Volume 18 Issue 6 -- November/December 2006
As a tax professional you may be receiving a new and different type of tax
collection notice concerning clients for whom you have filed Powers of Attorney.
In 2004, Congress passed legislation authorizing the Internal Revenue
Service (“IRS”) to employ a new method for collection of federal tax debts.
In September 2006, about 40,000 collection accounts were turned over by the IRS
to three Private Collection Agencies (“PCAs”).
Under the new Federal system the IRS will pay the PCAs up to 24% of
whatever is collected.
In some states, such as
Congress apparently believes that the new system authorized in 2004 will
somehow be better and more protective of taxpayer rights than the efforts of the
states have been. The work of the PCAs is limited and they are prohibited from
doing many enforced collection actions such as seizing assets or garnishing
salaries. Accordingly PCAs will only
be given the “easy” cases — cases which do not require enforced
collection actions and that can be collected, if at all, based solely upon
letters and telephone calls.
Why only the “easy” cases? The restrictions placed on PCAs to protect
and safeguard taxpayers and their information and to avoid abuse will limit what
PCAs can do. PCAs cannot:
at unusual times;
or threaten to file liens, or threaten levies, garnishments or seizures;
collection actions to the IRS;
taxpayers by divulging or threatening to divulge information to credit
According to the IRS, when a case has been assigned to a PCA, the IRS will
first notify the taxpayer that the taxpayer will receive a letter from a PCA.
The IRS letter will inform the taxpayer of the name of the PCA and the
fact that the taxpayer has the right to contact Taxpayer Advisory Services, as
well as the IRS. Within 10 days of
the initial IRS letter, the taxpayer is supposed to receive a letter from the
PCA. The PCA is also supposed to
provide the taxpayer’s representative with a copy of the letter to the
If a complaint is filed with the IRS by a taxpayer, then the PCA will stop
working on the matter until the IRS decides whether there has been a sound basis
for the complaint. In some
publications, it has been represented that a collection case will be taken from
the PCA whenever requested by a taxpayer.
It appears however that this is not the case.
Upon completion of the IRS examination of the PCA, a complaint may not
result in a case being taken away from the PCA, instead it could be sent back to
the PCA if the PCA has not acted improperly.
With regard to some fast food outlets, it is often jokingly said that their
job applicants take a test and the applicants who fail the test are hired.
Something comparable to that analysis seems to be true with regard to the
PCAs used by the state of
Employees of PCAs will likely be equally vague about most aspects of a given
case. Because PCA employees cannot
be compensated based upon how much they collect, the more motivated workers
probably will not be hired by the PCAs.
The IRS is supposed to monitor the PCAs for a variety of matters, such as
employee testing, confidentiality of tax data, etc., but this seems odd, because
many IRS supervisors and employees themselves appear to lack adequate training.
Are IRS employees really equipped to monitor outside collection
The Government Accounting Office sensibly suggested that in order to
evaluate the new system the IRS should compare what the IRS might have collected
had the 24% paid to PCAs instead
been paid to the IRS. The IRS
declined to make such a comparison stating that Congress has not authorized the
IRS to receive the 24% therefore no such measurements of the effectiveness of
the new PCAs should be considered.
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
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