The private debt collection program is mandatory for inactive tax receivables, but it is not universal. IRC 6306(d) lists receivables that are not eligible for collection under a private contract. Some categories came from the FAST Act in 2015; others were added by the Taxpayer First Act in 2019. IRM 5.1.12.18.2 implements the list and says these cases are systemically blocked from assignment, and that if an exclusion arises after assignment, the account may be recalled.
If a private collector is calling about your account and one of these exclusions applies, you should not be in the program. The basics of the program itself are in the private debt collection program.
Exclusions based on the account
Under IRC 6306(d), a tax receivable is not eligible if it:
- is subject to a pending or active offer in compromise or installment agreement;
- is classified as an innocent spouse case;
- is currently under examination, litigation, criminal investigation, or levy; or
- is currently subject to a proper exercise of a right of appeal under the Internal Revenue Code.
Each of these reflects an account that is already being handled through another IRS process. A pending installment agreement request or offer, for example, is an active resolution, and putting a private collector in the middle of it would create conflict.
Exclusions based on the taxpayer
IRC 6306(d)(3) excludes receivables involving a taxpayer the IRS identifies as:
- deceased;
- under the age of 18;
- in a designated combat zone;
- a victim of tax-related identity theft;
- a taxpayer substantially all of whose income consists of Social Security disability insurance benefits or Supplemental Security Income benefits; or
- an individual whose adjusted gross income, for the most recent year for which the IRS has the information, does not exceed 200 percent of the applicable poverty level as determined by the IRS.
IRM 5.1.12.18.2 lists one more category in its implementing list: taxpayers in bankruptcy.
The last two statutory categories were added by the Taxpayer First Act. The Act's effective date provision applies them to tax receivables identified by the IRS after December 31, 2020.
Account-level and taxpayer-level exclusions
IRM 5.1.12.18.2 organizes the exclusions in two groups. One list says to exclude modules, meaning specific tax periods, that are subject to an offer, an installment agreement, a right of appeal, examination, litigation, criminal investigation or levy, or an innocent spouse claim. The other says to exclude taxpayers who are deceased, under 18, in combat zones, identity theft victims, SSI or SSDI recipients, below 200 percent of the poverty level, or in bankruptcy.
The distinction matters when you have several balances. A taxpayer-level exclusion covers you. A module-level exclusion is described in terms of the specific periods involved. If only one year is in an appeal, for example, ask whether your other years were assigned and whether they should be. Keep copies of whatever shows the exclusion, because the agency works from the account information the IRS gives it, and a document that shows the exclusion is the fastest way to correct a mistake.
Disaster areas: a request, not an automatic exclusion
Federally declared disasters are handled differently. Under IRC 6306(i), the IRS may prescribe procedures under which a taxpayer affected by a federally declared disaster may request relief from immediate collection by a contractor and return of the account to the IRS. IRM 5.1.12.18.2 notes that taxpayers in a presidentially declared disaster area may request that relief and the return of the account.
If you were affected by a declared disaster and a private collector contacts you, ask for the account to be returned to the IRS under that provision.
What the income exclusions mean in practice
The SSDI/SSI and 200 percent of poverty exclusions are the ones most likely to matter to people who are struggling. They reflect a judgment that private collectors should not be pressing taxpayers with very limited income.
Two points about how they work. First, the statute says "as determined for the most recent taxable year for which such information is available." If your income dropped after your last filed return, the IRS's information may not reflect it. Filing current returns helps the IRS see your actual situation. Second, the exclusion takes you out of private collection. It does not erase the debt. For taxpayers with very limited income, the more meaningful step may be asking the IRS to evaluate hardship status. The firm's main site explains currently not collectible status.
If you were assigned despite an exclusion
Mistakes happen, and circumstances change after assignment. IRM 5.1.12.18.2 says that if an exclusion arises after assignment, the account may be recalled by the IRS. IRM 5.1.12.18.4 describes the transaction codes the IRS uses to show an account was recalled by the IRS or returned by the agency, which you can look for on your transcript.
Practical steps:
- Identify the exclusion that applies and gather proof, such as an SSDI award letter, a death certificate for an estate, documentation of identity theft, or proof of a pending offer or installment agreement request.
- Tell the agency in writing that you believe the account is excluded and that you request it be returned to the IRS. Publication 4518 and IRM 5.1.12.18.5 say a request to stop working with the agency is submitted to the agency in writing.
- Contact the IRS to confirm the exclusion is recorded on your account.
- If the problem is causing hardship and is not being fixed, contact the Taxpayer Advocate Service, which Publication 4518 lists at 1-877-777-4778.
Filing an offer takes the account back
One exit works regardless of your income. IRM 5.1.12.18.4 says that receipt of a processable offer in compromise application results in the account being returned to IRS assignment. That is consistent with the statutory exclusion for pending offers. If an offer makes sense on your numbers, filing it moves the account out of the private program and into the IRS's offer process.
The same is true of a pending or active installment agreement under the statute. But note IRM 5.1.12.18.4's caution that a payment arrangement made with a private agency is not an installment agreement under IRC 6159. If you want an IRS installment agreement, request one from the IRS.
When a revenue officer is working a related account
Sometimes one account is with a private agency while a related account is with an IRS revenue officer, such as a spouse's separate balance, or the individual and business balances of a sole proprietor. IRM 5.1.12.18.4 tells the revenue officer to determine whether the related liabilities need to be resolved together, and to confirm with the taxpayer whether the taxpayer is actively working with the agency.
Under IRM 5.1.12.18.6, if the taxpayer is not actively working with the agency, or the revenue officer cannot resolve the assigned case without the related account, the revenue officer may request a recall with group manager approval. The IRM also says that in certain in-business trust fund installment agreement cases, related individual trust fund penalty liabilities should generally be recalled from the agency unless a payment arrangement with the agency is already in place. If you are dealing with both, tell the revenue officer about the agency account early.
Why it matters who collects
A private agency can request payment, offer an installment arrangement up to 7 years, and gather financial information under IRC 6306(b). It cannot decide an offer in compromise, place an account in hardship status, abate penalties, or resolve an innocent spouse claim. If your situation calls for any of those, being in the private program is a detour.
The exclusion list is Congress's way of keeping the most vulnerable taxpayers, and the most complicated accounts, with the IRS. If you belong there, say so in writing and get the account back where it can actually be resolved. The limits on agency authority are covered further in what private collectors can and cannot do.