Since the IRS implemented the private debt collection (PDC) initiative last year, I have been concerned that taxpayers whose debts are assigned to private collection agencies (PCAs) will make payments even when they are likely in economic hardship – that is, they are unable to pay their basic living expenses. As discussed in my 2017 Annual Report to Congress, this is exactly what has been happening. The recent returns of approximately 4,100 taxpayers who made payments to the IRS after their debts were assigned to PCAs through September 28, 2017 show:
- 28 percent had incomes below $20,000;
- 19 percent had incomes below the federal poverty level; and
- 44 percent had incomes below 250 percent of the federal poverty level.
As a refresher, the IRS uses 250 percent of the federal poverty level as a proxy for economic hardship in several situations, such as in administering the Federal Payment Levy Program (FPLP). FPLP is an automated system the IRS uses to match its records against those of the government’s Bureau of the Fiscal Service to identify taxpayers with unpaid tax liabilities who receive certain payments from the federal government. IRC § 6331(h) allows the IRS to issue continuous levies for up to 15 percent of federal payments due to these taxpayers who have unpaid federal liabilities. As explained in my 2014 Annual Report to Congress, the IRS excluded Social Security recipients whose incomes were below 250 percent of the federal poverty level after a 2008 TAS research study demonstrated that the FPLP program levied on taxpayers who were experiencing economic hardship.
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