The IRS handed private collectors $36.8 billion. It barely came back.
Summary
A 2015 law revived a private tax-debt-collection program the IRS had already cancelled twice before for underperforming. A February 2024 GAO report and a December 2022 Treasury Inspector General audit, examining different facets of the same program, both found the same shape: private collectors recovered under 3 cents of every dollar of debt they were assigned, IRS cancelled payment plans for nearly 15,000 taxpayers when it switched contractors and refused to waive the resulting penalties, and thousands of taxpayers -- including over 14,000 whose incomes fell below the poverty-linked threshold Congress set specifically to protect them -- were left assigned to private collectors months or years after the law said they shouldn't have been. IRS agreed to fix the oversight gaps GAO flagged. It disagreed with fixing the specific recommendations to recall those improperly assigned low-income and identity-theft-flagged taxpayers, while agreeing with most of the Inspector General's other recommendations.
A program born from failure, repeating it
The had already tried outsourcing tax-debt collection twice before, between 1995 and 2010, and cancelled both attempts -- in part because costs exceeded what was collected, in part because staff could do the work more cost-effectively itself. Congress mandated a third attempt anyway, in the 2015 FAST Act, requiring to hand inactive debts to private collection agencies paid on commission. The 2019 Taxpayer First Act layered on new protections: taxpayers whose income doesn't exceed 200 percent of the poverty line, or whose income comes mostly from Social Security disability benefits, are supposed to be excluded entirely. keeps up to 25 percent of what collectors recover for its own Special Compliance Personnel Program Fund -- money that, unlike the private commissions, stays inside the agency.
View data as table
| Total dollar value of tax debt assigned | 36,815,325,732 |
|---|---|
| Total collected by private collection agencies | 1,091,052,823 |
's own 2018 audit had already flagged the core problem: private collectors were recovering about 1 percent of assigned accounts, against a 9.9 percent national average for delinquent debt -- a comparison rejected as unfair without offering an alternative. Little has changed since. Across all four contractors in the program's first contract, collection rates ranged narrowly from 2.84 to 3.09 percent. After paying $202 million in contractor commissions and other costs, the program still netted the about $720.8 million -- money real, but a rounding error against the $36.8 billion handed over. Meanwhile 's own cut of the proceeds, the Special Compliance Fund, grew to more than $160 million by fiscal year 2022 with no goals for how large it should get or how the money should be spent.
When IRS switched contractors, taxpayers paid the price
Renewing the collection contract in 2021 came with its own cost to taxpayers. stopped assigning any new accounts to collectors for nearly nine months during the negotiation, and calculated that roughly 200,000 accounts could have gone back into collection ten weeks sooner than they did, once a losing bidder's contract protest was resolved. Worse, when two contractors lost their bids, cancelled every payment arrangement those companies had set up -- 34,070 modules covering 14,883 taxpayers, about $108 million in debt, some dating to tax year 2005. Those taxpayers had to restart the process with the directly, potentially paying new setup fees and accruing fresh penalties and interest for a disruption they didn't cause.
View data as table
| Resolved (installment agreement, offer in compromise, or paid) | 7,259 |
|---|---|
| Shelved (lowest-priority, not actively worked) | 14,969 |
| Other still-pending status (notice stream, queue, collection system, other) | 7,288 |
recommended abate the penalties and interest that piled up during that gap, since its own rules allow abatement when a delay traces to 's own error. refused, asserting -- without further explanation when pressed for one -- that it lacked legal authority to do so. A year after the terminations, about 21,000 of the 34,070 affected modules, 62 percent, still hadn't been resolved into a new payment plan or paid off; half of all the affected debt had simply been shelved as low-priority inventory isn't actively working.
The taxpayers Congress said were off-limits
The Taxpayer First Act's low-income exclusion was supposed to keep the program's most vulnerable targets out of it entirely. checked, and found 14,141 taxpayers whose incomes fell under the threshold after the protection took effect but whose accounts sat with collectors anyway as of March 2022. 's defense: the protection doesn't apply retroactively to accounts assigned before the law's effective date, even if the taxpayer's income now qualifies as low. calls that a misreading of a statute that says such a debt "shall not be eligible for collection" -- full stop, with no carve-out for when the account was first assigned. disagreed with the recommendation to fix it.
View data as table
| Low-income (added to Low Income table after Jan. 1, 2021, not recalled) | 14,141 |
|---|---|
| State Income Tax Levy Program levy recipients | 326 |
| Receiving SSDI on/after Jan. 1, 2021 (delayed recall) | 271 |
| Potential identity-theft indicators | 44 |
The low-income gap wasn't the only one. found 271 taxpayers receiving Social Security disability benefits -- another explicitly excluded category -- who stayed assigned to collectors for months after they should have been recalled, some until June 2022. It found 326 taxpayers hit with a state tax-refund levy who should have gotten a 90-day hold to preserve their appeal rights but didn't, purely because of when their levy payment happened to post relative to their PCA assignment. And it found 44 taxpayers with unresolved potential identity-theft flags on their accounts -- meaning the debt being collected might not even be theirs -- still assigned to private collectors while that question sat open.
Nobody is measuring whether this is fair
's review, running alongside 's, found the deeper problem: doesn't track whether the PDC program treats taxpayers equitably at all. Treasury's 2021 Equity Action Plan and 's own strategic plan both commit to evaluating whether enforcement programs produce disparate outcomes across demographic groups -- but officials told they follow the legal case-assignment rules and don't otherwise consider equity in administering this program. Roughly 1.6 million taxpayers are excluded from PDC for legally required reasons, and the only thing most of them get is a once-a-year mailed notice full of boilerplate -- including passport-revocation warnings that only apply to debts of $62,000 or more, far above what a program built around $5,000 average balances is actually collecting. 's four new recommendations -- set fund goals, define equity standards, measure against them, and send excluded taxpayers information that's actually about their case -- got a full agreement from . agreed with most of 's recommendations too, but not the ones to recall the low-income and identity-theft-flagged taxpayers who are, right now, still wrongly assigned.
The takeaway
- A program Congress had to revive twice after cancelling it for underperforming is still underperforming. Private collectors recovered 2.96 percent of the $36.8 billion in tax debt assigned to them through 2021 -- less than a third of the 9.9 percent national benchmark itself won't accept as a fair comparison, without proposing a better one.
- Switching contractors cost taxpayers who had nothing to do with the switch. Nearly 15,000 people with active payment plans had them cancelled outright; 62 percent of that debt remained unresolved a year later, and refused to waive the penalties and interest that accrued because of its own decision to terminate those arrangements.
- Every legally protected category checked had taxpayers who shouldn't have been there. More than 14,000 low-income taxpayers, hundreds receiving disability benefits, hundreds with pending tax levies, and dozens with unresolved identity-theft claims were all found assigned to private collectors in violation of exclusions Congress wrote into law -- and on the largest of those gaps, disagrees it has to fix it.
Systemic findings on the Private Debt Collection program's design, taxpayer demographics, Special Compliance Fund management, and equity gaps are from -24-106140, 'Private Debt Collection Program: Could Improve Results and Better Promote Equitable Outcomes for Taxpayers' (February 6, 2024), read directly and in full. Operational findings -- collection rates by contractor, terminated payment arrangements, improperly assigned protected taxpayers, call-quality metrics, and background-check gaps -- are from Treasury Inspector General for Tax Administration Report No. 2023-30-005, 'Fiscal Year 2023 Biannual Independent Assessment of Private Collection Agency Performance' (December 27, 2022), also read directly and in full. 's report cites 's $36.8 billion and $1.1 billion program-to-date figures directly; beyond that shared baseline, the two reports examine different aspects of the same program and were not cross-referenced by their authors, so no other figure from one report is presented as confirming a figure in the other.
Sources(2) ▾
- U.S. Government Accountability Office, Private Debt Collection Program: IRS Could Improve Results and Better Promote Equitable Outcomes for Taxpayers (2024-02-06) — -24-106140, a report to the Ranking Member (Rep. Richard Neal), Committee on Ways and Means, House of Representatives. Read in full directly from the PDF via the Wayback mirror (direct gao.gov blocked scripted fetches). gao.gov · original document
- Treasury Inspector General for Tax Administration, Fiscal Year 2023 Biannual Independent Assessment of Private Collection Agency Performance (2022-12-27) — Report No. 2023-30-005 (Audit #202230006), mirrored on oversight.gov. Read in full directly from the PDF (HTTP 200, no archive mirror needed). oversight.gov · original document
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Since fiscal year 2017, the has assigned over 4 million tax-debt cases worth $36.8 billion to private collection agencies under its Private Debt Collection (PDC) program -- and recovered 2.96 percent of it, according to a December 2022 Treasury Inspector General audit⧉ cited in a February 2024 GAO report⧉. When the switched contractors in 2021, it cancelled active payment arrangements for 14,883 taxpayers -- $108 million in debt -- and refused to waive the penalties and interest its own timing caused. And despite a 2019 law specifically exempting low-income taxpayers from private collection, the Inspector General found 14,141 of them still assigned to collectors as of March 2022, a gap disputes it's obligated to fix.