Will the IRS Bring Back Private Debt Collections?

Somebody has sneaked some terrible legislation into a provision of the EXPIRE Act which, if approved, would require the IRS to hire outside private debt collection (PDC) firms to collect past due taxes.  If this sounds familiar it is because the IRS has already tried this a couple times with very little success.  These are just some of the problems that tax practitioners have identified with hiring private debt collectors to collect income taxes:

  • The IRS must hand over sensitive taxpayer information (like social security numbers) which raises concerns about privacy and identity theft.  Just like a juicy bit of gossip, the more people you tell, the greater the risk of the information spreading to the wrong people or groups.  No amount of training can ensure this won’t happen.
  • If private collection agencies are hired on a contingency basis, their motivation to collect may be higher than your average IRS employee who is paid the same regardless of how much revenue is collected.
  • Although private collection agencies would be given access to some key pieces of information, not all tax account information would be available.  This means that the taxpayer would be required to go back to the IRS anyway, to confirm what the PDC firm has done and tie up any loose ends.

I definitely saw this in my practice during the second trial run of this program 6-7 years ago.  The PDC firms were not given authority to enter into certain installment agreements, so we would have to get cases transferred back to the IRS in most cases.  Using private collection firms only complicates things at the IRS and creates bottlenecks at an agency that is already known for being a little slow.  The good thing is that many, if not most, stakeholders and authorities oppose this legislation, including the National Conference of CPA Practitioners (NCCPAP), the Taxpayer Advocate, the IRS Oversight Board, and the Commissioner himself.

Only federal employees, who have been screened and vetted through the Internal Revenue Service, should be permitted to represent the federal government in matters pertaining to individual taxes.

~ Steven Mankowski, NCCPAP Tax Policy Committee chair

Friday Night Recap

There have been several interesting IRS-themed stories in the news this week.

For one, the IRS recently missed its deadline to appeal an adverse federal District Court decision that denied them the authority to regulate all tax preparers under the Registered Tax Return Preparer program.  This is a big win for tax preparers specifically and a win for small businesses in general.   Perhaps the IRS is going to turn to some kind of voluntary scheme instead.

And if you pay any attention at all to financial news, you wouldn’t have been able to avoid all the press about the IRS paying out something like $15 billion in improper claims for the Earned Income Tax Credit.  Anything that shows how the IRS is wasting our tax dollars or is staffed with incompetent boobs is usually going to remain in the news a few days longer than necessary.  However, this time it really is a big deal.  The IRS admits that about 25% of all EITC payments are issued to people who should not qualify!  What’s worse is the IRS has made little progress on fixing this over the past 4 years.

The last thing I noticed today is not something that everyone will find incredibly captivating, but it caught my eye.  Anytime I see the words “compliance initiative program” it makes me uneasy.  The IRS is going to begin a CIP that will last approximately 12 months and will focus on IRC Section 409A which governs deferred compensation plans.  Thomas Scholz, an IRS executive speaking at an ABA meeting, indicated how many people would be selected for this audit program (less than 50), from what group of taxpayers they would be selected (from an existing pool of employment law cases), and how the IRS will begin the process (through document information requests).  Although stated in off-the-record comments, the IRS revealed some specifics about this CIP that I would love to see them give in ordinary audit situations.

Tax debt case is the next frontier for free speech regulation

According to recent news reports, across the pond in Europe, the European Union’s highest court has ruled that people have the right to be forgotten, even on the internet. The case at issue stems from a tax debt once allegedly owed by Attorney Costeja González who wanted the world to forget an article published by La Vanguardia about tax collection efforts taken against him. The tax enforcement efforts included the seizure of his home and resulted in a 1998 Spanish news blurb that was 36 words long specifying that his home was being repossessed to pay off debts. His legal efforts to obtain anonymity have resulted in infamy.

Proof that a tax debt will follow you, the news blurb at issue was a google search result when completing a google search for Mr. González. Apparently microfiche no longer exists in Europe and google lost its battle that search results containing links to the article regarding Mr. González’s tax problems violated his right to privacy and that people have the right to be forgotten. Hopefully the floodgates have not been opened too far to extend to a complete shutdown of the internet. If it does, I’m not shocked to learn that a taxing authority was to blame.  

The Internal Structure of TIGTA

Most of the time the Treasury Inspector General for Tax Administration (TIGTA) is described as a government watchdog; an entity charged with keeping tabs on the Internal Revenue Service.  The Honorable J. Russell George, the guy in charge at TIGTA, describes TIGTA’s role as follows:

[W]e provide the American taxpayer with assurance that the approximately 95,000 IRS employees who collected over $2.9 trillion in tax revenue, processed over 241 million tax returns, and issued $364 billion in tax refunds during FY 2013, do so in an effective and efficient manner while minimizing the risks of waste, fraud, or abuse.

~ J. Russell George’s testimony before the Senate Appropriations Committee on April 30, 2014

Besides providing a neat little collection of IRS statistics, this description very succinctly describes TIGTA’s role in U.S. tax administration.  But the organizational structure of this “watchdog” is more complex than would appear in this description.  There are three offices within TIGTA, each with different, but overlapping, responsibilities.

TIGTA Office of Audit (OA)

OA recommends improvements to IRS systems and operations, with an emphasis on detection and prevention of waste, abuse, and fraud.  OA is also charged with ensuring that the IRS strikes a balance between aggressive tax collection on the one hand, and the fair & equitable treatment of taxpayers on the other.

TIGTA Office of Investigations (OI)

OI has two primary responsibilities.  One is to investigate allegations of IRS employee misconduct (including extortion, theft, taxpayer abuses, false statements, financial fraud, and identity theft), which poses a significant threat to the idea of voluntary compliance and trust in the US government.  The other is to investigate and (in cooperation with the Department of Justice) put a stop to harassment and threats levied against IRS personnel by disgruntled taxpayers and tax protestors.

TIGTA Office of Inspections and Evaluations (I&E)

There is definitely some overlap in the functions of I&E  compared to the functions of the two primary offices (Audits & Investigations) described above.  However, I&E can be seen as a “lower-level”  investigative arm of TIGTA that provides in-depth reviews and assessments so both TIGTA and the IRS have a better idea of how specific programs and functions are progressing.

You may not think TIGTA has much to do with you as an individual taxpayer, but I’m not sure how much the IRS would care about customer service and average hold times if TIGTA wasn’t monitoring and auditing that and a thousand other daily functions.