terms. Under procedures described in IRS’s PCA Policy and Procedures Guide, PCAs will first solicit full payment of the debt upon contacting taxpayers, but if that is not forthcoming, the PCA will propose an installment agreement which can be for as long as seven years. Although agreements exceeding five years require approval from an IRS technical analyst, this practice is in contrast to the 5-year maximum in Code Sec. 6306(b)(1)(B). And, the NTA asserts that IRS is allowing PCAs to monitor these 6- or 7-year installment agreements and to receive commissions on payments taxpayers make pursuant to those agreements, which is not authorized by Code Sec. 6306, which contemplates that commissions are to be received only for the 5-year maximum term of an agreement.
The NTA also questions IRS’s interpretation of Code Sec. 6306(c)(2)(B), which defines a “tax receivable” as “any outstanding assessment which the Internal Revenue Service includes in potentially collectible inventory”. The phrase “potentially collectible inventory” isn’t defined in the statute, suggesting that IRS has some discretion to decide which debts fall within that category—which it has done, including liabilities designated as currently not collectible due to the economic hardship of the taxpayer.
Finally, the NTA said that she believes IRS is misinterpreting Code Sec. 6306 by not requiring PCAs to solicit financial information from taxpayers, as they are supposed to do under Code Sec. 6306(b)(1)(C). That means PCAs will not collect financial information that could be shared with IRS to determine whether a taxpayer can pay the debt and still pay for basic living expenses. The NTA described the calling scripts for one of the PCAs as instructing the employee to give the taxpayer suggestions on how to come up with funds to pay their debt, such as borrowing from a retirement plan or taking out a second mortgage on a home. While IRS might make similar suggestions, IRS employees first gather financial information which reveals when a taxpayer is in economic hardship, and unlike PCAs, IRS has no financial incentive to ignore indications of financial hardship. PCAs do not gather this information, and their incentive structure doesn’t encourage them to look for economic hardship.