**Written Statement of**

**Nina E. Olson\
National Taxpayer Advocate**

**Before the**

**Committee on Ways and Means\
U.S. House of Representatives**

**Hearing on**

**IRS Private Debt Collection Program**

**May 23, 2007**

**TABLE OF CONTENTS**

[I. Tax Collection Requires the Exercise of Discretion, and Only the
Government Is Constitutionally Permitted to Exercise that Discretion.
2](#tax-collection-requires-the-exercise-of-discretion-and-only-the-government-is-constitutionally-permitted-to-exercise-that-discretion.)

[A. The Overriding Objective of IRS Enforcement Actions Should Be to
Maximize Long-Term Tax Compliance.
2](#the-overriding-objective-of-irs-enforcement-actions-should-be-to-maximize-long-term-tax-compliance.)

[B. Under the U.S. Constitution, Tax Collection Is Considered an
Inherently Governmental Activity and Generally Cannot Be Outsourced.
2](#under-the-u.s.-constitution-tax-collection-is-considered-an-inherently-governmental-activity-and-generally-cannot-be-outsourced.)

[II. The Business Case for the PDC Program Is So Weak that the Program
May Actually Lose Money.
2](#the-business-case-for-the-pdc-program-is-so-weak-that-the-program-may-actually-lose-money.)

[A. The Amount of Revenue the PDC Program Is Projected to Raise Is
Minimal.
2](#the-amount-of-revenue-the-pdc-program-is-projected-to-raise-is-minimal.)

[B. The Opportunity Cost of Funding the PDC Program Instead of Hiring
More IRS Collection Personnel Is Enormous, Resulting in a Significant
Net Revenue Loss to the Treasury.
2](#the-opportunity-cost-of-funding-the-pdc-program-instead-of-hiring-more-irs-collection-personnel-is-enormous-resulting-in-a-significant-net-revenue-loss-to-the-treasury.)

[C. The IRS Embarked on the PDC Program without Undertaking Adequate
Studies on the Cost Efficiency of the Program
2](#the-irs-embarked-on-the-pdc-program-without-undertaking-adequate-studies-on-the-cost-efficiency-of-the-program)

[III. Despite IRS Representations to the Contrary, There Is No Such
Thing as an "Easy" Tax Collection Case, and Even by the IRS's Standards,
There Are Far Fewer Such Cases than Originally Thought.
2](#despite-irs-representations-to-the-contrary-there-is-no-such-thing-as-an-easy-tax-collection-case-and-even-by-the-irss-standards-there-are-far-fewer-such-cases-than-originally-thought.)

[A. The Absence of "Easy" Cases Has Forced the IRS to Outsource "Harder"
Cases, Which Will Prove Harder to Collect on.
2](#the-absence-of-easy-cases-has-forced-the-irs-to-outsource-harder-cases-which-will-prove-harder-to-collect-on.)

[B. Expanding Case Referral Criteria Poses Threats to the Integrity and
Fairness of Tax Collection.
2](#expanding-case-referral-criteria-poses-threats-to-the-integrity-and-fairness-of-tax-collection.)

[IV. Whereas the IRS Attempts to Provide Service to Taxpayers, PCAs Are
Compensated Primarily Based on Revenue Collection and Have Little
Incentive or Ability to Assist Taxpayers Who Have Special Needs, Who May
Not Owe the Alleged Tax Liability, or Who May Lack the Ability to Pay.
2](#whereas-the-irs-attempts-to-provide-service-to-taxpayers-pcas-are-compensated-primarily-based-on-revenue-collection-and-have-little-incentive-or-ability-to-assist-taxpayers-who-have-special-needs-who-may-not-owe-the-alleged-tax-liability-or-who-may-lack-the-ability-to-pay.)

[A. PCAs Are Unable to Meet the Diverse and Complex Needs of Taxpayers.
2](#pcas-are-unable-to-meet-the-diverse-and-complex-needs-of-taxpayers.)

[B. PCAs Utilize Psychological Techniques to Collect the Maximum Amount
from Taxpayers.
2](#pcas-utilize-psychological-techniques-to-collect-the-maximum-amount-from-taxpayers.)

[C. The PDC Procedure for Authenticating the Identity of a Taxpayer Is
Off-putting and Frightening to Some Taxpayers.
2](#the-pdc-procedure-for-authenticating-the-identity-of-a-taxpayer-is-off-putting-and-frightening-to-some-taxpayers.)

[D. PCAs Have Violated Procedures for Informing Taxpayers About Their
Right to Opt Out of the Program and About TAS.
2](#pcas-have-violated-procedures-for-informing-taxpayers-about-their-right-to-opt-out-of-the-program-and-about-tas.)

[E. PCA Employees Receive Limited Training and Experience High Turnover.
2](#pca-employees-receive-limited-training-and-experience-high-turnover.)

[V. TAS Cases Illustrate Some of the Problems Taxpayers Have
Experienced.
2](#tas-cases-illustrate-some-of-the-problems-taxpayers-have-experienced.)

[VI. The PCA Initiative Raises Concerns about the Confidentiality and
Security of Taxpayer Information.
2](#the-pca-initiative-raises-concerns-about-the-confidentiality-and-security-of-taxpayer-information.)

[A. The IRS Recently Terminated a PCA for Failing to Perform at
Appropriate Standards, Yet the PCA Is Permitted to Retain Taxpayer
Information for an Additional Two Years.
2](#the-irs-recently-terminated-a-pca-for-failing-to-perform-at-appropriate-standards-yet-the-pca-is-permitted-to-retain-taxpayer-information-for-an-additional-two-years.)

[B. PCAs Are Now Receiving Sufficient Information About Taxpayers to
Enable Identity Theft.
2](#pcas-are-now-receiving-sufficient-information-about-taxpayers-to-enable-identity-theft.)

[VII. The IRS Can Do It Better 2](#the-irs-can-do-it-better)

[VIII. Ultimately, Tax Collection Is the IRS's Responsibility.
2](#ultimately-tax-collection-is-the-irss-responsibility.)

[IX. Conclusion 2](#conclusion)

[Appendix A: Training Materials for
Pioneer](#appendix-a-training-materials-for-pioneer)

[Appendix B: Training Materials for Linebarger
Goggan](#appendix-b-training-materials-for-linebarger-goggan)

[Appendix C: Training Materials for
CBE](#appendix-c-training-materials-for-cbe)

[Appendix D: Proposed Expansion of Cases to Be Sent to
PCAs](#appendix-d-proposed-expansion-of-cases-to-be-sent-to-pcas)

[Appendix E: Analysis of PCA Cases Received in TAS to
Date](#appendix-e-analysis-of-pca-cases-received-in-tas-to-date)

Mr. Chairman, Ranking Member McCrery, and distinguished Members of the
Committee:

Thank you for inviting me to testify today about the Internal Revenue
Service's private debt collection (PDC) initiative.[^1]

Because there is so much risk to taxpayers and tax administrators
inherent in this program, I have personally devoted a large amount of my
time since the fall of 2002 to oversight of the PDC initiative. Since
2004, my office has had at least one full-time employee dedicated solely
to tracking this initiative, and for prolonged periods, as many as five
Taxpayer Advocate Service (TAS) employees have simultaneously tracked
different aspects of the program. As a result of this daily involvement,
we have concluded that the PDC initiative is a waste of the government's
valuable resources and risks much for a potential increase in tax
collection that is negligible, at best, and that in reality may be
costing the government more than it receives through this program.

In May 2003, I appeared before a Ways and Means Oversight Subcommittee
hearing and outlined my concerns about the IRS's then-proposal to
contract out the collection of certain categories of tax debt to private
collection agencies (PCAs). At that time, I was uncomfortable with the
concept, based both on my own experience representing taxpayers before
PCAs in state tax disputes and on the problems inherent in the IRS
proposal. While in 2003 I had IRS assurances that my concerns would be
addressed, as time passed and the IRS implemented the program, my
concerns multiplied, not lessened. These concerns led me to call for
repeal of the PDC authority under Internal Revenue Code (IRC) § 6306 in
my 2006 Annual Report to Congress.[^2]

Despite my opposition to the concept of outsourcing federal tax
collection, I want to acknowledge the dedication and hard work of
employees in the Department of the Treasury and the IRS in developing
and implementing this initiative. At the time the program was developed,
senior officials at the Treasury Department asked me to participate in
its development, despite my conceptual concerns, to help protect
taxpayer rights to the maximum extent possible. More recently, IRS
personnel charged with implementing the program have worked tirelessly
and in good faith to make the program work, and members of my staff have
been included in some of the implementation decisions. These employees
have given their all to make the program work, and I want to make clear
that my criticism of the program is in no way intended to be a criticism
of their work.

# Tax Collection Requires the Exercise of Discretion, and Only the Government Is Constitutionally Permitted to Exercise that Discretion.

## The Overriding Objective of IRS Enforcement Actions Should Be to Maximize Long-Term Tax Compliance.

We are in agreement, of course, that taxpayers who owe back tax debts
should be held accountable. As I outlined in my 2006 Annual Report to
Congress, however, I am concerned that the current collection strategy
of the IRS does not maximize the government's long-term collection of
revenue. The IRS's current collection strategy virtually ignores an
entire category of collection cases. In fact, the IRS's failure to work
these cases is one of the strongest rationales for utilizing private
collection agencies (PCAs). But having recognized this shortfall, we
still must ask two questions:

-   What is the right way to handle these cases?

-   What is the most cost effective way to do so?

I believe that the right approach to any collection case must address
dual goals: first, to ensure that the taxpayer is able to comply with
the tax laws, so as not to exacerbate the noncompliance; and second, to
collect the tax after taking into account the taxpayer's particular
facts and circumstances. In my view, PCAs fail at both of these goals.
On the first count, the fiduciary duty of a private company is to
maximize profits for its shareholders, which can only be achieved here
by collecting the most past-due dollars at the least expense to the
company. As the PDC initiative is structured, the objective of
maximizing current and future compliance does not fit into the business
model; PCAs are compensated solely on the basis of collecting past
debts. On the second issue, PCAs do not have the ability or the
authority to consider the taxpayer's individual circumstances. Such
consideration involves the exercise of judgment and discretion, and thus
cannot be delegated by the government to third parties.

## Under the U.S. Constitution, Tax Collection Is Considered an Inherently Governmental Activity and Generally Cannot Be Outsourced.

As early as 1819, the United States Supreme Court recognized that the
federal government's taxing power is ancillary to its sovereignty. In
*McCulloch v. Maryland*, Chief Justice Marshall stated that the power to
tax "is an incident of sovereignty, and is coextensive with that to
which it is incident."[^3] Thus, that power -- to assess and collect
taxes -- is "inherently governmental." The hallmark of an inherently
governmental function is one that requires the exercise of discretion in
interpreting and executing the law. It is a function that is recognized
as "so intimately related to the public interest as to mandate
performance by Government employees . . . ."[^4] An inherently
governmental function cannot be delegated by the government to private
parties.[^5] A ministerial function, however, may be delegated to
private parties.[^6]

Within these constitutional parameters, Congress has broad authority to
delegate such governmental powers. Such delegations must establish clear
standards that detail how and when private parties may exercise
government power. The delegating governmental body must conduct
sufficient oversight, including the establishment of procedural
safeguards, and retain sufficient control over private delegates to
ensure against arbitrary or self-serving use of government power. Under
such delegations of government authority, private parties are
essentially limited to advising the government and performing
ministerial acts. Functions involving the exercise of discretion are
reserved to the government itself.

Where the federal government seeks to delegate the collection of federal
tax debt to private parties, the activities must be limited to those
that do not involve the exercise of discretion. The federal government
must structure the terms of the contract and its implementation so that
the government maintains close oversight and control. The head of the
delegating agency must retain the authority to resolve disputes,
compromise claims or terminate the collection action.[^7] Finally, the
federal government cannot dilute the rights and protections taxpayers
otherwise enjoy merely by contracting out certain functions to private
parties.

In 1998, the Federal Activities Inventory Reform (FAIR) Act was enacted
to encourage competitive sourcing, a process whereby federal agencies
identify commercial functions being performed by the agencies, develop a
business case to determine whether the private sector can efficiently
compete with the agencies, and if so, determine the most efficient
organization to perform the function. However, the law specifically
precludes the contracting out of inherently governmental functions.[^8]
*The IRS and the Office of Management and Budget (OMB) have long
considered the collection of taxes to be an inherently governmental
function,*[^9] *and have never certified the type of work being
performed by the private collectors as commercial.*[^10]

The underlying premise of the PDC initiative is that certain tax
collection activities are not inherently governmental -- that simply
asking the taxpayer to pay the tax in full, or over a relatively short
period, does not involve the exercise of judgment or discretion.

Since the implementation of the PDC initiative, this premise has been
roundly disproved. There are few "easy" tax collection cases -- in fact,
the designation of certain cases as "easy" itself reflects an
IRS-centric view of the cases, as opposed to a taxpayer-centric view. No
taxpayer views his or her tax collection case as easy, and it is because
of the many questions and concerns these taxpayers raise during the
resolution of their cases -- even if they take a short amount of time to
resolve -- and the impact of those questions and concerns on the
taxpayers' continuing tax compliance that IRS employees should be the
ones to interact with the taxpayer.

Taxes are fundamentally different from other types of debt owed to the
federal government for several reasons. First, unlike other federal
obligations, taxes are the "lifeblood" of the government.[^11] Second,
because our tax system relies on the willingness of taxpayers to
voluntarily report, file, and pay their taxes, there is the potential
for an erosion of that willingness if taxpayers believe that the
government or its contractors are acting capriciously in collecting the
tax. Third, the correct tax liability often cannot be determined from
the "four corners" of the taxpayer's own return or even an IRS notice.
Thus, taxpayers are allowed to dispute the correctness of a tax
assessment, including their *own* original assessment on a return. These
qualitative differences between tax debts and other government accounts
militate against contracting out the collection of federal tax debt.

# The Business Case for the PDC Program Is So Weak that the Program May Actually Lose Money.

The government has advanced several rationales and justifications for
its use of private debt collectors to collect federal taxes, including:

-   Use of private collectors is a cost efficient and effective method
    to collect receivables that the IRS could not otherwise reach with
    its existing resources;[^12]

-   Private collectors will work the "easy" cases, thereby ensuring that
    they will not engage in "inherently governmental" activities and
    that the IRS will be able to focus on more complex work;[^13] and

-   Other federal agencies have successfully used PCAs.[^14]

Moreover, the IRS assured Congress that taxpayer protections would be
"woven" throughout the program, "that PCAs would be prohibited from
threatening or intimidating taxpayers," and that "the PCAs would be
governed by all of the same rules by which IRS employees are held
accountable."[^15]

## The Amount of Revenue the PDC Program Is Projected to Raise Is Minimal.

The IRS projects the initial phases of the initiative (Release 1.1 and
Release 1.2) will cost \$78 million and will bring in approximately
\$134 million in gross revenue through FY 2008.[^16] The IRS is using 43
of its own employees to monitor 81 of the PCAs' employees.[^17] From
September 2006 through April 19, 2007, the PCAs have collected \$19.5
million in gross revenue. Of that gross revenue, only \$15.5 million was
paid in response to a PCA contact. *\$4.0 million -- or about 20 percent
of gross revenue -- was collected by the IRS directly for only the cost
of a stamp*. Commissions actually paid on this \$15.5 million further
limit the PCAs contribution to reducing the tax gap by another \$3.4
million, down to \$12.1 million.[^18]

The IRS projects that the PDC initiative will bring in between \$1.5 and
\$2.2 billion in gross revenue (before commissions) over ten years.[^19]
The midpoint of that ten-year range is \$1.85 billion, which translates
to an average of \$185 million a year on a gross basis (before
commissions and IRS administrative costs). Here is how the gross
annualized PDC revenue stacks up to the IRS's most recent annual
estimate of the gross tax gap:[^20]

![](media/image1.wmf){width="6.492361111111111in"
height="4.433333333333334in"}

## The Opportunity Cost of Funding the PDC Program Instead of Hiring More IRS Collection Personnel Is Enormous, Resulting in a Significant Net Revenue Loss to the Treasury.

The IRS estimates that it will spend about \$71 million in startup and
ongoing maintenance costs through FY 2007.[^21] If we applied this \$71
million and allocated it to the IRS Automated Collection System (ACS),
we estimate that these funds would bring in about \$1.4 billion, as
compared to the \$19.5 million brought in by the PDC initiative to
date.[^22]

The IRS contends that the costs it is incurring to administer the PDC
program will decline in the future. Even if the costs decline
dramatically, the IRS still likely would be better off spending the
funds on hiring more IRS collection personnel. In FY 2008, the IRS
estimates that program, business project, contractor, and MITS costs
will be \$7.35 million.[^23] If we instead applied that \$7.35 million
to ACS, the IRS would collect about \$146 million. By comparison, the
IRS projects that the PCA initiative will bring in \$88 million in gross
revenue in FY 2008. Thus, if the IRS applied its actual costs of program
maintenance and supervision to ACS instead of the PCA initiative, the
public fisc would be ahead by \$58 million for one year.

However, I am not persuaded that oversight costs or infrastructure costs
for this initiative will decrease over time. First, so many program
processes are manual that it will probably take ten years to achieve a
truly automated system. Second, as discussed below, because there are no
easy cases to send out to the PCAs, the IRS will have to reprogram its
case assignment standards frequently to allow for cases under
ever-expanding criteria. Third, based on experience to date, we will
have periodic turnover of PCAs -- we have already ended our contract
with one of the three original agencies -- and I suspect we would
periodically be bringing one agency on and taking another off-line.
Finally, as the Joint Committee on Taxation noted:

> The use of private debt collectors may free up IRS resources to focus
> on other taxpayer delinquencies, thereby increasing total collections.
> On the other hand, the use of private debt collectors also raises
> concerns about the ability of the IRS to properly supervise these
> contractors and protect taxpayer privacy. The IRS has a finite amount
> of resources to devote to contractor supervision. As the number of
> private debt collectors increases, the ability of the IRS to closely
> supervise those collectors and ensure that the collectors are using
> appropriate safeguards and computer security decreases. As a result,
> the potential for abuse of taxpayer return information could
> increase.[^24]

## The IRS Embarked on the PDC Program without Undertaking Adequate Studies on the Cost Efficiency of the Program

To date the IRS has not conducted an adequate analysis of the return on
investment of the PCA initiative, nor has it developed an adequate
method of comparing the cost of PCA collection to the cost of IRS
collection. My office is attempting to work with the Small
Business/Self-Employed Operating Division to develop just such a test.
Moreover, the IRS is currently not collecting the necessary data to
truly understand the direct and downstream costs of this initiative. For
example, the IRS now projects that 24 Full Time Equivalents (FTEs) --
consisting of a total of approximately 43 employees -- will work on the
PCA initiative for FY 2007. However, this number does not include TAS
employees working on PDC implementation or taxpayer cases, or
Modernization & Information Technology Services (MITS) employees working
on infrastructure improvements and routine servicing, or finance
employees -- much less IRS personnel responding to general phone calls
to IRS toll-free numbers or contacts through the Taxpayer Assistance
Centers.[^25] Thus, the current employee and FTE counts are fluid and
are not being tracked well. To get a better handle on the total FTE
working on this initiative agency-wide, we are recommending that the IRS
track PCA initiative time in the same manner that EITC initiative time
is tracked, including separate time-keeping codes for all components of
the IRS.

The IRS is currently attempting to design a test that will compare the
cost of the PCA initiative with the cost of (a) ACS employees' working
three types of the "next best case" per IRS analysis and (b) ACS
employees' working cases from potential PCA inventory.[^26] I have
recommended that a true comparison of PCA effectiveness to IRS
effectiveness would entail using IRS employees with limited authority
similar to the PCA employees to work PCA inventory. This test would
involve the use of alternate databases and the Internet to locate
current taxpayer addresses and phone numbers and would involve outbound
calling. The IRS maintains that it would not work PCA inventory if it
had funds to work additional cases. Unfortunately, the IRS has not
conducted the necessary analysis to determine whether it would be more
profitable to work these lower dollar cases earlier in the process,
thereby eliminating many cases that are now worked in later years when
they have grown much larger and complex.[^27]

# Despite IRS Representations to the Contrary, There Is No Such Thing as an "Easy" Tax Collection Case, and Even by the IRS's Standards, There Are Far Fewer Such Cases than Originally Thought.

*"The cases the IRS would refer to PCAs are those where the taxpayer
would likely pay the outstanding tax liability if contacted by
telephone."*[^28]

Proponents of the PCA initiative have consistently stated that the IRS
has a significant number of accounts in which taxpayers could be induced
into paying what they owe by a simple phone call.[^29] In fact, the
assigned inventory turned out to be far more complex than the IRS ever
expected. In the first batch of inventory identified for possible
assignment to private collectors, for example, there was a high
incidence of shelved delinquent tax return investigations.[^30] Under
the IRS's traditional collection practices as well as the PDC-required
procedures, taxpayers cannot obtain installment agreements if they are
not compliant for other tax years, *i.e.,* they have not paid taxes or
filed returns.[^31] While the IRS plans to include this more complicated
type of case in Release 1.2 when its systems can communicate the
existence of the delinquent return to the private collector assigned to
the account, it did not anticipate that such cases would be among the
"simple" Release 1.1 inventory. In two different statistical samplings
of the Release 1.1 inventory, the IRS learned that in over 30 percent of
the cases there were unresolved delinquent tax return investigations in
the taxpayers' filing histories.[^32] Thus, the IRS removed 15,500 cases
from the initial 42,800 to be assigned to the collectors and used other
inventory, including older cases, to make up for the deficit.[^33]

The IRS also had to substitute older inventory when it identified two
other unexpected case characteristics. In July 2006, the IRS eliminated
another 10,000 cases from the potential inventory because payments on
those accounts, which were thought to be voluntary, turned out to be
involuntary levy payments.[^34] Additionally, the IRS learned that its
systems could not transfer updated account information identifying
taxpayers as being represented by tax professionals. When the taxpayer
files Form 2848, *Power of Attorney*, with the IRS, the IRS and private
collectors under this initiative must contact the taxpayer only through
the authorized representative. Consequently, it removed from inventory
5,500 accounts that were intended for assignment to private
collectors.[^35] *Thus, as of this date, taxpayers who have the
resources to have obtained representation are exempt from this
initiative*. Or stated another way, taxpayers who are unrepresented and
vulnerable are disproportionately likely to be contacted by PCAs.

TAS ran its own comparison of the Adjusted Gross Income (AGI) levels of
taxpayers whose cases were assigned to a PCA and taxpayers whose cases
were assigned to IRS collection personnel. The median income of
taxpayers whose cases were assigned to a PCA was significantly less than
the median income of taxpayers whose cases were assigned to IRS
collection personnel. Moreover, 23 percent of the PCA taxpayer
population is projected to receive the Earned Income Tax Credit (EITC)
as compared to 19 percent of the total IRS collection population.[^36]
These findings heighten concerns that lower income taxpayers are
disproportionately represented in PCA case assignments.[^37]

## The Absence of "Easy" Cases Has Forced the IRS to Outsource "Harder" Cases, Which Will Prove Harder to Collect on.

The shortage of the promised "easy" inventory is driving the IRS to
assign inventory with the types of complexities that were never intended
to be worked by private collectors. As described above, the IRS plans to
assign accounts known to be nonfilers in Release 1.2. Utilizing private
collectors to interact with taxpayers about their obligation to file tax
returns raises multiple problems, including the lack of training of
private collection employees as to which taxpayers are required to file
tax returns. Depending on the taxpayers' circumstances, they may be
under no legal obligation to file tax returns.[^38] Private collectors
have not been trained to determine when filing is required and when it
is not. In fact, since such a determination requires the exercise of
judgment and discretion, the authority to make a determination of a
filing requirement *cannot* be delegated to a non-governmental employee.

But the case criteria expansion does not stop there. The IRS says that
it has 132,000 case modules available that meet "primary" inventory
criteria, which are enough to meet the anticipated case assignments
through January or February 2008. In order to send out the necessary
cases for the remainder of FY 2008 and into FY 2009, the IRS is looking
at a pool of over 690,000 cases "that do not meet primary placement
criteria that could be assigned without additional programming and
another 383,000 that have been identified if additional programming was
performed."[^39] Moreover, the IRS states that "programming must begin
within the next few months so that enough inventory is available for the
future."[^40]

I am concerned about the use of the phrase "primary placement criteria"
in the IRS's analysis above. This phrase implies that Congress
understood that IRS intended all along to expand the inventory criteria
from those "easy" cases that only required a phone call to resolve, into
older cases, nonfiler cases, or U.S. territory and possessions cases.
Yet we can find no public document or discussion of this expansion,
either in the initial 2003 congressional hearings or in the legislative
history. The Joint Committee on Taxation described the Administration's
budget proposal as follows:

> The proposal generally applies to any type of tax imposed under the
> Internal Revenue Code. The Treasury anticipates that the focus in
> implementing the proposal will be: (a) taxpayers who have filed a
> return showing a balance due but who have failed to pay that balance
> in full; and (b) taxpayers who have been assessed additional tax by
> the IRS and who have made several voluntary payments toward satisfying
> their obligation but have not paid in full. The Treasury anticipates
> that the IRS will commence implementation of the proposal with debts
> owed by individuals.[^41]

In Appendix D, we describe the cases that the IRS plans to send, or is
considering sending, to the PCAs in order to meet IRS revenue
projections for the project. Of these expanded categories, we are
particularly concerned about the potential assignment of Automated
Collection System (ACS) cases. These are cases in which the IRS has
already made some sort of determination that a case has the potential
for enforcement activity and therefore is in the queue for assignment to
an IRS ACS employee. Despite former Commissioner Everson's explicit
assurances to the Ways and Means Oversight Subcommittee that "\[t\]he
IRS would not refer to PCAs cases for which there is any indication that
enforcement action would be required to collect the tax
liabilities,"[^42] the IRS is now anticipating that it must send out
these cases to meet the revenue targets it has established for the
program.

In fact, the IRS acknowledges that it will run out of inventory sometime
in February 2008 unless it expands the criteria for cases. Thus, the IRS
plans to accelerate a test on certain extremely low-dollar cases because
if it waits too long to assign these low-dollar cases to the PCAs,
"\[p\]rojections would not be met due to low average balance due."[^43]
Moreover, the IRS notes that *'\[n\]ot expanding inventory \[beyond
primary criteria\] would lead to a large number of lower dollar deferred
cases being placed with the PCAs, which would significantly reduce PCA
collections.*"[^44] Thus, the IRS appears to be more concerned about
"smoothing revenue" to make the program look like a success than it is
with either acknowledging that its projections will not be met --
namely, that IRS doesn't have the "easy" cases it originally believed it
had -- or considering the impact such referrals may have on taxpayers.

## Expanding Case Referral Criteria Poses Threats to the Integrity and Fairness of Tax Collection.

Expanding the inventory beyond the primary criteria -- to ACS cases, to
cases involving U.S. territories and possessions, to business taxes, to
nonfilers, and to older cases -- increases the likelihood that the PCAs
will make mistakes and decreases the likelihood that the PCAs will
actually be able to collect any payment from the taxpayer. As the Joint
Committee on Taxation noted in its analysis of the proposal in 2003:

> Another issue is the extent to which taxpayers will voluntarily pay
> the amounts owed in response to the private debt collectors or will
> raise procedural or substantive issues that will require referral of
> their cases back to the IRS. It is possible that such referrals back
> to the IRS may consume considerable resources of the IRS.[^45]

In these complex cases, taxpayers are more likely to have questions that
the PCA employees are unable to answer because their knowledge regarding
tax issues is limited, at best, or because the PCAs cannot exercise
discretion in either answering a question or working a case. First, as
the expanded case selection increases the likelihood of IRS Referral
Unit involvement, the underlying business case for the PCA initiative
evaporates. Second, and more important from the taxpayer's perspective,
faced with having to send the case back to the IRS Referral Unit, the
PCAs may attempt to pressure the taxpayer into a payment plan. Here are
a few case examples where the PCA continued pressuring the taxpayer into
paying rather than answering the taxpayer's question or making a
referral to the IRS Referral Unit.

> **Case One:** A taxpayer called a PCA to try to work out a payment
> arrangement.  The taxpayer asked whether some of the interest charges
> could be abated.  Interest abatement requires the exercise of
> discretion and can only be evaluated by an IRS employee, but the PCA
> did not offer to refer the case to the IRS on that basis.  In
> addition, the taxpayer said she could not afford the \$793 per month
> in payments the PCA was requesting over a four-month period. 
> Initially, the taxpayer was not offered any payment plan longer than
> 120 days despite the fact that taxpayers are allowed to enter into
> installment agreements of up to 36 months under the existing PCA
> guidelines. The taxpayer asked to speak with TAS.  The PCA employee
> and a supervisor told the taxpayer that TAS's role is not to set up
> payment agreements but to assist with situations such as significant
> hardship.  Eventually, the PCA supervisor offered to work out a
> payment arrangement of less than \$793 per month.  However, the
> taxpayer was frustrated by that point and insisted on working with
> TAS.[^46]
>
> **Case Two:** During the initial phone call, the taxpayer indicated
> she did not owe the tax because the apparent liability resulted from a
> mistake by her tax preparer. The taxpayer was trying to get a portion
> of the funds submitted with a joint extension of time to file credited
> to her married filing separately account. The PCA placed several
> temporary holds on collection activity, but when the case was referred
> to TAS, almost four months after the taxpayer's initial conversation
> with the PCA, the PCA was still making outbound calls to attempt to
> collect the tax. These calls occurred notwithstanding that on several
> occasions during this timeframe, the taxpayer submitted a letter
> outlining her dispute.[^47]

These two examples illustrate how difficult it is to identify "easy"
cases. These examples also demonstrate that complex cases increase the
likelihood that when PCA employees don't know how to or can't respond to
taxpayers' questions, they simply continue trying to collect the tax.

# Whereas the IRS Attempts to Provide Service to Taxpayers, PCAs Are Compensated Primarily Based on Revenue Collection and Have Little Incentive or Ability to Assist Taxpayers Who Have Special Needs, Who May Not Owe the Alleged Tax Liability, or Who May Lack the Ability to Pay.

PCAs are given very little training about tax law or procedure, are not
permitted to enter into discussions with taxpayers about matters that
require the exercise of discretion (*e.g*., to compromise a tax debt or
abate interest or penalties), and have no economic incentive to do more
than collect the maximum number of dollars as quickly as possible. While
IRS employees are far from perfect, they receive broader instruction
about tax law and procedure, have the authority to exercise discretion,
and seek to foster maximize long-term compliance. The differences in how
taxpayers are treated and assisted will predictably be significant.

## PCAs Are Unable to Meet the Diverse and Complex Needs of Taxpayers.

Taxpayers have a variety of diverse and complex needs and deserve to
interact with an organization that can meet those needs. However,
providing quality customer service seems to be superseded by the PCAs'
motivation to secure payment from the taxpayer and collect their
commission. This motivation is made clear by the three contractors'
operational plans for the first phase of the PCA initiative, which place
a heavy emphasis on collection results rather than customer service. The
IRS, on the other hand, devotes significant resources specifically
toward meeting the needs of taxpayers.

The IRS Multilingual Initiative (MLI) is one example of the IRS making
an effort to address taxpayers' needs. IRS started this initiative to
address the needs of taxpayers who have Limited English Proficiency
(LEP).[^48] The PCAs, however, have made little to no effort to address
LEP or other issues relating to taxpayer populations with special needs,
and it is highly unlikely that PCAs can or will duplicate this type of
initiative. In fact, only one PCA has a telephone number for Spanish
speaking taxpayers, and the other PCAs provide virtually no LEP
services. Further, when TAS representatives dialed the one PCA's
Spanish-speaking number, there was only an English-speaking voice, which
transferred the call to another line; the call was then automatically
terminated. The PCA has apparently corrected the problem, but the fact
that TAS discovered this failure demonstrates the low priority PCAs
place on taxpayer service.

The IRS acknowledges these problems in PCA taxpayer service delivery and
has asked TAS to handle multilingual taxpayer cases until the PCAs have
developed the resources to work these cases. TAS has agreed to do so,
but this situation raises several serious concerns. First, the IRS
should have ensured that PCAs could meet the needs of all taxpayers
prior to awarding contracts. Second, there is no determination on when
or how the PCAs will develop these resources. Third, TAS picking up
these cases and working them demonstrates that even apparently "easy"
cases are not easy, results in IRS employees' working cases that they
weren't planning to work, and increases the opportunity cost of the PDC
initiative by pulling TAS employees off presumably more productive cases
to work these cases.

## PCAs Utilize Psychological Techniques to Collect the Maximum Amount from Taxpayers.

Throughout the fall of 2006, TAS representatives reviewed the three
PCAs\' operational plans and made numerous requests for changes. One
such objection involved a PCA collection script placed in one of the
private collectors' operational plans which required representatives to
advise taxpayers "*Your balance of \$\_\_\_\_ is due in full today.*"
followed by the question "*How can we help you resolve this?*" The
script then requires the collection representative to employ a
"*Psychological pause -- **let the Taxpayer speak first***," (emphasis
in original), in which the representative says nothing and waits for the
taxpayer to commit to a payment amount. After the taxpayer provides a
commitment or financial information, the collector responds "*GREAT . .
. Before we continue, **federal law requires me to inform you that this
is an attempt to collect a debt, any information obtained will be used
for that purpose***."[^49] (Emphasis in original.)

TAS objected to the entire script. TAS has not been permitted to
interact directly with the PCAs and must communicate through the IRS
representatives. In response to TAS's objection, the IRS asked the PCA
to remove the word "psychological" from the phrase "psychological
pause." TAS representatives informed the IRS that this was an
insufficient remedy because the Fair Debt Collection Practices Act
(FDCPA) warning still came after the taxpayer volunteered information.
Additionally, because private collectors had already been operating
under the script for months, we asked that the employees be given some
type of instruction clarifying the correct approach. The IRS did not
respond to those additional TAS requests. In response to the discussion
of this issue in the National Taxpayer Advocate's 2006 Annual Report to
Congress, the PCA in question revised its script to provide its FDCPA
warning at the beginning of the conversation; however, the PCA still
uses the "pause" as a device.[^50]

Since publishing the 2006 Annual Report to Congress, we have learned
that the other two PCAs also employ this and other disturbing devices.
We have found the following references in PCA training materials and
scripts.

**Training Materials for Linebarger Goggan**:[^51]

**Training Materials for CBE**:[^52]

We have not looked into the collection practices used by other federal
agencies. The IRS is subject to an entirely different set of laws,
regulations, and procedures from other federal agencies, reflecting its
unique role as the federal tax system's administrator and enforcer.
Congress' concerns over past IRS practices, including collection
practices, have led to enactment of three Taxpayer Bills of Rights, with
numerous protections for taxpayers. While we have not expressed an
opinion that these techniques violate any laws, we do believe that these
techniques are inconsistent with the values built into IRS customer
service initiatives since the IRS Restructuring and Reform Act of 1998.
Were a taxpayer to complain to the National Taxpayer Advocate about such
a script being used by IRS employees, I would immediately demand that
the script be changed and that remedial training be offered to all
collection employees, and I would refer the specific case to the
Treasury Inspector General for Tax Administration (TIGTA) for
investigation of potential intimidation. I would react the same way were
I to see IRS training materials utilizing "Glengarry Glen Ross" type
selling techniques (*e.g*., "close the sale").

My concerns about these techniques arise in part from my experiences in
my former practice, which are confirmed by reports from Low Income
Taxpayer Clinics (LITCs). I represented low income taxpayers for many
years in states that retained private debt collectors for the bulk of
their tax collection activity. I found that taxpayers routinely agreed
to installment agreements with monthly payment amounts greatly in excess
of what they could afford and often at harm to their welfare and their
ability to be compliant in the future. They offered up any amount in
order to be free of the collection agency and did not ask about lower
amounts for fear of what the collection agency might do. Needless to
say, taxpayers frequently defaulted on these agreements and ended up in
my clinic's office for assistance.

Agreeing to an unreasonable installment agreement that will result in a
default is not neutral to the IRS or the taxpayer. From the IRS
perspective, this taxpayer has demonstrated additional noncompliance and
will require additional (costly) contacts and efforts, including levies.
The taxpayer no longer qualifies for a guaranteed installment
agreement[^53] and will have to submit additional financial information
(and pay an additional user fee) to reinstate the installment agreement
or enter into a new one.[^54] If the taxpayer attempts to enter into an
offer in compromise, his defaulted installment agreement may count
against him.[^55] From the taxpayer's perspective, he now may be even
more uneasy or afraid about communicating with the IRS, in addition to
having fewer options, potentially reducing the taxpayer's future
compliance. All of this could be avoided were taxes collected the right
way -- *i.e.,* with an eye to future compliance and the particular
circumstances of the taxpayer. The "psychological pause" instructions
and attendant consequences demonstrate an important difference between
the compliance-oriented IRS and the profit-oriented PCAs.

I do not know whether the "psychological pause" practice violates the
FDCPA. I do know that it harms taxpayers, does not contribute to future
compliance, and may very well constitute intimidation in certain cases.
In certain instances, this practice might violate § 1203 of the IRS
Restructuring and Reform Act of 1998. It is certainly an example of the
kind of behavior Congress sought to change through three Taxpayer Bills
of Rights. Such an approach is an example of the profit-motivated
approach of the PCAs, and does not constitute taxpayer service within
enforcement. It is not the right way to collect tax, which should take
into consideration not only the need to hold taxpayers accountable but
also the specific facts of their cases, including their financial
circumstances.[^56]

## The PDC Procedure for Authenticating the Identity of a Taxpayer Is Off-putting and Frightening to Some Taxpayers.

When an IRS collection employee contacts a taxpayer, he is permitted to
say that he is calling from the IRS. That information alone is generally
sufficient to let the taxpayer know the nature of the call. When a PCA
contacts a taxpayer, however, the PCA employee is not permitted to
identify the nature of the debt about which he is calling until after he
verifies the identity of the taxpayer, typically by asking the taxpayer
to provide his Social Security Number (SSN). In theory, a letter
precedes the phone call. But if the letter didn't reach the taxpayer or
the taxpayer didn't focus on it, the taxpayer will be taken aback upon
receiving a call about a debt and being asked to provide his SSN, and
some taxpayers understandably refuse to provide their SSNs to an unknown
caller.

Indeed, one of the PCAs, CBE Group Inc. (CBE), when phoning taxpayers,
simply states the call is in reference to a business matter, even though
they are authorized to disclose the nature of their work, *i.e.,* debt
collection, prior to authentication. This practice has resulted in CBE
having a significantly higher number of complaints than the other PCAs.
Specifically, to date there are 21 complaints about CBE's authentication
process.

## PCAs Have Violated Procedures for Informing Taxpayers About Their Right to Opt Out of the Program and About TAS.

Upon the request of a taxpayer, a PCA employee must allow that taxpayer
to opt out of working with the PCA.[^57] The drafts of letters from PCAs
to taxpayers that have been provided to TAS do not contain language
designed to inform taxpayers that they have the right to "opt out" of
the PCA initiative. To our knowledge, the only document that contains
this information is the IRS pamphlet, *What You Can Expect When the IRS
Assigns Your Account to a PCA*, which is sent to taxpayers when the
accounts are initially assigned to PCAs.

From the inception of this initiative, TAS has advocated for the right
of taxpayers to come to TAS upon the request of the taxpayer as an
additional protection for taxpayers. The PCA Policies and Procedures
Guide includes instructions to the PCA employees that they must inform
taxpayers about TAS and requires PCA employees to refer cases to TAS at
the taxpayer's request. PCA employees are also required to inform
taxpayers about the availability of LITCs. The Guide instructs PCA
employees about how to identify potential TAS cases and make referrals
to TAS without the taxpayer's request, just as IRS employees are
required to do.[^58]

Months after the initiative began, TAS learned that one of the PCAs was
not adhering to the Guide's requirement that taxpayers must be referred
to TAS upon request and instead was coaching its employees to continue
to attempt account resolution even after the taxpayer requested to come
to TAS. More recently, when the IRS was negotiating with this PCA over
whether it would agree to make its scripts public, the PCA attempted to
condition the release of its script on the IRS validating its practice
of not referring taxpayers to TAS upon request. TAS rejected this
condition.

Subsequently, we discovered that the practice was not isolated to one
PCA. At least one other PCA was failing to refer taxpayers to TAS upon
request and was not even providing the TAS phone number to taxpayers
upon request unless the taxpayer stated he or she was experiencing a
"severe hardship." Such a precondition for referral is contrary to the
PCA Policies and Procedures Guide. The IRS subsequently issued an alert
to all PCAs that this practice is violation of procedures.

## PCA Employees Receive Limited Training and Experience High Turnover.

The number of PCA collectors who either were taken off the contract or
are no longer employed at the PCA is disturbing. For example, over 50
percent of CBE's collectors have either been taken off the contract or
are no longer employed by CBE. [^59] In contrast, 77 percent of W&I and
SB/SE customer service representatives have a year or more
experience.[^60] When the PCA collector position is a revolving door, it
is unlikely that these employees adequately understand IRS cases. More
importantly, it is highly unlikely that these employees will have
engrained in them the special protections that adhere to U.S. taxpayers
under the Internal Revenue laws. In contrast to IRS employees, who
receive taxpayer rights and confidentiality training every year over the
course of their long careers at the IRS, PCA employees only receive
several hours of IRS training, of which taxpayer rights is a small
component.[^61]

# TAS Cases Illustrate Some of the Problems Taxpayers Have Experienced.

As of May 21, 2007, TAS has received 318 cases relating to taxpayer
concerns about the PCAs. These cases were received from the TAS Intake
Line, as a referral from the PCA, or from IRS employees answering
toll-free lines.  Once TAS receives a case, the TAS Case Advocate
identifies the issue that needs to be resolved and works with the
taxpayer to resolve that issue.  During the time that TAS is working
with the taxpayer, the PCA must cease all collection activity. TAS has
closed 242 of the 318 referred PCA cases.  Appendix E provides an
analysis of TAS cases received to date.

TAS monitors these cases in an effort to identify any trends that may
have a negative impact on taxpayers.  For example, TAS identified a
situation where taxpayers assigned to a PCA were being treated
differently from taxpayers with a similar situation dealing directly
with the IRS.  In this situation, the taxpayer was requesting an
installment agreement with a term of more than three years but less than
five years. The PCA employee cannot unilaterally enter into an
installment agreement for over three years' duration and is required to
refer that case to the IRS. The PCA taxpayer was required to submit a
financial statement in this situation. However, if the case were being
worked directly by the IRS, the taxpayer would have received a 60-month
agreement without submitting a financial statement. TAS is currently
working this issue with the PDC Project staff; *in the meantime, the PCA
procedures continue to excessively burden taxpayers and allow the PCA
access to taxpayer financial information that it has no reason to
acquire.*

The following examples involve PCA cases where the taxpayer called TAS
directly. They demonstrate the fallacy of the IRS's assertion that it is
sending "easy" or "clean" cases to the PCAs and demonstrate why the IRS
alone -- with its full panoply of assessment, abatement, and collection
authorities -- should be working taxpayer-collection cases.

-   The taxpayer called TAS after receiving a letter from a PCA. After
    sustaining injuries in a near-fatal automobile accident, the
    taxpayer is living off only Social Security benefits and food stamps
    and was unable to pay the balance due.

-   The taxpayer incurred a balance due as a result of an early
    withdrawal from her retirement plan. The taxpayer is currently on
    Social Security disability income. She is also taking care of her
    ill mother and is unable to pay at this time.

-   The taxpayer's debt arose from her 1998 tax return, on which the IRS
    disallowed the taxpayer's youngest child, born December 1, 1998, for
    purposes of the dependency exemption and EITC. The taxpayer sent
    proof of her child's birthday to the IRS on three separate
    occasions. The IRS told the taxpayer that the period of limitations
    for making changes to her tax return has expired, and it has offset
    additional refunds in the amount of \$2,000.

-   The taxpayer's tax returns were examined for each of tax years 2001
    through 2005, resulting in EITC disallowances. Each year, the
    taxpayer submitted all requested documents but did not receive a
    response. The taxpayer states that the claimed children are hers,
    and she does not understand why the claim on her return is
    continually being disallowed. She has called the IRS several times
    and cannot obtain assistance.

-   The taxpayer stated that he has been receiving bills for taxes that
    he does not owe. The taxpayer has resided in Puerto Rico for his
    entire life. He has proof of filing with the Hacienda and says he
    has reported all his earned income.

-   The taxpayer called TAS in response to a letter from a PCA. The
    taxpayer stated that he does not owe the tax debt. The taxpayer said
    he did not work for the tax year at issue and did not file a tax
    return for that year, nor did he receive a refund. He suspects his
    child's mother may have helped someone improperly use his
    information to file.

# The PCA Initiative Raises Concerns about the Confidentiality and Security of Taxpayer Information.

The Internal Revenue Code places significant emphasis on the
confidentiality and security of taxpayer information. When taxpayer
information is shared with outside contractors, the risks of misuse and
the steps required to secure information both increase.

## The IRS Recently Terminated a PCA for Failing to Perform at Appropriate Standards, Yet the PCA Is Permitted to Retain Taxpayer Information for an Additional Two Years.

As Linebarger's contract came to an abrupt end, new security concerns
have arisen. The IRS is permitting a PCA, which is no longer part of the
initiative, to keep and maintain taxpayers' files for two years after
the contract has ended. Allowing PCAs to hold onto taxpayer information
after a PCA has left the initiative is a failure of the IRS's fiduciary
duty to protect taxpayer information and significantly compromises
taxpayer information.[^62] It is especially disturbing that Linebarger
will keep taxpayer information for two years after the contract, since
Linebarger's security breaches were a major focus of a recent TIGTA
Report. Some of the concerns the report addresses include the following:

-   Two storage rooms were not wired with alarm systems;

-   Perimeter doors did not have sufficient locking mechanisms; and

-   Multiple PCA employees had keys to the IRS work area and one of
    these employees did not need access to federal tax information.[^63]

It seems irresponsible and foolish to allow any PCA to keep taxpayer
information for two years after contract expiration, but especially
foolish to allow a PCA to keep taxpayer information where that PCA was
significantly criticized for security breaches in a recent TIGTA report.

## PCAs Are Now Receiving Sufficient Information About Taxpayers to Enable Identity Theft. 

As described above, PCAs are required to verify that they are talking to
the correct taxpayer before they can disclose the specific purpose for
the phone call or discuss details of the account. Now, in addition to
PCAs' having the taxpayer's name, last known address, and SSN, they also
want the taxpayer's date of birth to make the authentication process
easier. One wonders how comfortable taxpayers would feel knowing that
the IRS is handing over more and more of their information to private
collectors.

The rate at which collectors either are taken off the IRS contract or
are no longer employed at the PCA is alarmingly high. For instance,
Pioneer had a 20.8 percent turnover rate for collectors, CBE had a 52.8
percent turnover rate for collectors, and LBGS had a 25 percent turnover
rate for collectors. In contrast, 77 percent of ACS employees have a
year or more of experience.[^64]

# The IRS Can Do It Better

As stated previously, a central tenet of the PDC initiative is that the
IRS has a significant number of accounts in which taxpayers could be
induced into paying what they owe by a simple phone call.[^65] The mere
fact that there is a substantial pool of cases that effectively result
in revenue if only someone contacts the taxpayer does not mean that PCAs
are the best qualified to handle these cases. Indeed, the IRS is clearly
the superior collection agent for these cases:

-   The IRS currently possesses a large collection infrastructure with
    thousands of trained employees and an annual budget of nearly two
    billion dollars.[^66] The IRS has 14 ACS sites that interact with
    millions of taxpayers annually, in contrast to the private
    collectors who operate out of single locations with 81 employees in
    the aggregate.

-   The IRS employs and continues to spend significant resources on the
    same technology used by private collectors, such as predictive
    dialer systems.[^67]

-   The IRS maintains and utilizes various internal and external
    databases for research purposes, including but not limited to
    Integrated Data Retrieval System, Choice Point, and the United
    States Postal Service. Many of these are the same sources currently
    being utilized by the PCAs to attempt to locate and contact
    PDC-assigned taxpayers.

Furthermore, timely and personal interventions on collection accounts
are powerful motivations for taxpayers to resolve tax problems and
cannot be discounted. These interventions represent the appropriate
point in the collection process to identify and resolve issues that have
caused the taxpayers to become delinquent, thereby preventing future
noncompliance, and to explore meaningful payment options. Many of the
accounts currently being assigned to PCAs are less than \$25,000 and
thus would qualify for guaranteed or streamlined installment agreements
(IAs).[^68] The IRS already has the means and proven track record to
effectively handle these types of accounts.[^69]

The IRS could collect taxes even more effectively if it were to enhance
and refine its existing automation and technology. The predictive dialer
system and the online research tools that the IRS maintains are both
effective means of contacting and locating taxpayers, but neither is
being utilized to its fullest capacity. For example, the predictive
dialer system is predominantly used *after* all required notices are
sent, a notice of levy issued, and there is no response from the
taxpayer. If outbound contact were moved up in the notice stream and ACS
process, the IRS could make even more timely and effective contacts and
be more likely to reach resolution, without the need for enforcement
action.

Similarly, the IRS also has a vast array of internal and external
research sources at its disposal, including a sophisticated "skip
tracer-like" mechanism -- the Address Research System (ADR). While ADR
has the potential to validate or update potential addresses for a given
taxpayer, the IRS currently uses this resource selectively, usually late
in the collection process. If the IRS were to expand its search tool to
include such sources as the Internet, Department of Motor Vehicles
records, and voting registries, and employ the search tool earlier in
the collection process, it could improve the collection productivity of
its existing personnel.

# Ultimately, Tax Collection Is the IRS's Responsibility.

IRS collection activities are compliance-based, and the training of its
employees reflects that fact.[^70] In other words, the collection policy
followed by IRS collection representatives is to first cure the
taxpayer's current noncompliance, whether through increased withholding
or taking other actions, rather than seeking repayment of past amounts
due. In contrast, the PCAs who are paid by commissions have the reverse
incentive. There is no commission given to PCAs when they work with a
taxpayer to increase his or her withholding. If a taxpayer increases
withholdings, he or she may not be able to afford to pay a delinquency
from a prior tax year. Moreover, since PCAs are paid as a percentage of
the taxes actually collected, there is an incentive to close accounts
through full-pays or high-dollar monthly installments. There is less
incentive to take into consideration the taxpayer's specific
circumstances. Unreasonable installment agreements result in defaults,
and can harm taxpayers' ability to become compliant. It is inevitable
that the effect of these incentives will be adverse to taxpayer
compliance in some cases.

Some proponents of the PDC initiative have touted the outsourcing of
collection by the states and the Department of Education in support of
the IRS's use of PCAs. We find these arguments unpersuasive. The
Department of Education and most state departments of revenue do not
have large collection functions. The IRS, on the other hand, has
allocated over 14,000 FTEs to its collection initiatives and, as noted,
has an annual collection budget of over \$2 billion. Moreover, IRS
employees are subject to many taxpayer protections, above and beyond the
requirements of the FDPCA, that do not apply to either state PCA
arrangements or the Department of Education.

These taxpayer protections exist for several reasons. First, taxes are
the lifeblood of the federal government -- without taxes, the government
is unable to conduct the business of the people. Second, taxpayers pay
their taxes willingly (if not joyfully) because they have a social
contract with their government -- and the government's end of that
contract is that it will treat its taxpayers courteously, fairly,
efficiently, and helpfully. For the reasons discussed in the foregoing
testimony, the PDC initiative breaches that social contract on all
counts.

# Conclusion

I believe the PDC program risks too much for too little. In 1998,
Congress enacted significant taxpayer rights protections to guard
against overzealous IRS collection tactics. Now, less than ten years
later, the IRS is outsourcing tax collection to private companies with a
profit motive to extract every dollar possible from taxpayers. Calling
scripts that emphasize the use of psychological techniques (*e.g.,* "The
next person to speak loses"; a well timed pause will pressure a taxpayer
to "tell you everything you need to know to 'close the sale'") make this
point clear. In addition, private collectors are constitutionally barred
from discussing collection alternatives with taxpayers who cannot afford
to make full payment, and this restriction further highlights a
significant limitation of the program.

But even leaving aside the taxpayer rights concerns the program raises,
the business case for the program does not justify its existence.
Originally, the program was billed as a way for the IRS to collect
essentially "free money." The IRS would outsource tax debts it otherwise
would not get around to collecting due to resource constraints, and even
after commissions of up to 25 percent were paid to the PCAs, the
government would receive at least 75 percent of whatever was collected.

The reality has turned out to be very different. The IRS has to spend
significant sums of money to administer the program, and if these sums
were instead spent to fund additional IRS enforcement personnel, the IRS
may well be collecting significantly more tax debts than the PCAs will
collect -- even without accounting for PCA commissions. Moreover, as the
inventory of PDC-eligible "easy cases" dwindles, the IRS will be
outsourcing more complex cases, which will result in a lower rate of
collection, higher administrative costs for the IRS, and a greater risk
of taxpayer rights violations.

For the reasons I have described, I urge the Congress to terminate the
PDC program now.

# Appendix A: Training Materials for Pioneer {#appendix-a-training-materials-for-pioneer .unnumbered}

\[Transmitted in separate file\]

#  {#section .unnumbered}

# Appendix B: Training Materials for Linebarger Goggan {#appendix-b-training-materials-for-linebarger-goggan .unnumbered}

\[Transmitted in separate file\]

# Appendix C: Training Materials for CBE {#appendix-c-training-materials-for-cbe .unnumbered}

\[Transmitted in separate file\]

# Appendix D: Proposed Expansion of Cases to Be Sent to PCAs {#appendix-d-proposed-expansion-of-cases-to-be-sent-to-pcas .unnumbered}

+------------+---------------+-------------+--------------------------+
| *          |               |             |                          |
| *Inventory |               |             |                          |
| available  |               |             |                          |
| without    |               |             |                          |
| additional |               |             |                          |
| prog       |               |             |                          |
| ramming:** |               |             |                          |
+------------+---------------+-------------+--------------------------+
| **Type of  | **Description | **Volume**  | **TAS Concerns**         |
| Case**     | of Case**     |             |                          |
+------------+---------------+-------------+--------------------------+
| Shelved    | Delinquent    | 60,822      | Will create the need for |
| Taxpayer   | returns but   |             | PCA employees to secure  |
| Delinquent | policy        |             | returns.                 |
| Inv        | decision made |             |                          |
| estigation | to shelve the |             | PCA employees cannot     |
| (TDI)      | TDI.          |             | determine which          |
|            |               |             | taxpayers are required   |
|            |               |             | to file tax returns,     |
|            |               |             | resulting in increased   |
|            |               |             | case referrals back to   |
|            |               |             | IRS to work.             |
+------------+---------------+-------------+--------------------------+
| Deferred   | Balance due   | 595,065     | Low dollar inventory may |
| (Status    | is below      |             | have higher percentage   |
| 23)        | tolerance     |             | of low income taxpayers  |
|            | level.        |             | who do not have          |
|            |               |             | representation.          |
|            |               |             |                          |
|            |               |             | Low dollar accounts may  |
|            |               |             | cause PCAs to be more    |
|            |               |             | aggressive in order to   |
|            |               |             | make up for low dollars  |
|            |               |             | per case by volume       |
|            |               |             | closed.                  |
+------------+---------------+-------------+--------------------------+
| Status 22  | Balance due   | 34,458      | IRS has not completed    |
|            | case assigned |             | ACS processing on these  |
|            | to ACS.       |             | cases. Cases never       |
|            |               |             | intended to be sent to   |
|            |               |             | the PCAs are now being   |
|            |               |             | considered to meet the   |
|            |               |             | inventory and revenue    |
|            |               |             | projections of the PCA   |
|            |               |             | program.                 |
+------------+---------------+-------------+--------------------------+

+----------------+----------------+-------------+---------------------+
| > **Inventory  |                |             |                     |
| > available    |                |             |                     |
| > after        |                |             |                     |
| > additional   |                |             |                     |
| >              |                |             |                     |
| programming:** |                |             |                     |
+----------------+----------------+-------------+---------------------+
| **Type of      | >              | >           | > **TAS Concerns**  |
| Case**         |  **Description |  **Volume** |                     |
|                | > of Case**    |             |                     |
+----------------+----------------+-------------+---------------------+
| U.S.           | Tax accounts   | 15,000      | Complex issues,     |
| Territori      | for taxpayers  |             | with increased      |
| es/Possessions | residing in US |             | likelihood of cases |
|                | Territories/   |             | referred back to    |
|                | Possessions.   |             | IRS for resolution. |
|                | These accounts |             |                     |
|                | were           |             |                     |
|                | originally     |             |                     |
|                | excluded from  |             |                     |
|                | primary        |             |                     |
|                | inventory      |             |                     |
|                | assignment     |             |                     |
|                | criteria.      |             |                     |
+----------------+----------------+-------------+---------------------+
| Collection     | Current        | 150,000     | Complex issues,     |
| Statute        | criteria is    |             | with increased      |
| Expiration     | CSED\>3 years. |             | likelihood of cases |
| Date (CSED)    | The change to  |             | referred back to    |
| expansion \> 2 | 2 years will   |             | IRS for resolution. |
| years          | result in      |             |                     |
|                | older cases    |             |                     |
|                | being sent to  |             |                     |
|                | PCAs.          |             |                     |
+----------------+----------------+-------------+---------------------+
| Taxpayer       | Balance due    | 154,612     | Complex issues and  |
| Delinquent     | account with   |             | the need for the    |
| Account        | an associated  |             | PCA employee to     |
| (TDA)/Taxpayer | TDI indicating |             | secure delinquent   |
| Delinquent     | there are also |             | returns.            |
| Investigation  | years where    |             |                     |
| (TDI)          | there is no    |             |                     |
| Combination    | record of a    |             |                     |
|                | return.        |             |                     |
+----------------+----------------+-------------+---------------------+
| Master File    | 10% IRS early  | Total       | Both MFT 29 and MFT |
| Tax Code (MFT) | withdrawal     | number of   | 31 involve complex  |
| 29             | penalty on an  | MFT 29 and  | issues, with        |
|                | Individual     | MFT 31      | increased           |
|                | Retirement     | cases is    | likelihood of cases |
|                | Plan.          | 42,368.     | referred back to    |
|                |                |             | IRS for resolution. |
|                |                |             |                     |
|                |                |             | Issues likely to    |
|                |                |             | involve hardship,   |
|                |                |             | financial           |
|                |                |             | difficulty, spousal |
|                |                |             | abuse.              |
+----------------+----------------+-------------+---------------------+
| Master File    | This MFT is    |             |                     |
| Tax Code (MFT) | used when IRS  |             |                     |
| 31             | splits a 1040  |             |                     |
|                | joint tax      |             |                     |
|                | liability and  |             |                     |
|                | substitutes a  |             |                     |
|                | single         |             |                     |
|                | liability for  |             |                     |
|                | each person    |             |                     |
|                | and is used    |             |                     |
|                | for such cases |             |                     |
|                | as innocent    |             |                     |
|                | spouse,        |             |                     |
|                | bankruptcy,    |             |                     |
|                | offer-         |             |                     |
|                | in-compromise, |             |                     |
|                | and Tax Court  |             |                     |
|                | cases.         |             |                     |
+----------------+----------------+-------------+---------------------+
| Master File    | Miscellaneous  | 36,062      | Complex issues. On  |
| Tax Code (MFT) | civil penalty  |             | trust fund recovery |
| 55             | cases (Trust   |             | penalty, underlying |
|                | Fund Recovery  |             | liability is the    |
|                | penalty is     |             | result of unpaid    |
|                | most common)   |             | corporate trust     |
|                |                |             | fund taxes. These   |
|                |                |             | cases usually       |
|                |                |             | involve disputed    |
|                |                |             | facts and are hotly |
|                |                |             | contested.          |
+----------------+----------------+-------------+---------------------+

# Appendix E: Analysis of PCA Cases Received in TAS to Date {#appendix-e-analysis-of-pca-cases-received-in-tas-to-date .unnumbered}

**Summary of PDC Activity in TAS through 5/21/2007:**

Number of PDC calls received on the TAS intake telephone line
(1-877-ASK-TAS1) from 9/11/2006 - 5/14/2007 - 220 calls.

Number of PDC cases received in TAS from 9/11/2006 - 05/21/2007 - 318
cases (76 are open and 242 closed).

**Information on TAS PDC cases:**

157 cases were a result of the PCA preparing a form (Form 911) for a TAS
referral and forwarding the form to the IRS contact (the COTR) to input
the TAS referral.

113 cases were added by a TAS employee answering the 1-877-ASK-TAS1
telephone line.

18 cases were the result of the Form 911 being received directly in a
local TAS office.

21 cases were referred by an employee in the Wage and Investment
Operating Division.

4 cases were referred by a National Taxpayer Advocate toll-free
assistor.

5 cases were a result of other sources.

**PCA Assignment:**

#1 - Pioneer Credit Recovery, Inc - 69 cases

#2 - LGBS, LLP - 102 cases

#3 - CBE Group - 147 cases

**TAS Cases by TAS Criteria Code:**

Criteria 1 -- (Economic Harm) - 70 cases

Criteria 2 -- (Adverse Action) - 10 cases

Criteria 4 -- (Irreparable Injury) - 5 cases

Criteria 5 -- (Delay of More than 30 Days) - 50 cases

Criteria 6 -- (No Response/Resolution by Date Promised) - 7 cases

Criteria 7 -- (Systemic or Procedural Failure) - 154 cases

Criteria 9 -- (Public Policy) - 19 cases

Criteria 3 and 8 -- (Significant Cost/Equitable Treatment or Taxpayer
Rights Issues) - 3 cases combined

**Summary of Issues:**

(The issues listed below were determined upon case receipt in TAS)

Potential unable to pay cases - 101 cases; Potential installment
agreements - 38 cases; Taxpayer disputes or requests an explanation of
the balance due - 75 cases; Amended return issues - 18 cases; Penalty
and/or interest abatement requests - 18 cases; Earned Income Tax Credit
issue - 8 cases; Levy issue - 11 cases; Offer in compromise issue - 7
cases; Request for assistance in filing returns - 9 cases; Innocent
spouse issue - 3 cases; Potential identity theft cases - 7 cases; Lien
issue - 7 cases; Appeals issue - 3 cases; Bankruptcy issue - 5 cases;
Refund issue - 5 cases; Other - 3 cases.

In 58 cases, the taxpayer indicated that he or she previously contacted
IRS to resolve the tax issue.

In 20 cases, the taxpayer indicated that he or she wanted to work with
the IRS, not the PCA.

In 44 cases, the taxpayer requested TAS assistance when contacted by the
PCA.

In 7 cases, the taxpayer had a complaint about the PCA.

**Summary of closing actions:**

Out of the 242 TAS cases that have been closed:

In 101 cases, the case was closed after TAS had completed all possible
actions and the taxpayer did not respond to the Case Advocate.

In 34 cases, TAS provided the taxpayer with an explanation of the
balance due, an IRS or PCA procedure, or a copy of an IRS transcript.

In 79 cases, the case was resolved with an installment agreement, a
determination that the account is currently not collectible, an
adjustment, an offer in compromise, a penalty abatement, an appeals
request, or full payment.

In the remaining 28 cases, the case was either recalled from the PCA or
the taxpayer he or she would work directly with the PCA.

[^1]: The views expressed herein are solely those of the National
    Taxpayer Advocate. The National Taxpayer Advocate is appointed by
    the Secretary of the Treasury and reports to the Commissioner of
    Internal Revenue. The statute establishing the position directs the
    National Taxpayer Advocate to present an independent taxpayer
    perspective that does not necessarily reflect the position of the
    IRS, the Treasury Department, or the Office of Management and
    Budget. Accordingly, congressional testimony requested from the
    National Taxpayer Advocate is not submitted to the IRS, the Treasury
    Department, or the Office of Management and Budget for prior
    approval. However, we have provided courtesy copies of this
    statement to both the IRS and the Treasury Department in advance of
    this hearing.

[^2]: IRC § 6306(b)(4) authorizes the Secretary of the Treasury to hire
    PCAs to perform the following functions with respect to the
    collection of tax:

    \(A\) to locate and contact any taxpayer specified by the Secretary,

    \(B\) to request full payment from such taxpayer of an amount of
    Federal tax specified by the Secretary and, if such request cannot
    be met by the taxpayer, to offer the taxpayer an installment
    agreement providing for full payment of such amount during a period
    not to exceed 5 years, and

    \(C\) to obtain financial information specified by the Secretary
    with respect to such taxpayer.

[^3]: Marshall v. McColloch, 17 U.S. 316, 429 (1819).

[^4]: OMB Circular No. A-76 § 6(e) (1999). The current version of OMB
    Circular No. A-76 states that "\[a\]n inherently governmental
    activity is an activity that is so intimately related to the public
    interest as to mandate performance by governmental personnel." OMB
    Circular No. A-76 (Revised), Attachment A § (B)(1)(a) (May 29,
    2003).

[^5]: Carter v. Carter Coal Co., 298 U.S. 238 (1936).

[^6]: In the context of interest abatement, the IRS defines a
    ministerial act as one that does not involve the exercise of
    judgment or discretion. Treas. Reg. § 301.6404-2(b)(1).

[^7]: 31 U.S.C. § 3718(a).

[^8]: Federal Activities Inventory Reform (FAIR) Act of 1998, Pub. L.
    No. 105-270, 112 Stat. 2362 (codified as amended at 31 U.S.C.A. §
    501, Note § 5 (2)(b)) (providing that a function is "inherently
    governmental" under the statute if it is \"so intimately related to
    the public interest as to require performance by Federal Government
    employees.\"). Examples of inherently governmental functions include
    actions: (1) \"to bind the United States to take or not take some
    action;\" (2) \"to determine, protect and advance United
    States . . . interests;\" and (3) \"to significantly affect the . .
    . property of private persons.\" *Id.*

[^9]: OMB Circular A-76 sets forth the standards under which federal
    work is subject to competitive sourcing. As it existed in 1999, the
    collection of taxes was specifically listed as an inherently
    governmental function. In 2003, OMB Circular A-76 was revised to
    remove all specific examples of inherently governmental functions;
    *see also* General Accounting Office, *IRS: Issues Affecting IRS's
    Private Debt Collection Pilot* (Jul. 18, 1997) (indicating that the
    IRS and the Department of the Treasury have long considered the
    collection of taxes to be an inherently governmental function).

[^10]: Internal Revenue Service FAIR Act certifications, available at
    <http://www.treas.gov/offices/management/dcfo/procurement/fair/inventories/index.html>.

[^11]: Bull v. United States, 295 U.S. 247, 259 (1935).

[^12]: *Private Debt Collection: Hearing Before the Subcomm. on
    Oversight, House Comm. on Ways and Means,* 108^th^ Cong., 1^st^
    Sess. (May 13, 2003) (statement of Mark W. Everson, Commissioner of
    Internal Revenue).

[^13]: *Id.*

[^14]: *Id.*

[^15]: *Id.*

[^16]: Internal Revenue Service, Filing and Payment Compliance Advisory
    Council (May 1, 2007) at 15.

[^17]: Data furnished by the IRS Filing and Payment Compliance
    Modernization Project Office (May 2007).

[^18]: Internal Revenue Service, Private Debt Collection (PDC)
    Performance Update -- Briefing for House Ways and Means Committee
    (May 18, 2007).

[^19]: Internal Revenue Service, Filing and Payment Compliance Advisory
    Council (May 1, 2007) at 14.

[^20]: The most recent IRS estimate of the gross tax was \$345 billion
    and was made in 2001.

[^21]: Internal Revenue Service, Filing and Payment Compliance Advisory
    Council (May 1, 2007) at 15. These estimated costs include startup
    and ongoing maintenance from the PDC Project Office, oversight,
    administration, and IT costs from FY 04 projected through FY 07.
    These estimated costs do not include infrastructure assessments for
    any MITS costs or costs associated with the TAS oversight or
    casework arising from the PDC initiative.

[^22]: The dollars spent on the PDC initiative could instead have been
    used to fund new ACS employees. We computed the fully loaded cost of
    an average ACS employee at about \$75,000 (assuming GS-8, step 5). A
    new employee would cost somewhat less. Based on IRS expenditures of
    \$71 million, the number of new ACS employees that could have been
    funded by the PDC initiative (about 942) was multiplied by the
    current average dollars collected by an ACS employee per year (about
    \$1.49 million) to estimate the revenue that could have been
    garnered by ACS in one year.

    This translates to a return-on-investment on the average ACS
    employee of about 20:1. The total dollars collected by ACS reflects
    the collections of both fully trained and new employees who
    underwent training during the year. The return is generally higher
    for trained employees and lower for newly hired employees. If the
    IRS were to hire 942 new employees, the return would predictably be
    lower than 20:1 during the initial training period.  On the other
    hand, the amount of appropriated funds the IRS has spent on the PDC
    program to date has been greater than \$71 million because
    infrastructure costs and certain indirect costs (*e.g.,* the full
    costs TAS has incurred) have not been included.  If infrastructure
    and all related costs were included and also applied to fund
    additional ACS collection personnel, the number of employees the IRS
    could hire would be considerably greater than 942, resulting in
    higher potential revenue collections.

[^23]: Internal Revenue Service, Filing and Payment Compliance Advisory
    Council (May 1, 2007) at 15. These estimated costs exclude all
    infrastructure assessments.

[^24]: Joint Committee on Taxation, *Present Law and Background Relating
    to Permitting Private Sector Debt Collection Companies to Collect
    Tax Debts,* JCX-49-03 (May 12, 2003) at 5-6.

[^25]: The IRS's information technology office (MITS) identified 101
    FTEs as devoted to the PDC initiative, attributable to start-up
    costs incurred now as part of Release 1.2. MITS Filing and Payment
    Compliance Release 1.2, Transition Management Plan, dated Nov. 22,
    2006.

[^26]: IRS Filing & Payment Compliance, Private Debt Collection Cost
    Effectiveness Briefing (Feb. 20, 2007).

[^27]: For an in-depth analysis of current IRS collection strategy and
    recommendations for improvement, *see* National Taxpayer Advocate
    2006 Annual Report to Congress at 80-82.

[^28]: *P**rivate Debt Collection: Hearing Before the Subcomm. on
    Oversight, House Comm. on Ways and Means,* 108^th^ Cong., 1^st^
    Sess. (May 13, 2003) (statement of Mark W. Everson, Commissioner of
    Internal Revenue).

[^29]: *See* Department of the Treasury, *General Explanation of the
    Administration's Fiscal Year 2004 Revenue Proposals* 99 (February
    2003), stating:

    Many taxpayers with outstanding tax liabilities would make payment
    if contacted by telephone and, if necessary, offered the ability to
    make payment of the full amount in installments. If PCAs could
    perform these tasks for this group of taxpayers, without affecting
    any taxpayer protection, the IRS would be able to focus its resource
    on more complex cases and issues.

[^30]: A shelved delinquent tax return investigation is an investigation
    of a taxpayer's failure to file a tax return for one or more years
    that have been closed as unresolved.

[^31]: *See* IRM 5.14.1 (July 2005); and IRS Private Collection Agency
    Policies and Procedures Guide (Sept. 2006) at 31.

[^32]: Internal Revenue Service, Partial Production Log (March 16,
    2006).

[^33]: Internal Revenue Service, Filing & Payment Compliance Advisory
    Council Presentation (Jul. 31, 2006) at 9.

[^34]: The initial criteria for assignable inventory in Release 1.1
    limited inventory to cases where the taxpayer indicated the amount
    is due on a tax return and cases where the tax has been assessed and
    the taxpayer has made three or more *voluntary* payments on the tax.
    *Private Debt Collection: Hearing Before the Subcomm. on Oversight,
    House Comm. on Ways and Means,* 108^th^ Cong., 1^st^ Sess. (May 13,
    2003) (statement of Mark W. Everson, Commissioner of Internal
    Revenue).

[^35]: Internal Revenue Service, Filing & Payment Compliance Advisory
    Council Presentation (Jul. 31, 2006) at 9.

[^36]: IRS Compliance Data Warehouse, Accounts Receivable Dollar
    Inventory (ARDI) (CY 2007, first quarter) and Individual Returns
    Transaction File (TY 2005).

[^37]: Among cases scheduled for assignment to a PCA during the first
    quarter of FY 2007 and also having a Tax Year 2005 return filed
    (based on match of primary SSN), median adjusted gross income was
    \$24,000, while median adjusted gross income was \$31,565 among
    cases not scheduled for assignment to a PCA. It should be noted that
    only 36 percent of PCA cases and 56 percent of non-PCA cases showed
    the filing of a Tax Year 2005 Individual Income Tax Return.

[^38]: *See* IRS Publication 501, *Exemptions, Standard Deduction and
    Filing Information*; IRS Publication 17, *Your Federal Income Tax
    for Individuals*.

[^39]: Internal Revenue Service, Filing and Payment Compliance Advisory
    Council Deck (May 1, 2007) at 9.

[^40]: Internal Revenue Service, Filing and Payment Compliance Advisory
    Council Deck (May 1, 2007) at 11.

[^41]: Joint Committee on Taxation, *Present Law and Background Relating
    to Permitting Private Sector Debt Collection Companies to Collect
    Tax Debts,* JCX-49-03 (May 12, 2003).

[^42]: *Private Debt Collection: Hearing Before the Subcomm. on
    Oversight, House Comm. on Ways and Means,* 108^th^ Cong., 1^st^
    Sess. (May 13, 2003) (statement of Mark W. Everson, Commissioner of
    Internal Revenue).

[^43]: Internal Revenue Service, Filing & Payment Compliance Advisory
    Council (May 1, 2007) at 12. These are "Status 23 Deferred" cases
    where the amount of the liability is below tolerance *-- i.e., the
    dollar amount is so small that it is just not worth it for the IRS
    to collect.* According to the IRS, there are 595,065 existing Status
    23 Deferred cases, with an extremely low average balance due. *Id.*
    at 10.

[^44]: Internal Revenue Service, Filing & Payment Compliance Advisory
    Council (May 1, 2007) at 24.

[^45]: Joint Committee on Taxation, *Present Law and Background Relating
    to Permitting Private Sector Debt Collection Companies to Collect
    Tax Debts,* JCX-49-03 (May 12, 2003) at 6 (citations omitted).

[^46]: Contractor Officer Technical Representative (COTR) case review
    write-up; Taxpayer Advocate Management Information System (TAMIS).

[^47]: IRS Private Collection Agency Complaint Review Panel.

[^48]: Internal Revenue Service, Multilingual Initiative Customer Base
    Report FY 2006 (Feb. 2006) at 12.

[^49]: Pioneer Credit Recovery, Inc., "The Initial Demand." A copy of
    this script is attached as Appendix A.

[^50]: *See* National Taxpayer Advocate 2006 Annual Report to Congress
    at 60. While we were preparing the 2006 Annual Report to Congress,
    the IRS advised us that the operational plans and calling scripts of
    the PCAs were proprietary and therefore generally could not be
    released without the PCAs' consent. We found this disturbing because
    one of the principles on which the PDC initiative was predicated was
    the existence of a "level playing field," meaning that rules and
    restrictions applicable to the IRS and its employees would apply
    equally to PCAs and their employees. The collection procedures
    followed by IRS personnel are published in the Internal Revenue
    Manual, so the "proprietary" designation of PCA operational plans
    and calling scripts violates the "level playing field" principle.
    After we raised concerns, the IRS asked the PCAs for consent to
    disclose the scripts. The responses were mixed. After our report was
    issued, two PCAs provided consents. The third PCA, Pioneer, offered
    to give consent only if the IRS agreed not to require PCA employees
    to refer cases to TAS immediately if the taxpayer makes such a
    request. TAS opposed this condition, and the IRS made clear that
    callers who asked to be referred to TAS must be so referred. We were
    informed on February 27, 2007, that Pioneer finally gave an
    unconditional consent.

[^51]: The referenced section of the Resource Guide is attached to this
    document as Appendix B.

[^52]: The referenced section of the Resource Guide is attached to this
    document as Appendix C.

[^53]: IRC § 6159(c)(2)(C).

[^54]: IRM 5.14.11.7(2); IRM 5.19.1.5.4.3(1).

[^55]: For example, an offer-in-compromise based on effective tax
    administration can be rejected because of the taxpayer's compliance
    history. IRM 5.8.11.2.1(7).

[^56]: TAS recently learned that IRS assigns accounts involving innocent
    spouse relief, the ten percent IRA early withdrawal penalty, and the
    trust fund recovery penalty to PCAs if the PCA already has a case
    involving that taxpayer. One can only imagine how an innocent spouse
    who is a victim of domestic violence or a struggling small business
    owner would respond to a "psychological pause" technique.

[^57]: The FDCPA, which is applicable to PCAs, requires debt collectors
    to cease communication efforts if the debtor makes this request in
    writing, 15 U.S.C.A. §1692c(c); *see also* Private Debt Collection
    Agencies Policy and Procedures Guide, Section 12.14 (incorporating
    the FDCPA opt-out provision).

[^58]: TAS also produced video training, including a 20-minute
    presentation by the National Taxpayer Advocate and a two-hour
    discussion by TAS personnel, that is required to be taken by all PCA
    employees about TAS, taxpayer rights, LITCs, and procedures for
    referring TAS cases.

[^59]: Pioneer had a 20.8 percent turnover rate for collectors, CBE had
    a 52.8 percent turnover rate for collectors, and LBGS had a 25
    percent turnover rate for collectors. (Calculation based on PCA list
    of "Collector" and "Collector/IRS Referral Unit" Liaison employees
    provided by the IRS PDC project office).

[^60]: Internal Revenue Service, Human Capital Office Workforce Plan,
    IV-53 (March 2006).

[^61]: IRS employees receive substantial, in-depth training before
    handling collection matters. For example, ACS employees receive
    mandatory training on unauthorized access, ethnic awareness,
    computer security, and annual Continuing Professional Education. In
    FY 2005, this training was a total of 24 hours and eight hours of
    localized training. In contrast, PCA employees receive minimal
    training on complex topics before handling collections matters. For
    example, PCA employees receive 20 minutes of training on privacy
    awareness, 20 minutes on disclosure and safeguard awareness, 20
    minutes on the Taxpayer Bill of Rights and Taxpayer Advocate
    Service, 20 minutes on § 1203 of the IRS Restructuring and Reform
    Act of 1998, and 20 minutes on the role of the Treasury Inspector
    General for Tax Administration. PCA employees also view a two-hour
    video produced by the Taxpayer Advocate Service. National Taxpayer
    Advocate's 2005 Annual Report to Congress at 85-86.

[^62]: The IRS could store and maintain taxpayer files and allow the PCA
    access to the files in case of a civil suit.

[^63]: Treasury Inspector General for Tax Administration, *The Private
    Debt Collection Program Was Effectively Developed and Implemented,
    but Some Follow-up Actions Are Still Necessary* (Mar. 27, 2007).

[^64]: Internal Revenue Service, Human Capital Office Workforce Plan,
    IV-53 (March 2006).

[^65]: *See* Department of the Treasury, *General Explanation of the
    Administration's FY 2004 Revenue Proposals* (Feb. 2003) at 99,
    stating:

    > Many taxpayers with outstanding tax liabilities would make payment
    > if contacted by telephone and, if necessary, offered the ability
    > to make payment of the full amount in installments. If PCAs could
    > perform these tasks for this group of taxpayers, without affecting
    > any taxpayer protection, the IRS would be able to focus its
    > resource on more complex cases and issues.

[^66]: IRS FY Budget in Brief, *available at*:
    http://www.irs.gov/pub/irs-utl/bib-irs.pdf. Excluding operations
    support costs, the IRS's total budget for tax law enforcement in
    fiscal year 2006 was approximately \$4.7 billion dollars and its
    proposed enforcement budget for FY 2007 is approximately \$4.8
    billion dollars. IRS Budget in Brief FY 2007, available at:
    <http://www.irs.gov./pub/irs-news/fy07budgetinbrief.pdf>. For fiscal
    year 2006, the Small Business/Self-Employed Division allocated
    approximately 11,270 FTEs toward collection efforts. IRS Small
    Business/Self-Employed Division, FY 2006--FY 2007 Plan. The IRS Wage
    & Investment Division allocated approximately 3,332 FTEs to
    collection. Wage & Investment Division, *FY 2006 Plan.*

[^67]: In 2004, the IRS acquired an additional "predictive dialer"
    system used to automatically contact taxpayers. National Taxpayer
    Advocate 2004 Annual Report to Congress at 234.

[^68]: IRM 5.14.5.2 (Jul. 12, 2005). The IRS may approve streamlined
    installment agreements where the aggregate unpaid balance of tax
    liabilities is \$25,000 or less and can be fully paid within 60
    months or prior to the Collection Statute Expiration Date, whichever
    comes first. These agreements do not require detailed financial
    statements or approval by IRS managers and may be granted even
    though the taxpayer may be able to fully pay the tax balance sooner.

[^69]: Streamlined IAs accounted for 96.7 percent of all IAs approved in
    FY 2006 and 96.2 percent of the open IA inventory at the close of
    the fiscal year. Internal Revenue Service, Collection Activity
    Report, *Taxpayer Delinquent Account Cumulative Report*, NO-5000-6
    (October 2, 2006).

[^70]: IRM 5.14.1.5(3) requires IRS collection representatives to focus
    on getting the taxpayer current on his or her tax obligations first,
    before considering repayment of tax delinquencies.