Private tax collection agencies lose money while going after the poor

Source: Joe Davidson, Washington Post, July 6, 2018

In its zeal to privatize important parts of the government, the Republican-controlled Congress directed the Internal Revenue Service to use private debt collectors for certain tax delinquencies, a program that began last year. The Obama administration cautioned against the use of bill collectors before legislation authorizing the program passed in 2015. Those warnings went unheeded. Now, the program is losing money and unfairly hitting the poor. The National Taxpayer Advocate Service, an independent office within the IRS, says using private bill collectors “has yet to generate net revenues, continues to unnecessarily burden taxpayers experiencing economic hardship and produces installment agreements with high default rates.” In a report to Congress last week, Taxpayer Advocate Nina E. Olson said the private debt collection program “has yet to break even. About 2 percent of the dollars assigned for collection have been collected thus far.” …


I.R.S. Paid $20 Million to Collect $6.7 Million in Tax Debts
Source: Patricia Cohen, New York Times, January 10, 2018

Private debt collectors cost the Internal Revenue Service $20 million in the last fiscal year, but brought in only $6.7 million in back taxes, the agency’s taxpayer advocate reported Wednesday. That was less than 1 percent of the amount assigned for collection. What’s more, private contractors in some cases were paid 25 percent commissions on collections that the I.R.S. made without their help, according to the annual report by Nina E. Olson, who heads the Taxpayer Advocate Service, an independent office within the I.R.S. While Republicans have been the most vocal proponents of privatizing public services, congressional Democrats are equally responsible for the I.R.S.’s program. Despite the pointed failure of similar efforts in the past, Congress passed a law in 2015 requiring the I.R.S. to use outside contractors to make a dent in the $138 billion that taxpayers owe the government. The outsourcing began last April. Since then, the report stated, “the I.R.S. has implemented the program in a manner that causes excessive financial harm to taxpayers and constitutes an end run around taxpayer rights protections.” …

I.R.S. Enlists Debt Collectors to Recover Overdue Taxes
Source: Jessica Silver-Greenberg and Stacy Cowley, New York Times, April 20, 2017

The Internal Revenue Service is about to start using four private debt-collection companies to chase down overdue payments from hundreds of thousands of people who owe money to the federal government, a job it has handled in house for years.  Unlike I.R.S. agents, who are not usually allowed to call delinquent taxpayers by telephone, the outside debt-collection agencies will have free rein to do so. Consumer watchdogs are fearful that some of the nation’s most vulnerable taxpayers will be harassed and that criminals will take advantage of the system by phoning people and impersonating I.R.S. collectors. …

IRS Debt Collection Program May Lead to Confusion, Help Scammers
Source: AJ Walker, NBC Connecticut, February 14, 2017

NBC Connecticut Troubleshooters caught up with officials from the IRS to find out more about their new debt collection program and how they’re going to protect taxpayers from getting scammed. This spring, debt collectors hired by the IRS will start making collection calls to go after money on old tax debts. This could lead to confusion as the fake IRS debt collection scam call is one of the number one scams in the country. In the past, the IRS has repeatedly said they will never call you collect money. Instead, they send a letter. This change could open the door to crooks who might see this as opportunity to reach out to more people using the IRS’s name. It’s too early to gauge how the ongoing phone scam will impact real IRS debt collection call efforts. But people targeted by the scheme say it will be confusing. … The collection program came about because a law called the FAST Act passed in 2015 requiring the Internal Revenue Service to use private debt collectors to go after tax money on older accounts. The money would help pay the FAST Act’s $305 billion price tag to fund transportation and infrastructure. … However, this isn’t the first time the agency has tried to use debt collectors. In 2006 the IRS hired Pioneer, CBE Group and a company called Linebarger Goggan Blair & Sampson to try to collect an additional $1.4 billion in past due taxes. It fired the debt collectors in 2009 saying it wasn’t cost effective to use private collectors and the “work is best done by IRS employees.” … However, one IRS debt collector has recently been accused of not acting in peoples best interest. Pioneer was mentioned in lawsuits filed by the Illinois Attorney General and the Consumer Finance Protection Bureau accusing the business and its parent company Navient of taking advantage of borrowers. …

NTEU: Using IRS employees, not outsourcing for debt collection ‘smart and humane’
Source: Meredith Somers, Federal News Radio, September 27, 2016

The National Treasury Employees Union wants the Internal Revenue Service to retrain thousands of employees facing pink slips for outsourced tax-collection work. NTEU President Tony Reardon said his organization will push Congress for resources IRS needs to teach more than 7,000 employees how to track down late accounts. … A provision within a highway bill passed last year requires the IRS to pass on certain delinquent accounts to private collection agencies (PCAs). The employees who face layoffs work at one of three paper tax return processing sites in Covington, Kentucky; Fresno, California; and Austin, Texas. Their jobs would be phased out between 2019 and 2024. … In its fiscal 2017 objectives report to Congress, the Taxpayer Advocate Service warned that the private debt collection program “includes practices that will harm taxpayers and tax administration.” The program was discontinued in 2009 after TAS warned the program threatened taxpayer rights and raised doubts about its revenue projections. One of the concerns with the new law is that it does not take into account economic hardship, nor does it grant PCAs the power to work out a compromise with taxpayers based on their status. … About 1,800 employees work at the Convington site, while 3,000 and 2,400 work at the Fresno and Austin locations, respectively, and the phase-out of the jobs is just one thing that worries Rep. Thomas Massie (R-Ky.). During a House Committee on Oversight and Government Reform hearing on federal vacant properties, Massie called the news of moving 2,000 jobs out of the city “devastating.” …

Congress could make the IRS use private bill collectors for your taxes
Source: Joe Davidson, Washington Post, November 3, 2015

…Congress is considering legislation that would again allow the Internal Revenue Service (IRS) to use outside collection agencies, after previous programs failed twice. The first attempt, from August 1996 through June 1997, lost money. So did the second one.  Former IRS commissioner Douglas Shulman stopped the 2006-2009 effort, saying “I believe this work is best done by IRS employees.” … Sixteen senators, including Ben Cardin and Barbara Mikulski, both Maryland Democrats, sent a letter to the congressional leadership last month detailing their opposition to the measure, which is included in a highway funding bill. Among their objections:

  • Commission incentives could lead private collection agencies to “jeopardize taxpayer rights” if they “minimize due process in order to maximize profits.”
  • The 2006-2009 program resulted in “the Treasury collecting $63.4 million in revenue while accruing total costs of $67.8 million, a loss of $4.4 million to the federal government.”
  • Private collection agencies “will unfairly target low-income taxpayers.” The IRS can work with taxpayers by allowing them flexible payment schedules or suspending collection actions or reducing the amount owed. But private collectors’ “sole interest is to collect from a taxpayer the balance due…They cannot provide any advice or use the tools IRS employees have.”…

After Years of Cutting Funding, Republicans Seek to Privatize Part of the IRS
Source: Eric Katz,, July 22, 2015

A new compromise package to fund the nation’s surface transportation projects would privatize a major function of the Internal Revenue Service, delighting Republican lawmakers looking to shrink the agency but rankling its advocates. The highway funding bill crafted in the Senate by Majority Leader Mitch McConnell, R-Ky., and Sen. Barbara Boxer, D-Calif., is proposing to raise $2.4 billion by handing the task of tax collection over to private companies. The bill would require the Treasury Department and IRS to contract with private collection agencies as one of several pay-for provisions of the compromise highway bill…Congress authorized the Treasury Department to contract out the task of recouping unpaid tax bills in 2006, but the agency phased out the program in 2009. The National Treasury Employees Union said on Wednesday the program proved unsuccessful, as the government was spending more on administrative fees and commissions to the companies than it took in…“The use of PCAs to collect tax debts has repeatedly been shown to be a waste of taxpayer dollars,” NTEU President Colleen Kelley wrote in a letter to senators. “The Treasury secretary currently has the authority, but has chosen not to enter into such contracts.” She added the commission-based payment incentive led to abuse of the system, and a disproportional focus on low-income taxpayers….