CRS Updates Report on Private Debt Collection Plan

Under the American Jobs Creation Act of 2004 (AJCA, P.L. 108- 357), the Internal Revenue Service (IRS) has the legal authority to hire private debt collection agencies (PCAs) to assist in the collection of certain individual tax debt. This authority originated in a proposal the Bush Administration included in both its FY2004 and FY2005 budget requests for the IRS.

This report focuses on IRS's unfolding initiative to hire PCAs for the purpose of collecting delinquent individual taxes and the policy issues it raises. It begins with an examination of the scope of IRS's authority to use PCAs under the AJCA and concludes with a discussion of possible issues for Congress as it oversees IRS's exercise of this new authority. The report will be updated to reflect significant legislative action and new developments relevant to the initiative.

Under section 6303 of the Internal Revenue Code (IRC), the IRS is authorized to hire PCAs to assist in the collection of certain individual tax debt under a set of rules intended to protect the basic rights of taxpayers and the confidentiality of taxpayer information. In essence, the IRS may use PCAs only to locate and contact taxpayers with an unpaid tax liability who have no unresolved disputes with the agency over the amount of taxes owed, and to arrange for the payment of those taxes. PCAs must adhere to a prescribed procedure in contacting delinquent taxpayers.

The Bush Administration's proposal to allow the IRS to hire PCAs sparked a lively debate in the 108th Congress over whether it served the public interest, a debate that has carried over into the 109th Congress. Proponents of the private debt collection initiative say it is necessary for two reasons. First, there is a large and growing inventory of delinquent individual tax debt that is eroding public trust in the fairness of the tax system and encourages law-abiding taxpayers to engage in tax evasion. Second, they note that Congress has declined to give the IRS the resources to collect this outstanding tax debt. Critics of the initiative agree that the huge backlog of tax debt should be reduced, but they argue that the task of collecting the overdue and unpaid taxes should be handled by trained IRS agents, not PCAs. In their view, the use of PCAs is unwarranted for three reasons. First, they maintain that the collection of taxes is an inherently governmental function. Second, in the view of critics, it would be more cost effective to hire and train more IRS agents to collect the tax debt than to hire and train PCAs for the same purpose. Third, they doubt that PCAs can be trusted to protect taxpayer rights and avoid abusive collection practices.

Congressional opponents of the IRS's private debt collection initiative are continuing their efforts to derail it. In the 109th Congress, H.R. 1583, H.R. 1621, and H.R. 5084 would repeal the IRS's authority to enter into contracts with PCAs, and S. 3887 would compel the IRS to suspend indefinitely its private debt collection initiative and bar it from using any appropriated funds to enter into, administer, or enforce a "qualified tax collection contract."

 Contents

This view also appears to be reflected in federal law. Section 6301 of the Internal Revenue Code (IRC) specifies that "the Secretary shall collect the taxes imposed by the internal revenue laws." (In this context, the "Secretary" refers to the officers, employees, or agencies of the Treasury Department.) The Debt Collection Improvement Act of 1996 (DCIA, P.L. 104-34) allows all federal agencies to enter into contracts with private firms to collect all debts owed to the federal government except tax debts. And the Federal Activities Inventory Reform Act of 1998 (FAIR, P.L. 105-270) bars federal agencies from contracting out functions that are deemed inherently governmental. Section 5 of the act defines an inherently governmental activity as one that "is so intimately related to the public interest as to require performance by Federal Government employees," and that requires the "exercise of discretion" in the use of authority or the "making of value judgments relating to monetary transactions and entitlements."²

Nonetheless, the American Jobs Creation Act of 2004 (AJCA, P.L. 108-357) gave the IRS the legal authority to hire private debt collection agencies (PCAs) to assist in the collection of certain individual tax debt.³ This grant of authority marked the second time that the agency was authorized to hire PCAs and capped a lively debate in Congress over the best way to shrink a large and growing inventory of potentially collectible federal tax debt. The debate was sparked by a proposal to allow the IRS to use PCAs to collect certain unpaid individual tax liabilities that was included in the Bush Administration's budget requests for FY2004 and FY2005. Though the proposal garnered enough support in the 108th Congress to be adopted, it also engendered strong opposition, an opposition that continues to percolate in the current Congress.

IRS's initial experience with PCAs came in the form of a pilot project -- known as the Contracting Out Collection Activities Project -- authorized by the Treasury, Postal Service, and General Government Appropriations Act, 1996 (P.L. 104-52). The project lasted about one year, before the IRS ended it in the face of mounting opposition from some Members of Congress and senior officials in the Clinton Administration.

This report examines IRS's current plan for hiring PCAs to collect delinquent individual taxes and some of the possible policy issues it raises. More specifically, it describes the scope of IRS's statutory authority to use PCAs under the AJCA, explains the main arguments raised for and against the use of PCAs to collect overdue individual taxes, discusses the steps the IRS has taken so far to implement this authority, and identifies legislative proposals in the 109th Congress that would affect IRS's future use of PCAs. The report concludes with a brief discussion of the main policy issues for Congress as it oversees the private debt collection initiative. It will be updated to reflect recent legislative activity and other important new developments relevant to the initiative.

Among other things, the AJCA added section 6306 to the Internal Revenue Code (IRC). As a result, the IRS is authorized to hire PCAs to assist with the collection of delinquent individual taxes in a manner that protects basic taxpayer rights, enforces laws barring the use of abusive collection practices, and adheres to the laws barring the outsourcing of activities that are inherently governmental. An individual taxpayer is considered delinquent if he or she fails to pay his or her taxes by the due date, in spite of receiving a notice from the IRS about the amount owed.

IRC section 6306 also specifies a set of guidelines for the use of PCAs by the IRS. First and foremost, the IRS may use PCAs for two narrow purposes only: (1) to locate and contact taxpayers with an unpaid tax liability who have no unresolved disputes with the IRS over the amount of taxes owed, and (2) to arrange for payment of those taxes. Most of these taxpayers are expected to fit into one of two categories: (1) those who have filed a return indicating an amount due but have failed to pay the balance in full, and (2) those who have been assessed an additional tax by the IRS in its review of their returns and made several payments but failed to pay the entire amount owed. No cases whose resolution requires the "exercise of discretion" by the IRS -- such as disputes over the interpretation of the tax code or the amount of tax assessed by the IRS -- are to be handled by PCAs. The exercise of such judgment is considered to be an inherent function of government, under the federal tax code. In limiting the collection work of PCAs in this manner, Congress and the Bush Administration were hoping to avoid a conflict between the design of the private tax debt collection initiative and the federal laws barring the outsourcing of inherently governmental activities.

Second, PCAs awarded tax collection contracts are required to follow a prescribed procedure when contacting a delinquent taxpayer. Their initial contact has to be in the form of a letter reminding the individual of an unpaid and overdue tax liability. If his or her last known address is incorrect, the PCA is authorized to track down the correct address. If the letter does not lead to a prompt payment of the tax debt, a PCA may then try to reach the taxpayer by telephone and request that he or she pay the balance immediately. If a taxpayer responds that he or she cannot do so, the PCA can offer the taxpayer the option of paying off the tax debt by making installment payments over a period of up to five years. If the taxpayer does not agree to such a payment plan, the PCA then may obtain certain financial information about the taxpayer and turn it over to the IRS for further action. Once a PCA gathers this information, it may have no further contact with the taxpayer.

Third, employees of PCAs are expected to adhere to the same statutory code of ethics for collection that applies to IRS employees. But, if a taxpayer contacted by a PCA accuses it of acting unlawfully or abusively and sues for civil damages, the IRS cannot be held legally liable for the actions of the PCA. And if the IRS determines that the actions of a PCA violate section 1203 of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA98), which sets forth the circumstances under which an IRS employee can be fired for misconduct, the agency may impose several penalties, including revoking the firm's tax collection contract and barring it from bidding on future contracts.

Fourth, PCAs awarded tax collection contracts must also adhere to a set of statutory protections of the rights of individual taxpayers with tax debts. Specifically, the employees of PCAs assigned to work on the contracts must understand and abide by the provisions of the Fair Debt Collection Practices Act of 1996 (FDCPA), which prohibits the use of collection practices deemed to be unreasonably intrusive or abusive to debtors.⁴ Those employees are also bound by the same legal protections of taxpayer rights and privacy as IRS employees. This requirement means that PCA employees are subject to civil and criminal penalties for the unlawful disclosure of taxpayer information under IRC section 6103. It also means that PCAs must inform the taxpayers they contact of their right to seek assistance from the IRS National Taxpayer Advocate, whose orders under IRC section 7811 apply with equal force to PCA and IRS employees.

Fifth, a PCA is not allowed to hire subcontractors to contact taxpayers, provide quality assurance services, or write debt collection notices. If a PCA wishes to hire a subcontractor for another purpose connected to its responsibilities under a tax debt collection contract, it must first obtain the approval of the IRS.

Sixth, all revenue collected through the efforts of PCAs shall be placed in a revolving fund. But PCAs are not allowed to receive or process any of this money; only the IRS can do so. In addition, the IRS may use up to 25% of the money in the fund to compensate PCAs for their services -- though IRC section 6306 offers no guidance on the method to be used by the IRS to compensate a PCA for its services. The IRS is permitted to transfer up to 25% of the revenue in the revolving fund to its budget for tax law enforcement in a fiscal year. How much revenue is likely to be collected through the use of PCAs is unclear. The congressional Joint Committee on Taxation has estimated that the use of PCAs under the terms of IRC section 6306 should result in the collection of $1.356 billion in delinquent tax debt from FY2005 through FY2014.⁵ By contrast, the IRS has maintained that PCAs are likely to bring in about $7.2 billion in overdue taxes during the same period.⁶

IRS's current authority to use PCAs comes with at least one notable string attached: periodic congressional review of the results of the private tax debt collection initiative. Under the AJCA, the IRS must submit a report every other year, beginning in 2005, to the House Ways and Means and Senate Finance Committees assessing various aspects of the initiative, including its overall costs and benefits, its impact on IRS enforcement staffing levels, its impact on the inventory of unpaid tax assessments, the amount of revenue collected, the performance of contractors, and the effectiveness of the collection techniques used by PCAs.⁷

Previous Law

Before the enactment of the AJCA, the IRS lacked the legal authority to hire private companies to assist in the collection of delinquent taxes, with one notable but short-lived exception (see below).

Since 1954, the federal tax code has made it clear that only the IRS is authorized to collect taxes: under IRC Section 6301, only officers, employees, and agencies of the Treasury Department may collect "taxes imposed by the internal revenue laws." This restriction on the exercise of tax collection authority was included in the Debt Collection Improvement Act of 1996 (DCIA, P.L. 104-134), which permits all federal agencies, except the IRS, to enter into contracts with PCAs to collect overdue debts owed to the federal government. Reinforcing the legal barriers to the outsourcing of federal tax collection were several provisions of the Federal Activities Inventory Reform Act of 1998 (FAIR), which bars federal agencies from hiring the private sector to conduct activities regarded as inherently governmental. According to Section 5 of the act, an activity is considered inherently governmental if "it is so intimately related to the public interest as to require performance by Federal Government employees," and if it entails the "exercise of discretion" in applying governmental authority or the "making of value judgments relating to monetary transactions and entitlements."⁸

The short-lived exception occurred in 1996 and 1997, when Congress gave the IRS the authority to establish and manage a pilot project involving the use of PCAs. In the appropriations bills pertaining to the Treasury Department enacted for both FY1996 and FY1997, Congress authorized the IRS to spend up to $13 million each year to test the use of PCAs in the collection of delinquent individual taxes. In response to this mandate, the IRS set up a program under which the PCAs it hired assisted IRS collection staff by locating and contacting individual taxpayers to remind them of their unpaid and overdue tax liabilities and inform them of payment options. Taxpayers who agreed to a payment plan were referred to someone in IRS's collection division to arrange a payment schedule. Under the program, only IRS employees could collect funds to settle delinquent accounts. PCAs received a fixed fee for their services, regardless of the amount of overdue taxes collected.

Dissatisfaction with the results of the program among some in Congress and the Clinton Administration led the IRS to cancel it in 1997. These results and the main contributing factors were examined in a report issued by the General Accounting Office (GAO) in July 1997.⁹ According to the report, through the end of January 1997, PCAs had contacted 14,000 out of 153,000 targeted taxpayers and collected $3.1 million in overdue taxes. Moreover, the total cost of the program exceeded the total amount collected: through January 1997, expenditures for the design, start-up, and administration of the program came to $3.1 million; a total of about $1.0 million had been paid to PCAs for their services; and the estimated opportunity cost of using IRS collection staff to assist with the pilot program instead of using them to collect taxes was $17 million. GAO ascribed the failure of the program to live up to initial expectations to several factors, most notably the limitations imposed on the work PCAs were allowed to undertake the number and types of cases referred to PCAs, and problems in using IRS's computer system to identify, select, and transmit collection cases to PCAs.

Legislative History of IRS's Current Authority

IRS's current authority to hire PCAs has its origins in the Bush Administration's budget requests for the IRS in both FY2004 and FY2005. Each request included a proposal to allow the IRS to hire PCAs under a set of restrictive guidelines to help the agency reduce a swelling inventory of overdue and unpaid individual taxes.¹⁰

Under the proposal, the use of PCAs was to be limited to locating individual taxpayers with unpaid and overdue tax liabilities who were not contesting their tax assessments, contacting them to request full and prompt payment of these debts, offering the option of paying in installments over three years if full payment could not be made immediately, and obtaining certain financial information about the taxpayer and transmitting it to the IRS for further action if no such agreement could be reached. PCAs were to be assigned cases that were likely to be resolved with one or two phone calls and required no "exercise of discretion" by the IRS. Most of these cases were to focus on taxpayers who had filed tax returns showing that taxes were owed but not paid, or who made three or more voluntary payments against a tax assessment by the IRS but stopped the payments short of paying off the full amount. All revenue collected through the activities of PCAs was to be funneled into a revolving fund, from which they were to be compensated for their services. Compensation was to be based on a number of factors, including the quality of service provided, taxpayer satisfaction, and case resolution. Employees of PCAs were to be subject to the same rules regarding the protection of basic taxpayer rights and the confidentiality of taxpayer information that applied to IRS employees. Taxpayers who believed their rights were violated by the actions of a PCA could have sued the company for civil damages. But the federal government was not to be held liable for any unauthorized act committed by a PCA. Clearly, there are multiple parallels between the Administration's proposal and the provision in the AJCA granting the IRS the authority to hire PCAs.

In asking Congress to grant the IRS the legal authority to use PCAs, the Bush Administration was addressing at least two important policy issues. One was the rising amount of delinquent individual income tax debt and its potential impact on public trust in the fairness of the federal income tax system and the ability of the IRS to ensure that each taxpayer pays the tax that he or she owes in a timely manner. In testimony delivered at a hearing held by the House Ways and Means Subcommittee on Oversight on May 13, 2003, IRS Commissioner Mark W. Everson noted that the amount of individual income tax debt deemed uncollectible by the IRS because of changing enforcement priorities increased from about $7 billion in early 2000 to over $13 billion in early 2003.

Another policy issue was the resources available to the IRS to address the growing inventory of delinquent individual tax debt. From FY1996 through FY2003, the number of IRS revenue officers assigned to handle delinquent accounts fell from about 5,500 to about 3,500, a decrease of 36%. IRS officials attributed the decline to an increase in the workload in other essential operations (e.g., processing returns, issuing refunds, and responding to mail from taxpayers); a shift in the strategic focus of the IRS away from enforcement and toward taxpayer service and support; increases in operating costs (e.g., rent, mail, and wages) not covered by appropriated funds; and congressional opposition to the Bush Administration's repeated requests for larger budgets for tax collection.¹¹ The decline in collection staff widened the gap between the number of cases assigned for collection and the number of cases closed each year to the extent that by May 2003, the IRS was deferring action on one of every three collection cases.¹² In the face of these trends, senior IRS officials concluded that the only feasible option for taking immediate action to reduce the growing inventory of delinquent individual tax debt was to outsource some of the collection work to the private sector.

Several legislative initiatives in the 108th Congress sought to implement the main elements of the Administration's budget proposal. Specifically, H.R. 1169, H.R. 2896, S. 2, and S. 1637 contained provisions that would have given the IRS the legal authority to hire PCAs to assist with the collection of individual tax debt under the stringent guidelines specified in the proposal. The AJCA emerged from the conference report (H.Rept. 108-755) on H.R. 4520 that was approved by the House and Senate. On the issue of whether the IRS should be allowed to enter into tax collection contracts with private firms, the report combined elements from the House-passed version of the bill (which incorporated the provision on PCAs from H.R. 2896), and the Senate-passed version (which included the provision on PCAs from S. 1637).

Lingering opposition to the initiative raises the possibility that future Congresses will be asked to examine the policy issues it raises. Therefore, it might be useful for lawmakers to have a clear understanding of the main arguments for and against the initiative. They are discussed below.

Pro

The argument that is made in favor of allowing the IRS to use PCAs in the collection of delinquent individual tax debt is rooted in several intersecting trends. Supporters of the IRS's private tax debt collection initiative, led by IRS Commissioner Mark Everson, cite recent growth in the inventory of unpaid individual tax debt and a steep decline in the IRS enforcement staff in the presence of a large and growing federal budget deficit as the primary justification for their support. As of September 2005, $13.5 billion in individual income tax debt (including accrued interest and penalties) was considered uncollectible because the IRS lacked sufficient resources to work on the delinquent accounts; five years earlier, that debt totaled about $9.0 billion.¹⁴ A key factor behind this growth was a significant rise in the workload of the average IRS enforcement agent: from 1996 to 2003, the number of IRS agents engaged in enforcement activities decreased by 26%, while the volume of individual tax returns increased by 12%. Meanwhile, the federal budget shifted from a surplus of $128 billion to a deficit of $319 billion between FY2001 and FY2005. In its latest assessment of the outlook for the federal budget, the Congressional Budget Office is projecting a deficit in its baseline budget forecast of $286 billion in FY2007 and a cumulative deficit of $1.418 trillion from FY2007 through FY2011.¹⁵

In a bid to reverse the upward spiral in delinquent individual tax debt, the Bush Administration has proposed in several budget requests that more resources be channeled into tax law enforcement, but Congress has not provided the requested funding. For instance, the Administration asked Congress to appropriate $3.881 billion for tax compliance services in FY2003 so that the IRS could expand its fulltime workforce for that purpose to 45,959; Congress ended up approving a budget for tax compliance services of $3.623 billion, which meant that the IRS was able to hire 1,569 fewer compliance services agents than it had requested.

For proponents of the private tax debt collection initiative, the expanding backlog of cases involving individual taxpayers who are aware of their tax liabilities gives rise to several policy concerns. One concern is that unchecked increases in unpaid but collectible individual tax debt is bound to erode the public's trust in the fairness and integrity of the federal income tax system and foster more tax evasion.

Another concern arises from the previous one: if enough honest and lawabiding taxpayers were to stop paying the taxes they owe in the belief that they will not be caught by the IRS, the federal tax gap, which is the difference between the amount of federal taxes owed and the amount paid on time, could worsen dramatically. An expanding tax gap is reason for concern. Not only would federal revenues be smaller, but the economic costs arising from tax evasion would increase. Foremost among those costs are unequal tax burdens among individuals with similar incomes, higher effective tax rates for law-abiding taxpayers, and a reallocation of economic resources to activities where tax evasion has a relatively high chance of success.¹⁶

In light of these concerns, proponents of the private tax debt collection initiative maintain that if Congress chooses not to give the IRS the resources it claims it needs to pursue the delinquent individual tax debt considered readily collectible -- the so-called low-hanging fruit on the tax-evasion tree -- then a simple, feasible, and cost-effective solution would be to permit the IRS to hire PCAs to do the work under a set of stringent rules governing their dealings with taxpayers. At a minimum, say proponents, the rules should protect the privacy of taxpayers and the confidentiality of their tax information and prohibit abusive or unreasonably intrusive collection practices. Proponents contend that such a solution could be achieved through a combination of new statutory amendments, explicit contractual provisions, and aggressive IRS oversight.

In addition, proponents argue that the use of PCAs would allow the IRS to focus its limited enforcement resources on more complex and challenging cases offering greater revenue gains than what could be achieved through putting more resources into going after delinquent individual tax debt.

Proponents also insist that any initiative to use PCAs could be designed so that it does not violate or contravene any federal statutes making the collection of taxes an inherently governmental function. One option, in their view, would be to allow PCAs to handle cases that do not entail the exercise of discretion over the enforcement of tax law. Under such an approach, PCAs would not be assigned cases involving disputes between taxpayers and the IRS over the interpretation of the tax code or the amount of tax owed.

Still another argument made in support of the private tax debt collection initiative is that 40 state governments and the U.S. Department of Education use private collection firms to collect unpaid debts from individuals with no major difficulties.

Con

Opposition to the IRS's private tax debt collection initiative -- led by the National Treasury Employees Union (NTEU), the National Taxpayer Advocate, the Tax Executives Institute, and certain consumer advocacy groups -- is motivated by a different set of concerns.

A central argument made by opponents is that the collection of taxes is an inherent function of government and thus should not be delegated to the private sector under any circumstances. In their view, this stance rests on a solid foundation of legal precedent. Of particular importance are IRC section 6301 and the relevant provisions of DCIA and FAIR, all of which limit the exercise of the power to collect taxes to the IRS.

Opponents also contend that the initiative is likely to be less cost-effective than the alternative of giving the IRS the resources it needs to collect the delinquent individual tax debt. In testimony delivered before the House Ways and Means Subcommittee on Oversight in May 2003, Colleen Kelley, the National President of the NTEU, noted that hiring PCAs to collect delinquent individual tax debt under the guidelines of the Bush Administration's proposal would eventually yield $3 in revenue for each dollar paid to PCAs for their services, but that hiring additional IRS enforcement agents for the same purpose would eventually yield $31 in revenue for each dollar spent on wages and benefits for the new staff.¹⁷ Her calculations were based on a comparison of the costs of a proposal made in 2002 by then IRS Commissioner Charles Rossotti to allow the IRS to hire an additional 5,450 employees to focus on collecting unpaid tax debts, and of the Administration's FY2004 budget proposal to hire PCAs for the same purpose.¹⁸ In response to a question from Representative Steven Rothman during a congressional hearing in March 2006, current IRS Commissioner Mark Everson affirmed that it would cost more to use PCAs to collect delinquent individual tax debt than to hire additional IRS employees for the same purpose.¹⁹

Opponents also are concerned that the statutory rights of taxpayers and the confidentiality of taxpayer information are at great risk of being violated under the IRS's initiative. Much of this concern springs from a belief that the IRS cannot be counted on to monitor the actions of PCAs to ensure that they are taking all required steps to safeguard taxpayer rights. Opponents say that such a belief is warranted by certain recent experiences. More specifically, they cite numerous alleged violations of the FDCPA by some of the PCAs participating in the pilot tax debt collection initiative launched by the IRS in 1996 and terminated in 1997, and the failure of the IRS to cancel the contracts of the firms found in violation of the act, even though it had the authority to do so.²⁰ They also point to the findings of a 2004 report on IRS's oversight of its contractors by the Treasury Inspector General for Tax Administration (TIGTA). The report has not been released to the general public out of concern that its findings might compromise the security of IRS's computer operations. It concluded that there was an increased risk of unauthorized disclosure of taxpayer information and the spread of computer viruses in the IRS's information systems because of the access to its computer systems that the agency granted four private contractors in 2003. The report also recommended that the IRS tighten its supervision of contractors in the future to reduce its exposure to such risks.²¹

In addition, opponents maintain that the initiative carries an unacceptably high risk of the wrongful disclosure of taxpayer information. The statute granting the IRS the authority to hire PCAs (IRC section 6306) places no restrictions on the taxpayer information that may be released to PCAs. If proper restrictions and a strict enforcement mechanism are not put in place, it is feared, PCA employees assigned to collect tax debt for the IRS could share confidential taxpayer information with individuals who could use it for criminal purposes, such as identity theft.

Lastly, opponents of the initiative say it should be scrapped because it paves the way for illegal and abusive collection practices by PCAs. In their view, paying PCAs a certain percentage of the revenues collected through their contacts with taxpayers -- in effect, paying them a lucrative commission for the overdue revenue they collect -- is likely to encourage them to resort to harassment and other aggressive collection practices in an effort to maximize their earnings from the contracts. To substantiate this concern, opponents point to recent reports by the Federal Trade Commission on consumer complaints, which showed that the average PCA engaged in overly aggressive collection practices.²² They also contend that the proposed compensation plan for PCAs is blatantly inconsistent with section 1204 of the RRA98, which effectively bars IRS management from linking the compensation paid to enforcement agents to the amount of unpaid taxes they collect from delinquent taxpayers.²³

The IRS began to lay the foundation for its current private tax debt collection initiative in late 2001, about three years before it gained the authority to implement such an initiative. A central objective of the planning effort was to come up with an approach that would collect a substantial amount of overdue and unpaid individual taxes without repeating the mistakes that undermined the 1996 pilot project.

A PCA project team was formed within the IRS in October 2001. One of its first activities was to meet with representatives from the revenue agencies of five state governments and two federal agencies with experience in administering debt collection programs that use private contractors.²⁴ Among the issues explored by the team were the structure and management of contracts for the private collection of public debts, data security, compensation arrangements, and the protection of taxpayer rights. The team also met five times with representatives from three PCAs between May and October 2002 to discuss a variety of issues related to collection case management, including case screening criteria, electronic data sharing capabilities, data security requirements, and potential compensation schemes.

In a sign the IRS was ready to move forward with a plan for a tax debt collection involving the use of PCAs, the agency issued in February 2003 a so-called Request for Quotation (RFQ) that dealt with its emerging plan to hire PCAs.²⁵ The RFQ's primary purpose was to promote awareness among prospective contractors of the IRS's growing interest in the use of PCAs, and to solicit useful feedback from PCAs on the requirements that should be included in collection contracts.

In May 2004, the GAO released a report assessing the IRS's readiness to implement a plan for using PCAs similar to the one that the Bush Administration included in its FY2004 budget request. GAO made the assessment largely on the basis of what it called the "five broad factors that are critical to the success of a proposed program for contracting with PCAs to collect tax debt."²⁶ One factor concerned the goals for the program; a second addressed the resources needed by the IRS to achieve those goals; a third focused on the nature of the work that would be assigned to PCAs; a fourth dealt with the protection of taxpayer rights and privacy; and the fifth stressed the importance of monitoring the performance of PCAs and periodically comparing the results and costs of the program with its main goals. The report concluded that, though the IRS had taken a number of steps to address each of the factors, considerable work needed to be done before the agency could be deemed fully prepared to begin assigning collection cases to PCAs.

2005

With the enactment of the AJCA, the IRS shifted its focus from devising a plan to outsource the collection of certain individual tax debt to implementing the approach outlined in the act.

Initial Request for Quotes (RFQ). On April 27, 2005, the agency issued an RFQ (TIRNO-05-Q-00050) soliciting bids for contracts to assist with the collection of specified delinquent tax debt. In the document, the IRS announced that it intended to implement the private tax debt collection initiative in two stages: "a limited implementation in FY2005, (followed by) a full implementation in FY2007." In the first stage, the IRS would enter into contracts with "approximately three" PCAs. To be eligible to bid on a contract, a firm had to be registered as a debt collection agency with the General Services Administration (GSA) and a current supplier of debt collection services to a federal agency "under GSA Schedule 520-4." Only 23 of the 87 PCAs authorized by the GSA to perform debt collection for federal agencies as of early 2005 were qualified to bid for the IRS contracts under these criteria. In addition, all employees of contractors and subcontractors had to be U.S. citizens or permanent resident aliens. Each of the contracts would last 12 months and could be extended up to six months a total of three times. Firms interested in bidding for a contract had to provide the IRS with details on their past performance, pricing, licenses, and bonding. Applications had to be submitted by 12:30 p.m. on June 1, 2005. In late May 2005, IRS advanced the application deadline to June 7, 2005, and said that it intended to award the three contracts by the end of July of that year and start the initial phase of the collection work in January 2006.

The RFQ covered many key issues, including the rules governing the collection work to be done by PCAs and how contractors would be paid. Basically, PCAs with contracts would be assigned collection cases involving individual taxpayers who filed tax forms 1040, 1040A, or 1040EZ, owed a balance of $25,000 or less in assessed tax, and were not contesting their tax liabilities. Only tax debt that was delinquent at least 30 days but no more than four years before the expiration of the 10-year statute of limitations on the collection of federal tax debt could be assigned to a PCA. According to the RFQ, as of December 2004, the IRS had classified $7.7 billion in delinquent tax debt as "potentially available for the limited implementation of private debt collection"; about $5.5 billion of this amount was considered "low-priority work load that would likely be eligible for placement with PCAs." The IRS anticipated assigning about 100,000 delinquent accounts to PCAs in the first year of the initiative.

All collection work had to be performed in the United States, and none of the taxpayer information may be transmitted outside the United States through the contractors' computer systems.

PCAs were required to comply with all laws protecting basic taxpayer rights and the confidentiality of taxpayer information. For each collection case assigned to it, a PCA could receive no more details than the taxpayer's name, phone number, address, the tax year in question, and the amount due. PCA employees working on assigned cases had to be U.S. citizens or permanent resident aliens and pass a background investigation conducted by the IRS. In addition, they would have to undergo training on IRS security, collection, and privacy policies and the penalties under IRC Sections 7213, 7213A, and 7431 for the unauthorized disclosure or use of tax return information, and they would have to certify in writing that they received such instruction.

The IRS would take several steps to ensure that PCAs were complying with the terms of their collection contracts. For example, all letters that PCAs intended to send to taxpayers had to be approved in advance by the IRS, and the IRS reserved the right to monitor phone conversations between contractors and taxpayers. In addition, PCAs were required to grant the IRS "full, free, and uninhibited access" to all facilities owned by the contractors so the agency could verify that contractors were taking all necessary and appropriate measures to protect the rights of taxpayers and the confidentiality of taxpayer information.

PCAs would be paid according to the amount of delinquent tax debt they collect. Compensation would range from 24% of collections of less than $1,500 to 21% for collections of more than $10,000, and it would apply only to payments received from delinquent taxpayers no fewer than 11 days after an account is transferred to a PCA and no later than 10 days after the account is returned to the IRS. Contractors that were the target of repeated complaints from taxpayers could lose some or all of the compensation they are owed.

Legal Challenge to Initial RFQ. The solicitation of bids under the April RFQ came to an abrupt halt on June 6, 2005, when a PCA based in Houston, Texas -- Universal Fidelity LP -- filed a lawsuit in the U.S. Court of Federal Claims challenging the legality and fairness of the procedure used by the IRS to award the contracts for the initial phase of the private tax debt collection initiative.²⁷ Universal Fidelity was one of the 87 contractors approved by the GSA for debt collection under Schedule 520-4, but it was not allowed to bid for a contract because the company was not performing debt collection for a federal agency under a current work order. The lawsuit (Universal Fidelity LP v. United States, Fed. Cl., No. 05-602C) charged that the IRS's solicitation of bids violated the Competition in Contracting Act of 1984 in two important ways: (1) by setting conditions that were "arbitrary, capricious, and unduly restrictive," and (2) by unfairly excluding firms that could meet the agency's minimum requirements. It asked the court to issue temporary and permanent injunctions preventing the IRS from awarding contracts under the RFQ.

In its response to the lawsuit, the IRS argued that hiring contractors with active work orders only had several key advantages. Specifically, this approach would reduce the time needed to begin the first phase of the debt collection initiative. It would also avoid many of the problems that could arise from unfamiliarity with the laws and regulations governing the use of PCAs in the public sector and a lack of compatibility because of information systems used by the contractors and the systems used by the IRS. Finally, limiting the field of potential contractors to those with active work orders would increase the IRS's chances of achieving its short-term objective of collecting a minimum of $4 million in revenue in FY2006 through the use of PCAs -- 25% of which would be transferred to the IRS's budget for enforcement activities.

The judge presiding over the case issued a temporary ruling on July 25, 2005, barring the IRS from proceeding with its original bid solicitation and requiring the agency to open the bidding to all 87 contractors approved by the GSA for debt collection work.²⁸ In his ruling, the judge noted that excluding contractors without current work orders, "irrespective of their experience or ability, is arbitrary and capricious in the circumstances presented." He also noted that the IRS could achieve its aims "more fairly and efficiently by other means, including other mandatory minimum requirements." The ruling was not final, as the judge wanted to give the IRS "an opportunity to make alternative plans and to take appropriate actions in a prompt and efficient manner." On July 29, the IRS agreed to abide by the judge's ruling in a report it filed with the court, and on August 4, it canceled the contested RFQ.

In mid-August 2005, the IRS asked the judge to dismiss Universal Fidelity's lawsuit on the grounds that the agency's decision to change its bid solicitation to bring it into compliance with the judge's ruling rendered the suit invalid. The judge concurred with the IRS, in a ruling issued on September 28, and dismissed the case. In his view, the underlying controversy had been resolved.²⁹ At the same time, he allowed Universal Fidelity to file a motion to re-open the case if it finds that the IRS's revised bid solicitation raises the same problems as the earlier one.

Revised RFQ. Delivering on its pledge, the IRS released a new RFQ for the first phase of its debt collection initiative on October 14, 2005. The document reiterated the agency's intention to hire three PCAs to assist in the collection of certain delinquent individual tax debt, starting in 2006. It also stated that the IRS would award the contracts in February 2006 and launch the first phase of the collection program the following June, assuming no significant problems arise. All firms approved by the GSA to undertake debt collection work for federal agencies under Federal Supply Schedule 520-4 were eligible to submit bids -- which is to say that a firm's eligibility would no longer depend on whether it had a current work order with a federal agency for debt collection. The contracts were to cover one year, with an option to extend them another year. An important consideration in awarding the contracts would be a bidder's "relevant" experience in performing debt collection work. To quote from the RFQ: "vendors' experience should demonstrate a wide variety of collection experience, on a nationwide basis, and should also demonstrate a level of accomplishment in a competitive environment."³⁰ Most of the remaining terms of the RFQ were identical to those of the one issued in April 2005, including the compensation of contractors. Assuming no problems arise, the initiative could be expanded to as many as 12 contractors in January 2008.

2006

First Round of Contract Awards. The IRS awarded the first three collection contracts to the CBE Group, Linebarger Goggan Blair & Sampson, and Pioneer Credit Recovery on March 9, 2006. They were chosen from a field of 33 firms that submitted bids. Each is an established collection agency with extensive experience working with government agencies. CBE and Pioneer both have received "satisfactory" ratings from the Better Business Bureau and have current contracts with the U.S. Department of Education to collect delinquent student loan debt.³¹ Linebarger Goggan has a GSA contract to offer collection services to federal agencies. Under the terms of their contracts, the three firms could be assigned collection cases totaling $750 million in delinquent individual tax debt during the first year of the contract.

Legal Challenge to Initial Awards. In mid-March, two of the unsuccessful bidders (Diversified Collection Services and GC Services) filed separate formal protests with the GAO over the method used by the IRS to evaluate the bids. According to media reports, the two firms accused the agency of evaluating the 33 bids it received according to criteria that were inconsistent with the RFQ issued in October 2005.³² By law, the GAO had up to 100 days -- or until June 26 -- to issue a ruling in the case. In deciding whether to deny or sustain protests involving bids on federal procurement contracts, the agency normally considers the relevant parts of the Competition in Contracting Act and federal regulations on procurement. Under federal law, the IRS had to suspend implementation of the contracts while the bid protest was being adjudicated. The CBE Group became a party to the protest in late March, giving it access to all documents filed in the case.

In weighing the merits of the protests, the GAO decided to combine the two cases into one. On June 14, it denied the protest filed by GC Services on the grounds that it found no evidence to support the charge that the IRS evaluated any of the bids unfairly. In the view of some analysts, the agency's ruling re-affirmed the notion that a protester's disagreement with an agency's judgment or evaluation does not mean that such a judgment or evaluation is unreasonable or unfair.³³ As a result of the ruling, the IRS was free to resume implementation of the three collection contracts.

Release of First Round of Collection Cases. The IRS turned over 12,000 delinquent taxpayer accounts on September 7, 2006, to the three PCAs awarded contracts, despite mounting opposition in Congress to the initiative. As many as 40,000 such accounts could be assigned to the contractors by the end of 2006, and they could receive an additional 158,000 accounts by the end of December 2007. The dollar value of those 158,000 accounts is likely to fall somewhere in the range of $616 million to $1 billion. Between $56 million and $92 million in delinquent tax revenue could be collected by the three contractors during the first phase of the initiative, which extends from September 2006 through December 2007, at a cost of $61 million (including the salaries of IRS staff and the cost of new information systems).³⁴ According to IRS Commissioner Mark Everson, the contractors collected close to $500,000 from nearly 250 taxpayers during their first two weeks of contacting delinquent taxpayers.³⁵

In conjunction with the start of the first phase of the private tax debt collection initiative, the IRS issued two publications offering detailed information on how the initiative will operate in its first year and the steps being taken by the IRS to safeguard taxpayer rights and the confidentiality of taxpayer information. One publication is a brochure that is intended to answer basic questions about the initiative for taxpayers who are contacted by a PCA. It is entitled What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency (Publication 4518) and can be accessed through the IRS website at [http://www.irs.gov/pub/irs-pdf/p4518.pdf].

The second publication (Announcement 2006-63) appeared in Internal Revenue Bulletin 2006-37, which was released on September 11, 2006.³⁶ Basically, it summarizes the functions served by PCAs, the limits on their activities, and the mechanisms the IRS is putting in place to protect taxpayer rights and privacy. More specifically, the publication offers the following details about the initiative:

• IRC Section 6303 limits the role of PCAs to locating and contacting taxpayers identified by the IRS about tax debts "specified by the IRS"; requesting payment of the overdue taxes, either in a lump sum or in installments over a period of not more than five years; and obtaining financial information "specified by the IRS."

• PCAs must get the approval of the IRS for any installment agreement covering a total payment of over $25,000 and a period of more than 36 months.

• In trying to obtain needed financial information about a taxpayer, PCAs may access non-IRS computer databases or websites, but PCA employees may not call or write to a third party, such as the taxpayer's employer, bank, or neighbors, to inquire about the taxpayer's financial condition.

• The IRS is to give PCA employees the following tax return information for the delinquent taxpayer accounts they are assigned: the taxpayer's name and social security number or taxpayer identification number; the name and social security number of the taxpayer's spouse, if the tax liability is jointly held; the taxpayer's last known address; the amount of the assigned tax debt, the tax year(s) to which it applies, and the date when the statue of limitations for the collection of the tax debt expires; and the name, address, and telephone number of anyone with the power of attorney for the taxpayer.

• PCAs may retain any tax records provided by the IRS "only for the limited time period specified in (their) contract with the IRS."

• PCAs and their employees may not use "any information obtained about a taxpayer in the course of working on the contract with the IRS for any purpose other than working on the contract."

• PCAs and their employees must adhere to all protections of taxpayer rights in the collection of taxes "to the same extent as IRS employees."

• PCAs may be sued by the taxpayer under IRC Section 7433A if they fail to observe these protections.

• PCAs must comply with the provisions of the Fair Debt Collection Practices Act, and they enjoy no special immunity from being sued for violations of these provisions while working for the IRS.

• PCAs are as subject to taxpayer assistance orders issued by the National Taxpayer Advocate as the IRS.

• PCA employees may not contact a taxpayer at "any unusual time or place without a taxpayer's prior consent"; no contacts can be made earlier than 8:00 a.m. or later than 9:00 p.m., at the taxpayer's location.

• PCAs may not undertake enforcement action (e.g., filing a lien, issuing a levy, seizing property, or commencing legal action) against a taxpayer.

• The IRS has created a special unit to monitor and oversee all PCA operations related to contracts with the IRS.

• It also has trained key personnel in each PCA about taxpayer privacy and rights and IRS procedures and provided each PCA with "videos, instructional materials, and operational handbooks."

• PCAs must keep records of all incoming and outgoing calls with taxpayers and are required to make them available to the IRS, which "will randomly monitor PCA calls to assure that taxpayers are treated fairly and professionally."

• Taxpayers may contact a PCA or the IRS to complain about the conduct of any PCA employee.

• If the IRS receives such a complaint, it "will direct the PCA to suspend collection activity on the account until the PCA and IRS have evaluated the complaint.

In addition, during the floor debate in the House on H.R. 3058, a measure to provide appropriations in FY2006 for the Treasury Department and certain other federal agencies, Representatives Simmons and Van Hollen introduced an amendment (H.Amdt. 418) that would have prevented the IRS from using any appropriated funds to enter into, implement, or manage contracts with PCAs in FY2006. They withdrew the amendment when it became clear that a point of order would be raised against it if they were to persist in their attempt to block the initiative. A similar amendment did not surface during the Senate's consideration of its version of H.R. 3058.

A provision in the tax reconciliation bill (S. 2020) passed by the Senate on November 18, 2005, would have set aside at least 10% of the tax debt collection contracts awarded by the IRS under IRC section 6306 after April 1, 2006, for firms meeting certain standards for employing disabled persons. The provision began as an amendment (S.Amdt. 2625) introduced on the floor of the Senate by Senator E. Benjamin Nelson on November 17; the Senate agreed to it by unanimous consent. To be eligible for this preferential treatment, a firm not only had to meet the general eligibility requirements for bidding on the contracts, but its domestic workforce had to satisfy one of three disability requirements (e.g., the firm's domestic workforce included at least 50 persons who were considered severely disabled when the contracts were awarded). The provision defined a severely disabled person as a war veteran with a disability of "50% or greater" or someone considered a disabled beneficiary under section 1148(k)(2) of the Social Security Act. A similar provision is not included in the version of the tax reconciliation bill (H.R. 4297) passed by the House on December 8. The conference report on H.R. 4297 (H.Rept. 109-455) approved by the House and Senate in May 2006 did not include the provision.

There are reasons to believe that congressional interest in the IRS initiative has not abated in 2006. In April, Representative John Dingell introduced a measure (H.R. 5084) to repeal the IRS's authority to hire PCAs to collect delinquent tax debt. In June, the House passed a FY2007 appropriations bill (H.R. 5576) for Treasury and certain other agencies that included a provision barring the IRS from using any appropriated funds to implement the private tax debt collection initiative. (The version of the bill passed by the Senate Appropriations Committee lacks such a provision; the full Senate has yet to consider the measure.) On July 19, 27 Members of the House wrote a letter to the IRS Commissioner urging him to halt all work on the initiative until the Congress had completed its consideration of H.R. 5576. In September, Senators Byron Dorgan and Patty Murray introduced a bill (S. 3887) that would force the IRS to suspend indefinitely its private tax debt collection initiative and bar the use of appropriated funds to implement it. The measure has attracted at least 16 cosponsors and the endorsement of eight public interest groups, including the National Treasury Employees Union and the Consumer Federation of America.³⁷ And on November 15, the Senate Republican Policy Committee released a report endorsing the IRS's private tax debt collection initiative as a means of reducing the inventory of unpaid but collective individual taxes while allowing the IRS to concentrate its enforcement staff on more difficult collection cases.³⁸

• Is the private tax debt collection initiative generating greater returns at a lower total cost than the alternative of giving the IRS the additional resources it says it would need to collect the same tax debt on its own? (There is an unresolved dispute over the comparative cost of using PCAs or hiring additional IRS enforcement agents to collect the delinquent individual tax debt.³⁹)

• If the initiative were eliminated, what steps could the IRS take to collect the tax debt that the PCAs were pursuing under their contracts and would sufficient resources be available to allow the IRS to take any (or all) of these steps?

• What is the cost to the IRS of managing the initiative and processing cases that the PCAs cannot handle?

• Are taxpayers adequately informed of their rights and protections under the initiative?

• Does the initiative contain sufficient safeguards against the use of unlawful or abusive collection practices by PCAs?

• Are PCAs and their employees adequately informed of their rights and responsibilities under the contracts and the penalties they face for failing to uphold them?

• Does the IRS have adequate resources to monitor the performance of PCAs?

• Does the compensation package offered to PCAs promote the lawful and fair treatment of taxpayers, while providing a robust incentive to pursue the collection cases assigned to them?

• Are the PCAs engaging in activities that should be regarded as inherently governmental functions?

• How does the initiative fit into the larger framework of IRS collection and enforcement activities?

• What factors should the IRS weigh in evaluating the results of the private debt collection initiative?

² See 31 U.S.C. 501.

³ The first well-documented case of the federal government outsourcing the collection of taxes occurred in 1872, when Congress granted the IRS's predecessor, the Bureau of Internal Revenue, the authority to hire no more than three individuals to assist in "discovering and collecting any money belonging to the United States." The program was ended two years later in the wake of an investigation conducted by the House Ways and Means Committee. The investigators concluded that such contracts served no useful purpose and undermined the existing apparatus of federal tax administration. For more information on this program, see Joseph J. Thorndike, "The Unhappy History of Private Tax Collection," Tax Notes, Sept. 20, 2004, pp. 1346-1349.

⁴ For example, PCAs would not be allowed to communicate with taxpayers at unusual or inconvenient times or places and would be barred from harassing or threatening taxpayers.

⁵ U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects of the Conference Agreement for H.R. 4520, the "American Jobs Creation Act of 2004," JCX-69-04 (Washington: Oct. 7, 2004), p. 9.

⁶ Warren Rojas, "IRS Works to Lay Foundation for Private Collection Agencies," Tax Notes, April 4, 2005, p. 23.

⁷ According to an e-mail message received from Floyd Williams of IRS on Nov. 22, 2006, the initial report is likely to be submitted to the committees sometime in January 2007.

⁸ 31 U.S.C. 501.

⁹ U.S. General Accounting Office, Issues Affecting IRS' Collection Pilot, GGD-97-129R (Washington: July 18, 1997).

¹⁰ For a summary of the Administration's proposal, see Amy Hamilton, "Bush Proposes Private Agencies Collect Known Tax Delinquencies," Tax Notes, Feb. 10, 2003, pp. 885-887.

¹¹ U.S. General Accounting Office, Tax Debt Collection: IRS Is Addressing Critical Success Factors for Contracting Out but Will Need to Study the Best Use of Resources, GAO-04-492 (Washington: May 2004), p. 5.

¹² Ibid., p. 5.

¹³ See, for example, a hearing held May 13, 2003, by the House Ways and Means Subcommittee on Oversight on the topic of using private collection agencies to improve the collection of delinquent federal tax debt.

¹⁴ Based on data obtained in an e-mail message from Floyd Williams of the IRS on Dec. 14, 2005.

¹⁵ U.S. Congress, Congressional Budget Office, The Budget and Economic Outlook: An Update (Washington: August 2006), p. x.

¹⁶ For more details on these costs, see Joel Slemrod and Jon Bakija, Taxing Ourselves: A Citizen's Guide to the Debate over Taxes, 3rd edition (Cambridge, MA: MIT Press, 2004), pp. 176-180.

¹⁷ U.S. Congress, House Ways and Means Committee, Subcommittee on Oversight, Use of Private Collection Agencies to Improve IRS Debt Collection, 108th Congress, 1st sess., May 13, 2003 (Washington: GPO, 2004), p. 29.

¹⁸ Under the most optimistic projection, the Administration's plan to use PCAs would eventually result in the collection of $13 billion in delinquent individual tax debt at a cost of $3.25 billion, assuming PCAs receive 25% of the total amount collected as compensation for their services. By contrast, Rossotti estimated in 2002 that the IRS could eventually collect $9.47 billion in collectible tax debt at a cost of $296.4 million by adding 5,450 fulltime employees to its enforcement staff.

¹⁹ Dustin Stamper, "Everson Admits Private Collectors Cost More Than IRS Employees," Tax Notes, April 3, 2006, p. 11.

²⁰ According to Colleen M. Kelley of the NTEU, "contractors (for the 1996 pilot project in using PCAs managed by the IRS) violated the FDCPA and did not protect the security of sensitive taxpayer information." She also has said that "an IRS internal audit report found that contractors made hundreds of calls to taxpayers outside of the time restrictions of the FDCPA, and calls were placed as early as 4:19 a.m." See House Ways and Means Subcommittee on Oversight, Use of Private Collection Agencies To Improve IRS Debt Collection, p. 30.

²¹ Allen Kenney, "IRS Needs Tighter Control of Contractors, TIGTA Finds," Tax Notes, June 28, 2004, p. 1579.

²² According to a recent report by the Federal Trade Commission, "consumers filed 66,627 complaints against third-party (debt) collectors in 2005, more complaints than they filed against any other specific industry." Complaints about the collectors accounted for 19% of all consumer complaints received by the agency that year, up from 17% in 2004 and 13% in 2003. The most frequent complaints concerned allegations of demanding a larger payment than the amount permitted by law, harassment of the debtor, threatening dire consequences if the debtor fails to pay, and placing impermissible phone calls to a debtor's place of employment. See Federal Trade Commission, Annual Report 2006: Fair Debt Collection Practices Act (Washington: July 2006), pp. 2-7.

²³ Section 1204(a) of RRA98 states that "the Internal Revenue Service shall not use records of tax enforcement results (1) to evaluate employees; or (2) to impose or suggest production quotas or goals with respect to such employees."

²⁴ Department of the Treasury, Treasury Inspector General for Tax Administration, Efforts to Develop a Successful Collection Contract Support Program Could Be Enhanced, Audit Report 2003-30-075 (Washington: March 2003), p. 2.

²⁵ Generally, a Request for Quotation (RFQ) is a method used by federal agencies to describe to prospective contractors the products and services that may be purchased and the terms and conditions that would apply. RFQs serve the useful purpose of informing the private sector about the procurement needs of federal agencies and informing federal agencies about the depth of interest in the private sector in bidding on specific contracts. A response by a prospective contractor to a RFQ is not considered an offer and thus cannot be accepted by a federal agency as a binding contract. Each RFQ has a unique identifying number; the RFQ issued by the IRS in February 2003 was TIRNO-03-H-0001.

²⁶ U.S. General Accounting Office, report GAO-04-492, p. 9.

²⁷ Alison Bennett, "Universal Fidelity Sues IRS Over Debt Collection Initiative," Daily Report for Executives, Bureau of National Affairs, July 18, 2005, p. G-10.

²⁸ Diane Freda, "Federal Judge Says He Will Stop Debt Collection Initiative as Planned," Daily Report for Executives, Bureau of National Affairs, July 28, 2005, p. G-11.

²⁹ Diane Freda, "Judge Dismisses Universal Fidelity Lawsuit Challenging IRS Debt Collection Procurement," Daily Report for Executives, Bureau of National Affairs, Oct. 7, 2005, p. G-6.

³⁰ Diane Freda, "IRS Issues New Request for Quotes In Private Debt Collection Initiative," Daily Report for Executives, Bureau of National Affairs, Oct. 7, 2005, p. G-16.

³¹ Dustin Stamper, "IRS Awards First Three Private Debt Collection Contracts," Tax Notes, Mar. 13, 2006, p. 1133.

³² Dustin Stamper, "Bid Protest Put IRS Private Debt Collection Program on Hold," Tax Notes, Mar. 27, 2006, p. 1376.

³³ Diane Freda, "GAO Says GC Services Not Contender in IRS Private Debt Collection Project," Daily Report for Executives, BNA, June 23, 2006, p. G-11.

³⁴ U.S. Government Accountability Office, Tax Debt Collection: IRS Needs to Complete Steps to Help Ensure Contracting Out Achieves Desired Results and Best Use of Federal Resources, GAO report GAO-06-1065 (Washington: Sept. 2006), p. 49.

³⁵ Dustin Stamper, "Private Collectors Have Already Brought in $500,000, Everson Says," Tax Notes, Oct. 2, 2006, p. 8.

³⁶ Questions about the announcement should be directed to Joyce Peneau, who may be reached at (202) 283-0715, or by e-mail at PDC@irs.gov.

³⁷ Diane Freda, "Groups Join NTEU in Effort to Move Congress Against Private Debt Collection," Daily Report for Executives, BNA, Sept. 21, 2006, p. G-3.

³⁸ U.S. Congress, Senate, Republican Policy Committee, Private Collection Agencies: Addressing a Piece of the Tax Gap Pie (Washington: Nov. 15, 2006).

³⁹ See Diane Freda, "Debt Collection Group Says Cost Estimates for IRS Collections Employees Understated," Daily Report for Executives, BNA, Oct. 3, 2006, p. G-4.