ACA International Statement in Support of IRS Private Collection Contracts

Jenifer Loon, Director of Government Affairs for ACA International, the Association of Credit and Collection Professionals, today issued the following statement regarding the commencement of Internal Revenue Service (IRS) contracts with private collection agencies (PCAs):

“The commencement of the IRS partnership with private collection agencies will help our voluntary tax system work more fairly and efficiently, by providing the federal government with effective new resources to collect delinquent taxes.

Taxpayers deserve a tax system that, above all, is fair. The net tax gap now stands at $300 billion. This gap equates to a cost of $2,000 per year for each American citizen who, through voluntarily compliance, pays their taxes just to cover the costs of those owing unpaid tax debts.

It is not fair when only 25 percent of tax delinquents who neglect to file a return are contacted by the IRS. This means that approximately 7.4 million people who may owe federal income taxes never hear from the IRS about it.

Collection agencies achieve results because highly trained collectors, supported by sophisticated technology, actively, professionally and respectfully work with people one-on-one to determine their individual financial ability to pay what they owe. This methodology and expertise is fundamentally different than those used by the IRS.

Taxpayers will be dealt with in a straightforward and courteous manner and will retain all of their rights as established by the Internal Revenue Code, including access to the IRS Taxpayer Advocate Service.

This program will not replace a single IRS worker, and will be a very cost effective way to collect on the selected accounts referred. According to IRS estimates, PCAs will generate $4.60 in revenue per every dollar in costs as compared to $4.10 for IRS collectors. The goal of the project is to provide the IRS the flexibility it needs to handle the $300 billion tax gap, utilizing professional collection agencies to help reduce delinquent balances. PCA contracts can be adjusted to control staffing needs much more easily than hiring internally. The program will also benefit IRS employees by allowing them to focus their considerable expertise and resources on the more difficult cases.

Private collection agencies are proud of our past service to the U.S. government and the more than 40 states that currently use PCAs for tax collection. Congress and the IRS have placed their trust in our industry and we will continue to earn that trust. We are committed to the highest standards of consumer data protection and professional conduct. Private collection agencies will follow all IRS rules as well as the Fair Debt Collection Practices Act, Fair Credit Reporting Act and all other applicable federal and state collection and privacy regulations.

Based on Bureau of Labor Statistics data, the private debt collection industry was responsible for 426,700 jobs with a payroll of $15 billion in 2005. Our industry has played a vital role in our economy by recovering past-due accounts for U.S. companies and government agencies at the local, state and federal levels. The $39 billion returned to businesses last year by the collection industry benefited consumers by holding down price increases, saving each American household $351 in 2005. Collectors will continue to make a positive impact as they help the IRS reduce the tax gap and restore fairness to the tax system.”

Below is a fact sheet on this issue based primarily on Government Accountability Office (GAO) reports; U.S. Department of Treasury reports and testimony; and official IRS documents.

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The IRS and Private Collection Agencies

Last Updated on 9/08/06

THE GROWING TAX GAP

— The American Jobs Creation Act of 2004 authorized the Internal Revenue Service (IRS) to contract with private collection agencies (PCAs) to collect against an estimated $300 billion in delinquent taxes.

— The IRS faces a rapidly widening “tax gap” between what is owed and what is collected. As the backlog of work continues to grow, 60 percent of identified tax debt cases go untouched. This includes 75 percent of taxpayers who neglect to file a tax return and 56 percent of taxpayers with income of $100,000 or more who underreport their tax obligation. (Source: Senate Finance Committee Hearing on the Nomination of Samuel W. Bodman as Deputy Secretary of the Treasury, Feb. 10, 2004, p.15.)

— In 2003 alone, the IRS opted not to pursue 2.25 million cases, costing the government $14.1 billion in individual income tax revenue and $2.3 billion in corporate tax revenue. (Source: “IRS Opting Not to Go After Many Scofflaws,” Washington Post, March 20, 2004.)

— The amount of money the IRS left on the table in 2003 could have fully covered NASA’s 2004 budget, the government’s international aid programs or the budgets of the Commerce and Interior Departments combined. (Source: “IRS Opting Not to Go After Many Scofflaws,” Washington Post, March 20, 2004.)

AN ISSUE OF TAXPAYER FAIRNESS

— Congress and the IRS have grown concerned that the IRS’ inability to collect known unpaid taxes might be affecting taxpayers’ confidence in the fairness of our tax system and voluntary compliance. Because of potential revenue loss and the threat to future voluntary compliance by taxpayers, the General Accounting Office designated collection of unpaid taxes as a “high-risk area” for the federal government. (Source: U.S. General Accounting Office, Financial Audit: IRS’s Fiscal Years 2003 and 2002 Financial Statements, GAO-04-216, Nov. 13, 2003.)

— Former Deputy Treasury Secretary Samuel W. Bodman has stated, “Fundamental fairness requires that? we (the United States) have an effective program to collect outstanding tax liabilities. We owe that much to the millions of Americans who do their best to pay their fair share. (Source: Bodman’s written testimony to the Senate Finance Committee, March 1, 2004.)

PARTNERING WITH THE PROFESSIONAL COLLECTION INDUSTRY: A GOOD DEAL FOR TAXPAYERS AND THE IRS

— Many taxpayers with outstanding tax liabilities would make payment if simply contacted by telephone, and if necessary, offered the ability to pay the full amount in installments. By allowing private collections agencies (PCAs) to perform these ancillary tasks, the IRS can focus its resources on more complex cases. (Source: Department of the Treasury report: “General Explanations of the Administration’s Fiscal Year 2004 Revenue Proposals,” p. 98, February 2003.)

— The PCA program will be a cost effective way to begin to address the enormous number of delinquent tax accounts. According to a report by the Treasury Inspector General for Tax Administration, the fully loaded overhead costs of providing 5,800 new IRS collection agents with benefits, pensions, training, computers, desks, supplies and the supervisory and support staff for new agents would be about 29 percent of the additional revenue the agents would bring in. Under the PCA contract, private firms will cost the IRS only 21-24 percent of what they recover. (Source: TIGTA report 2006-30-055, “Trends in Compliance Activities Through Fiscal Year 2005, March 2006.)

— Specifically on the accounts to be referred to PCAs, the IRS estimates that PCAs would generate $4.60 in revenue for every dollar in cost (net after fees paid to PCAs), as compared to $4.10 by IRS collectors. The use of PCAs reflects greater cost efficiency on the selected accounts referred and improves the efficiency of the IRS on the accounts it retains by allowing the agency to focus resources where they are needed most (Source: U.S. General Accounting Office, Tax Debt Collection, GAO-04-492, May 2004, p. 16-17).

— For decades, PCAs have partnered with government agencies at the local, state and federal level to professionally and efficiently recover past due government debts. PCAs work with 43 states to collect past due taxes. In 2004 alone, PCAs under contract with the Department of Education, Department of Health and Human Services and the Treasury had referrals of $18.3 billion. The PCA program has worked so well for these federal agencies that IRS officials proposed they be allowed the same opportunity to utilize the private debt collection sector.

PRIVACY AND TAXPAYER RIGHTS PROTECTED

— PCAs collecting federal tax debt will follow IRS rules as well as the Fair Debt Collection Practices Act, Fair Credit Reporting Act and all other applicable federal and state collection and privacy regulations. Taxpayers contacted by PCAs will retain all the rights established by the Internal Revenue Code, including access to the IRS Taxpayer Advocate Service. (Source: IRS Request for Quotation no. TIRNO-05-Q-00187, p. I- 26.)

— When the IRS refers an unpaid tax debt to a PCA for collection, the IRS will notify the taxpayer via U.S. mail only (not via the internet) and enclose a new IRS publication “What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.” The IRS mailing will also provide the taxpayer with the PCA’s name, address and telephone number, and will address frequently asked questions on the private debt collection process. Additionally, the mailing will explain that a taxpayer may request in writing to work with the IRS instead of with a PCA to resolve the outstanding debt. Finally, all payment will be made payable to U.S. Department of Treasury, not the PCA (Source: IRS Announcement 2006-63)

— If taxpayers object to working with a private collection agency for any reason, they need only request that their case be referred back to the IRS. (Source: National Taxpayer Advocate 2005 Annual Report to Congress, p. 80.)

— The IRS expects the PCA initiative will increase taxpayer satisfaction by 12.5 percent. (Source: U.S. General Accounting Office, Tax Debt Collection, GAO-04-492, May 2004, p. 25.)

— PCAs will only have access to limited information concerning the uncollected tax debt including: taxpayer’s name and social security number, the taxpayer’s last known address, the tax year and amount of the assigned debt. Additionally, PCA employees are not permitted to call or write any third party, such as the taxpayer’s employer, bank, or neighbors, to ask about the taxpayer’s financial condition (Source: IRS Announcement 2006-63).

— The location of all tax information documents and any products made there from, will be logged and tracked at all times and all data will be destroyed at the end of the project (Source: IRS Request for Quotation no. TIRNO-05-Q-00187)

— All contractor employees who have access to the IRS taxpayer information shall be required to undergo a federal government-conducted background investigation prior to beginning work on the project. (Source: IRS Request for Quotation no. TIRNO-05-Q-00187, p. I-17.)

— PCA employees also undergo extensive training on the importance of security, privacy, and confidentiality of taxpayer information. Before any access to confidential tax information is granted, PCA employees must complete all IRS-required training, including training on the Privacy Act of 1974. PCAs are required to certify the initial training and annual update training for the life of their contract with the IRS (Source: IRS Fact Sheet, March 18, 2006)

— The IRS will conduct a competitive biding process in the selection of private collection agencies. Each contractor’s work will be evaluated not only on the amount of debt recovered, but also on their sensitivity and responsiveness to taxpayers. (Source: IRS Request for Quotation no. TIRNO-05-Q-00187, Attachment 1.)

— All work under the private collection initiative will be performed within the United States. (Source: IRS Request for Quotation no. TIRNO-05-Q-00187, p. I-2.)

— PCAs shall not base employee compensation in whole or in part on dollars collected. IRS compliance reviews will include review of employee compensation methodologies to ensure dollars collected are not being used as a factor for determining PCA employee compensation. (Source: IRS Request for Quotation no. TIRNO-05-Q-00187, p. I-45.)