Will the IRS Bring Back Private Debt Collections?

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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

The Forgotten Tax Accounts

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Last week I blogged about Private Debt Collection (PDC) firms hired by the IRS and FTB to collect overdue taxes. This is a new development at FTB, and something that was tried for a few years and then discontinued at IRS.

The PDC firms hired by the IRS were given mostly low-yield, low-priority cases from which they were able to squeeze out $98 million in revenue between 2006 and 2009.  The IRS, however, discontinued its PDC program in 2009. And according to a TIGTA audit report, when the unresolved cases were handed back to the IRS, many of them just sat stagnant. Collection actions were not taken on 47% of the cases selected for the TIGTA audit. TIGTA recommended that the IRS develop policies and procedures for working the kinds of cases that were previously transferred to PDC firms. If the IRS does not have the resources to handle these cases, TIGTA even suggested the possibility of reinstating the PDC Program.

Before you get too upset about the statistics cited in this report (particularly the 47% figure), you should know that the sample of cases selected for audit was only 62. For whatever its worth, I have noticed that it is common for TIGTA to work with very small sample sizes in its audits, even though the agency claims it uses “generally accepted government auditing standards.”