PCA Version 3.0

PCA Version 3.0

Are you ready for PCA version 3.0? For the third time in the history of the Internal Revenue Service, the government approved (and in certain instances mandated) the usage of private collection agencies (PCAs) for the purpose of assisting with the collection of federal taxes. The provision is part of some new highway funding legislation called the FAST Act (Fixing America’s Surface Transportation).

The use of PCAs in the collection of tax revenue is controversial. First, and perhaps foremost, the IRS has not been able to show that it actually works — that is, they have not shown that it is cost effective to hire these outside private collection firms. The last time the IRS integrated PCA firms into their collection processes was in 2006/2007. Some will argue that the IRS was able to collect billions of dollars that they otherwise would not have collected with their limited resources. Some contend that the fees charged by the PCA firms cancel out most of the revenue they collected. I don’t know who is right, but one fact cannot be ignored: the IRS discontinued the program after only a couple years. If it were such a wild success, I am certain the government would have found a way to make it last.

Another argument against PCAs is the risk that they will engage in abusive collection tactics. I think this is a legitimate concern, but I personally do not have this fear. I remember PCA version 2.0 back in 2007 and the private collectors that I dealt with were much more civil than the IRS ever was.

There are some tax professionals (and probably even more concerned taxpayers) who really dislike the idea of giving sensitive information to PCA firms. We have seen how the IRS has struggled with safeguarding sensitive taxpayer data, and they’ve had 100 years to try to get it right. So the thought of the IRS turning over social security numbers to a less-experienced private collection firm is rather disconcerting.

Besides these well-documented concerns, what I experienced first-hand in 2007 was that the PCA firms were not given authority to fully resolve certain tax accounts, which caused unnecessary delays and heightened taxpayer frustration. Imagine getting a letter from a PCA firm and then calling them only to find out that your case will have to be referred back to the IRS. The IRS is already notorious for red tape and delays, and if its anything like 2007, I fear this new legislation will only makes things worse.

Non-FTB Tax Collectors

If you live in California, the tax man who comes pounding unexpectedly on your door to collect overdue state taxes might not be a tax man at all.  The California Franchise Tax Board (FTB) hires private collecting agencies (PCAs) to do some of their dirty work for them.  FTB says they keep a close eye on their PCAs to ensure they are treating taxpayers fairly and safeguarding their private information.

The IRS has tried this in the past too with limited success.  My own personal experience with the PCAs hired by the IRS was that they were given so very little authority to actually resolve cases that it seemed a waste of time and resources.  The IRS initiated PCA contracts in 2006, but discontinued the program in early 2009 due to pressure from advocacy groups who said the collection practices were often abusive.  Also, the PCAs weren’t as effective as expected, meaning they didn’t collect as much revenue as their public counterparts.