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IRS hiring more staff thanks to tax money brought in by private collection agents

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In one tax world case, it does appear that the third time really is a charm.

A recent Internal Revenue Service report says that its latest use of private bill collectors to bring in old unpaid taxes is working.

In fact, this latest iteration has produced enough additional money to allow the IRS to hire new in-house employees.

Third time's a collection charm: The use of private collection agencies, or PCAs as they are known in tax acronymese, was restarted in 2017 after being mandated as part of a 2015 transportation law.

It's the third attempt after two previous PCA efforts failed.

Those earlier programs in 1996 and 2006 were canceled because, according to IRS officials at the time, they cost taxpayers more than they collected.

This version, however, apparently is working out much better.

PCAs paying off, finally: Unlike the previous and discontinued tax PCA programs, this time the private bill collectors are making Uncle Sam and the IRS some money.

The IRS report estimates that private collection of previously unpaid taxes would bring in $114.4 million by the end of both 2019 and 2020 fiscal years. Even I don't need a calculator to figure out that's almost $229 million over the two fiscal calendars.

It confirms March data about the financial success of this version of the PCA program.

Back then, IRS data showed that the program had already brought in $41.9 million in the first quarter of fiscal 2019. That was more than half of the $82.2 million it collected in all of fiscal 2018.

PCA financing new IRS hires: Even better this time, says the IRS report to the Senate Finance Committee and released by that panel's chairman Sen. Chuck Grassley (R-Iowa), the PCAs' success will allow Uncle Sam's tax collector to increase its official ranks.

Specifically, noted the report:

The IRS hired 100 SCP employees between September 30 and November 26, 2018, to work automated collection system cases in the Philadelphia Service Center. With continued success of the Private Debt Collection (PDC) Program, the IRS plans to hire an additional 100 SCP employees at the start of fiscal year 2020 with the projected retained earnings and available funds in the SCP Program Fund Account.

SCP are IRS employees serving as field function collection officers or in a similar position, as well as those who are tasked with collecting taxes using the IRS' automated collection system.

The money for the new hires comes from the PCA law's payout system to the IRS. The tax agency gets to keep up to 25 percent of commissionable dollars collected by PCAs to fund the SCP program.

Based on the latest PCA revenue estimates, that's a total accumulated over FYs 2019-2020 of $57.2 million.

PCA champions pleased: The IRS report did not elaborate on where the new staff will be located, but that's not important to champions of the PCA program.

They're just glad this time it seems to be working, at lease from the raw dollars' perspective.

One of those ardent and longtime supporters is Grassley. This latest program shifting some old tax debts to PCAs was due in large part to his effort, along with that of Senate Minority Leader Charles Schumer (D-New York).

Three of the four private bill collection agencies approved by the IRS as participations in the current tax bill collection program are in the two Senators' states.

"Data continue to show that the Private Debt Collection program is working," said Grassley in a statement he issued in conjunction with the release of the report.

"This is the most recent in a series of reports that have given me confidence in the program's ability to make the system fairer for law-abiding citizens while also strengthening the effectiveness of the IRS," added Grassley.

At least one unhappy IRS official: While Grassley, Schumer, the Treasury Department and the IRS no doubt are pleased, at least IRS official likely has mixed feelings about the PCA report.

As National Taxpayer Advocate Nina E. Olson, who is winding down her more than 18-year tenure in that IRS watchdog post, has long opposed private tax debt collection. That job, Olson has consistently argued, is best left to trained IRS personnel.

National Taxpayer Advocate Nina Olson_House Appropriations subcommittee hearing 23May2017
National Taxpayer Advocate Nina E. Olson makes a point about private tax debt collection during a 2017 House Appropriations subcommittee hearing. (Click image to watch the official video.)

Anti-collector efforts: The hiring of PCAs was a regular on Olson's annual legislative priority and taxpayer problem lists, sometimes earning the top troublesome ranking.

Most recently, Olson expressed concern that PCAs were not bound by the same rules as IRS collection agents when it comes to dealing with financially strapped taxpayers.

In testimony before a House appropriations subcommittee, Olson told lawmakers she was worried that some owing taxpayers, at the urging of the private collectors, would enroll in installment payment plans they cannot reasonably afford.

"This problem will grow worse when PCAs, driven by the prospect of earning commissions, are allowed not only to place taxpayers into installment agreements (IAs), but also to 'restructure' IAs, all without ever gathering financial information for the IRS to consider," said Olson.

Win one against PCAs: Olson at least saw that collection concern addressed in the recently enacted Taxpayer First Bill, which include protections from PCAs for lower-income taxpayers.

Now the private collectors are banned from collecting tax from any person with adjusted gross income below 200 percent of the poverty level, which is based on the taxpayer's location and family size.

In addition, all taxpayers whose cases are assigned to PCAs would be given more time to pay under installment plans, going from five years to seven.

PCA limits on potential effectiveness: Will those installment plan limits stall PCA revenue amounts? We'll have to wait for future IRS reports to determine that.

If so, it could put the dollar-driven PCA program on somewhat shakier ground.

But until more data is collected and evaluated, as long as PCAs make money for the U.S. Treasury and the IRS, they are here to stay.

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