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IRS Violates Taxpayer Bill of Rights by Unilaterally Terminating Installment Agreements Entered into with Private Collection Agencies


I have written extensively about the IRS use of private debt collectors.  You can read a few highlights here and here and here.  By way of background, IRC § 6306 requires the IRS to “enter into one or more qualified collection contracts for the collection of all outstanding inactive tax receivables.”   An “inactive tax receivable” is a tax debt

  • that is removed from active inventory because of lack of resources or inability to locate the taxpayer;
  • that has not been assigned for collection to an IRS employee after two years from the date of assessment; or
  • that has been assigned for collection but more than one year has passed “without interaction with the taxpayer or a third party for purposes of furthering the collection of such receivable.”

There are exceptions to the required assignment, including where the taxpayer has income below 200% federal poverty level or is receiving Social Security disability or supplemental security income benefits.  Private debt collectors, under the contracts, are only allowed to locate and contact the taxpayer; ask for full payment or enter into an installment agreement (IA) for a period up to 7 years; or obtain financial information.

On September 22, 2021, the IRS announced that the four existing Private Collection Agency (PCA) contracts expired and it had issued three new contracts – two to “continuing” PCAs (CBE and ConServe) and one to a new PCA (Coast Professional).  Thus, the IRS did not continue contracting with Performant and Pioneer.  The NTA reports the immediate consequence of these contract terminations is that 1,255,541 accounts will be returned to the IRS, and Performant and Pioneer will send a letter to taxpayers who have payment agreements through these two PCAs , saying “we will no longer be collecting this debt on behalf of the IRS.”  (The NTA Blog quotes this language, so I am assuming this is the language in the letter.)

I understand why the IRS has to retrieve these taxpayer accounts from the discontinued PCAs – this is taxpayer and tax return information and with the discontinuation of the contract there is no exception under IRC § 6103 to share this information with those PCAs.  What I don’t understand is why the IRS terminated the streamlined IAs these taxpayers have entered into.  In all the years (decades) I have worked on the PCA program, at no point did anyone say that the agreement to pay was with the PCA; rather, the PCA was collecting on behalf of the IRS.  The PCA was acting as an agent of the IRS and entering into a payment arrangement by standing in the shoes of the IRS.  Thus, even if the agency relationship terminates, there is no basis for the underlying agreement to terminate.  Otherwise, there is no real agency at all if the principal can abrogate a contract just because of a substitution of agent.  Why would I, as a taxpayer, ever enter into an agreement with the agent/PCA if such were the case?   Here, the taxpayer hasn’t breached the Streamlined IA; in fact, the taxpayer has made arrangements to pay their tax debt; and now they are told, “Well, you thought your affairs were taken care of, but they aren’t.”  This is a violation of the taxpayer’s right to finality in the Taxpayer Bill of Rights and IRC § 7803(a)(3)(F).

Perhaps it is technologically difficult for the IRS to recall these accounts and then reissue them to the existing PCAs so the PCAs can continue to “service” the payment arrangements.  But that makes no sense.  In 2013, when the IRS terminated the second round of PCA usage (the first round was in the 1990s), the IRS recalled all of the accounts placed with the PCAs.  At that time it did not terminate any of the IAs that the PCAs had entered into “on behalf of the IRS.”  The IAs remained in force and the IRS continued to collect the payments.  So we know it is technologically possible for the IRS to recall accounts and continue servicing the existing IAs.

Why, then, would the IRS terminate the IAs?  Could it possibly be the IRS doesn’t want to spend any resources “servicing” these IAs?  It would rather have the PCAs do the monitoring and collect their 25% commissions and costs?  If that is the case, then maybe under IRC § 6306 the IRS needs to terminate the existing IAs in order to “assign” them to its new PCA agents.  It would be nice if the IRS would issue its legal opinion or other rationale for why this is so.  Regardless, it begs the question of why the IRS should assign a perfectly valid and performing IA to a new PCA.  Why isn’t the IRS retaining that IA and collecting the proceeds itself?  Recall that the IRS is able to retain 25% of collections by PCAs for its own “special compliance personnel;” and that PCAs can receive up to 25% of their collections for commissions and costs.  It appears the IRS would rather pocket 25% from these IAs itself, and send 25% to PCAs who had nothing to do with these IAs, than to pay over that 50% of collections to the Treasury General Fund.  The lack of an explanation for the decision to terminate the IAs is troubling, indeed, and as a taxpayers who are footing the bill for these payments, we deserve that explanation.

In fact, the NTA reports that through September 30, 2020, the IRS has assigned about $32 billion and 3.5 million accounts to PCAs since April, 2017, when the third PCA initiative began.  Since that time, PCAs have collected only 2 percent of the debt assigned to them (about $580 million).  The IRS, through its “special compliance personnel,” has collected about $345 million in non-PCA debt.  Further, the taxpayers voluntarily paid $43 million within 10 days of receiving a letter from the IRS saying their debt would be sent out to a PCA.  That is, for the price of a stamp (not 50% of the payments), the IRS collected $43 million within 10 days.  I will say this again, as I have been saying for about 20 years:  if the IRS sent monthly bills out to taxpayers like every other credit card company, revolving account, lender, insurance company, and landlord, it would regularly collect something on almost every past due account.  The IRS response to this usually is that it doesn’t have the resources to answer the phone calls that will come in response to the letters.  And my answer to that is to paraphrase former Commissioner Charles Rossotti: Why would you not pick up the phone when someone is calling to pay you money?

At any rate, since its inception the current PCA initiative has apparently collected about $969 million, or 3%, of the total $32 billion in inventory transferred to the PCAs.  Now, the IRS estimates that the gross underpayment tax gap for 2008 to 2010 was $39 billion.  A raw calculation shows PCAs are now holding 82% of the underpayment tax gap.  If we adjust for inflation, the $39 billion in gross underpayment tax gap from 2010 would be about $48.81 billion today, which means the PCAs are now holding about 65% of the underpayment tax gap inventory.  And they are only collecting 2% of that inventory.  All we have done, with the PCA program, is shift the IRS collection queue to the PCAs.  We have not reduced the collection queue in any meaningful way.

And now the IRS is burdening taxpayers who thought they had resolved their debts, including taxpayers who have entered into direct debit agreements to pay their installments.  The letter the terminated PCAs are sending out states, “…your payment arrangement and pre-authorized direct deposit payment schedule (if applicable) has ended, effective [date].  We encourage you to contact the Internal Revenue Service to resolve your account.” That assumes the taxpayer can get through to the IRS on the phone.  And, if the taxpayer does get through to the IRS and enters into the IA through the IRS, the taxpayer will be charged a user fee.  Taxpayers entering into IAs with PCAs aren’t charged a user fee.  (I don’t know how the IRS justifies that; I’d love to see the legal opinion on that one, too.)  At any rate, the taxpayer had an IA that didn’t include a user fee; the PCA/IRS cancelled it, and now to get another IA, the taxpayer has to pay a user fee.  Or, the taxpayer can wait and get sent back to a PCA.  Of course, by then additional interest and penalties accrue.

The NTA explains that if the IRS decides these recalled accounts still meet the PCA criteria, the TPs will be sent out to yet another PCA again, who will contact the taxpayer and try to get payment in full or enter into yet another installment agreement.  If I were a taxpayer who had entered into an IA with one PCA, and now I get another contact from another PCA, (1) I’d be really suspicious this was a scam; (2) I’d want to know why they couldn’t just re-enter me into the IA I had before; and (3) I’d want to know why they were creating this burden on me, since I had already entered into an IA.  Finally, the whole thing looks like the IRS doesn’t know what it is doing – contacting me to tell me the agreement is terminated and then contacting me to tell me I need to make payments and arrange another IA.

None of this bodes well for increasing trust in the IRS.

What should the IRS do to right this violation of the Taxpayer Bill of Rights?  Five things:

  1. Personally contact each of the taxpayers whose IAs through Pioneer/Performant have been terminated;
  2. Apologize profusely;
  3. Reinstate the IA and direct debit agreement (where applicable) waiving the user fee;
  4. Abate any penalty and interest that accrued between when the IA was terminated and the reinstatement; and
  5. Apologize profusely again.

Oh yes, and (6) stop treating taxpayers so cavalierly.



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