The IRS announcement this week that Americans with overdue federal tax bills will start getting calls from private debt collectors is an unwelcome development that will waste taxpayer money and further endanger taxpayers who are already targeted by financial scams and identity thieves.
The National Treasury Employees Union (NTEU) has long opposed the use of private collection agencies (PCAs) to chase delinquent taxpayers because it has proven to be inefficient, unfair to lower-income taxpayers, and it opens doors for fraud and abuse.
“Every time this has been tried before, it has failed,” said NTEU National President Tony Reardon. “But once again Congress has forced this policy on the IRS, and we expect the results to be the same: collection agents getting paid to harass taxpayers, many of whom need assistance, not threats.”
The 1996 pilot was so unsuccessful it was cancelled after 12 months. Contractors participating in the pilot programs were found to have regularly violated the Fair Debt Collection Practices Act, and the program resulted in a $17 million net loss.
The IRS again attempted the use of PCAs to collect federal taxes in 2006. While the program was projected to bring in $2.2 billion in new revenue, data from the IRS showed that the program resulted in a net loss of almost $4.5 million to the federal government, after subtracting $86.2 million in program administration costs and more than $16 million in commissions to the PCAs. The Treasury Department - again - cancelled the program.
"In other words, the private debt collectors make money and the U.S. Treasury takes a hit,” Reardon said.
NTEU also questions how much money the IRS has already spent re-starting this program, including reviewing the bids from the contractors and setting up the process for monitoring their work. As IRS officials have noted, no new money was appropriated by Congress to operate the PCA program.
It is also alarming that one of the PCAs contracted by the IRS lost its contract with the U.S. Department of Education in 2015 for providing inaccurate information to student loan recipients.
The National Taxpayer Advocate, a nonpartisan and neutral voice for taxpayers, has said private debt collection by the IRS places “a bulls-eye on the back of low income taxpayers.”
“Subjecting taxpayers who are struggling to make ends meet and can’t afford legal representation to private contractors whose sole motivation is to maximize their own profits at the taxpayers’ expense is a recipe for disaster,” Reardon said. “Congress should reverse course and cancel this program before it wastes more money or exposes people to fraud.”
An independently reviewed study by the IRS found that IRS employees are three times more efficient at collecting taxes than private tax collectors.
Unlike private debt collectors, IRS employees have a variety of tools at their disposal with which they can help taxpayers facing financial difficulties meet their tax obligations. These include the ability to postpone, extend or suspend collection activities for limited periods of time; making available flexible payment schedules; the possibility of waiving late penalties or postponing asset seizures and Offers In Compromise (OIC), an agreement between a struggling taxpayer and the agency that settles a tax debt for less than the full amount owed.
IRS officials say they are worried about scammers who may try to masquerade as a legitimate IRS-approved debt collector, which is why they’ve added precautions, such as alerting taxpayers in writing that their past due accounts are being turned over to a PCA. But risks remain. NTEU agrees with privacy advocates and consumer groups who are concerned that this new program only makes it easier to swindle innocent taxpayers.
NTEU represents 150,000 employees at 31 federal agencies and departments, including the IRS.