July 1, 2014

Twice during the last 18 years – in 1996 and again in 2003 – the IRS has attempted to outsource the collection of tax debts to private collection agencies. Both times the programs lost money.

So what is Congress up to now? It is trying to pass a law requiring the IRS to outsource the collection of tax debts to private collection agencies!

On May 13, the National Tax Advocate, Nina Olson, sent a letter to Congress listing 12 concerns with private debt collection:

  1. The initiative is premised on the mistaken belief that the IRS does not collect taxes on cases that are inactive or awaiting assignment.
  2. The program will require the IRS to incur significant startup costs, jeopardizing taxpayer service and other IRS operations that are already suffering from budget cuts.
  3. The government’s objective of maximizing long-term compliance without causing financial hardship for taxpayers is fundamentally different from the profit-maximizing objective of a private collection agency.
  4. The provision appears to target low-income taxpayers.
  5. Providing taxpayer identifying information to private companies creates risks that taxpayer data will be misused.
  6. Strict penalties on IRS collection employees who are abusive to taxpayers do not apply to employees of private collection agencies.
  7. IRS employees are openly instructed to be straightforward in dealing with taxpayers, while private collection agencies confidentially instruct their employees to use psychological techniques to pressure taxpayers to agree to payments.
  8. Use of psychological tactics often results in financially struggling taxpayers feeling pressured into making commitments they ultimately cannot keep.
  9. The proposal would require the IRS to send taxpayer cases to private collection agencies when the sole or primary reason for the liability is the Patient Protection and Affordable Care Act (ACA) (either the penalty for not getting coverage or owing back an advance premium credit). This, in turn, could make it more difficult for IRS to administer the ACA.
  10. The program will raise little revenue and is more likely to be another revenue loser.
  11. The proposal would require the IRS to continue the program even if it loses money and does not give the IRS sufficient discretion to make modifications.
  12. The National Taxpayer Advocate is uncertain about what the proposal is intended to accomplish.

“Insanity: Doing the same thing over and over again and expecting different results.” – Albert Einstein

This article was originally posted on July 1, 2014 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at marketing@grfcpa.com.