Problems Found with IRS Decision on Private Debt Collectors

Back in 2006 the IRS began using private debt collection companies to collect unpaid tax debts. Then, after a study suggested that the costs for hiring private companies was higher than the IRS's collection efforts, the agency let their agreements expire in 2009. However, according to a new report from the Government Accountability Office, the IRS's study of private debt collectors was not designed to support its decision.

Web CPA reports:

The GAO found that the IRS study was not originally intended or designed as the primary support for its decision on whether to continue with the private debt collection program, but IRS officials nonetheless used it as such. The IRS did not have guidance for program managers on the type of analysis that should be done to support their decisions to create, renew or expand programs. The IRS also had not retained sufficient documentation on the sample used in the study or documented some analyses that would have been helpful if performed.

“According to this report, the IRS used a flawed study to justify ending its contracts with private agencies to collect owed taxes that the IRS wasn’t collecting on its own,” said Senate Finance Committee ranking member Charles Grassley, R-Iowa, in a statement. “The IRS knew the study was flawed because the GAO told the IRS how to do the study. But the IRS didn’t implement the GAO’s recommendations to fix the study, even though it agreed with them. The IRS used the results from the defective cost-effectiveness study to defend its decision to terminate the use of private collection agencies, even though that wasn’t the primary purpose of the study.”

The study results may have been overstated or understated because the study sample was not generalizable to the program as a whole, said the GAO. The study had a narrow objective of comparing the results for the IRS working the same cases as PCAs had, and as a result, the study design did not consider other factors recommended by the Office of Management and Budget and other guidance on conducting program analysis. For example, the study did not analyze alternatives to program scale, such as expanding it or scaling it back. Program analysis guidance states that to the extent possible, all costs and benefits should be counted and alternative means of achieving a program’s goals should be considered.

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Bid To End Private Collection Dies

According to CBS News the United States House of Representatives attempted to essentially eliminate the IRS’s program that outsourcers part of its debt collection to private agencies by lower the programs fiscal budget to only $1 million. However defenders of the private debt collection program were able to use a procedural move remove the provision in the Treasury Department spending bill. Since the program began, the private agencies have worked on nearly 38,000 cases and have collected almost $20 million.

Congress May Hang-Up on Private Debt Collectors

The IRS' use of private debt collectors has raised enough questions about collection techniques and privacy rights to be on the chopping block.

The House plans a vote this week on restricting the IRS's Private Debt Collection Program's funds. Representatives critical of the program since it was approved by Congress in 2004 included only $1 million for private debt collection in the 2008 budget for Treasury Department agencies. The IRS had said it would take more than $7 million to run the program in 2008.

Democrats have also introduced bills in both the House and Senate to revoke the IRS authority to hire private debt collectors.

House Ways and Means Oversight Subcommitte holds hearing on IRS's use of Private Debt Collectors

House Ways and Means Oversight Subcommittee Chairman John Lewis (D-GA) issued the following opening statement during today’s hearing on the Internal Revenue Service’s use of private debt collectors:

Today, the Committee is repeating history. We again are reviewing whether the Treasury Department should be allowed to contract with private debt collectors for federal taxes.

This is not a new question for the Ways and Means Committee. I would like to read from an 1874 Report of the Committee repealing Treasury’s authority to use private tax collectors and pay them a commission. It states:

The Committee are of opinion that any system of farming the collection of any portion of the revenue of the Government is fundamentally wrong . . . No necessity for such laws exist . . . the Secretary of the Treasury and the head of the Internal Revenue Bureau are empowered by law to make all collections of taxes . . . The Internal Revenue Bureau is possessed of full knowledge of the laws relating to the collection of the revenue . . . [and] has all the machinery necessary for their full and complete enforcement . . . The Committee, in view of the facts . . . believe that the law . . . should be repealed and the contracts made thereunder should be revoked and annulled.
H.R. Rep. No. 559, 43d Cong., 1st Sess. 9 (1874).

These words are true today–130 years later.

The collection of federal income taxes is a core government function. It is the mission and purpose of the Internal Revenue Service.

Today’s private collector program can never work. Taxpayers and the American public deserve better.

The IRS has 45 employees watching 90 contract employees yet no one has the full story on what they are doing. Debt collectors receive up to a 25% bounty on federal income taxes.

The IRS depends on the collectors to “self-report” complaints of taxpayers.

GAO investigators have confirmed that contractors have been exercising discretion over who gets offered to take the customer satisfaction survey.

The program targets low- and middle-income taxpayers rather than those who have the means to protect themselves.

At the end of the day, most Americans don’t even know that the harassing calls they receive are from debt collectors hired by the IRS.

To date, the collectors have made nearly one million calls in attempts to reach 35,000 taxpayers. Those called have been subject to harassment, confusion, and violations of taxpayer protections.

Mr. Chairman, I ask that a partial list of taxpayer complaints be included in the record. Mr. Chairman, I also would like to play five calls between an IRS private collector and one taxpayer. I want my colleagues to hear what our constituents are facing as the private collectors attempt to find the correct person owing taxes. I ask that a transcript of these calls be included in the record and that we play them for the Members to hear.

The “cat and mouse” game you are about to hear has captured over 300,000 members of the public. All but 10,000 of these were innocent parties who did not owe any tax. Social security numbers along with tax information must be protected to prevent identity theft and ensure the integrity of our tax system.

I ask, “Who is in charge here?” What have we done? We must end this.