Although the program has been characterized by the Internal Revenue Service itself as potentially rampant with opportunities for scamming, and has attracted growing opposition, the agency nonetheless has moved forward with its plan to hire private debt collectors to track down delinquent taxpayers.The first phase, rolled out in September, enlisted a trio of private collection agencies to receive personal information about taxpayers with outstanding liabilities, including name and Social Security number of taxpayer (and spouse, if a joint tax liability), address, amount of tax debt and the year or years to which the debt applies.

For the initial wave of PCA outsourcing, the IRS has selected 12,500 taxpayers. The taxpayers selected for initial collection outsourcing owe the IRS $25,000 or less in back taxes and have not disputed the amount owed. According to IRS spokesperson Nancy Mathis, the outsourced debts are no more than 10 years old, since the statute of limitations for collection on federal tax debt generally expires 10 years from the date of assessment. "I would assume that these would be some of the older cases in the first batch," said Mathis.

The agency expects to outsource some 350,000 tax accounts by 2008.

The American Jobs Creation Act of 2004 imbued the IRS with the authority to hire private collection agencies to collect tax debts.

On its Web site, The National Treasury Employees Union - a vocal opponent of the privatization plan - claims that the outsourcing will "compromise the private information of taxpayers."

Taxpayer Advocate Nina B. Olson echoed the program's potential for abuse and corruption, while recently, House Appropriations Committee member Rep. John W. Olver, D-Mass., sent a letter to IRS Commissioner Mark Everson opposing what he termed the agency's "extremely misguided and harmful" proposal to privatize debt collection.

Colleen Kelley, president of the NTEU, referred to the collection program as a bounty system, since collection agents will receive a commission of up to 24 percent of the tax they collect. "There is, I believe, an invitation there and an incentive for inappropriate and overly aggressive collection tactics," said Kelley. "If they don't collect anything, they're not getting that 24 percent."

This isn't the first time that the IRS has tried outsourcing collections. Congress ordered a similar effort in 1996, but that effort was deemed unsuccessful and was aborted. Collection agents were paid a flat fee instead of a commission, and the agent fees were approximately equal to the amounts collected.

Protective measures

The IRS reiterated that the PCAs will not ask for PIN numbers, passwords or credit card information. In addition, PCAs are expected to contact taxpayers by telephone and standard mail, not e-mail. As an additional safeguard, PCAs are not going to collect money from taxpayers. Payments are to be made directly to the IRS.

The IRS noted that, "Scamsters try a variety of tricks to impersonate the IRS in hopes of tricking taxpayers into divulging personal or financial information, or even conning people out of cash."

Any inappropriate or questionable contacts should be reported to the IRS.

The NTEU's Kelley recommended that taxpayers reject the PCA and request to continue to work with the IRS to collect the debt. Such a request, made in writing, will be honored by the IRS.

A sample letter can be found on the NTEU Web site at http://nteuirswatch.org.

PCAs cannot harass taxpayers, nor can they bring any enforcement action against taxpayers, including liens, levies or seizures. While taxpayers can negotiate payment plans with the PCAs, any disputed amounts or requests to negotiate payment amounts will be referred back to the IRS.

The IRS admitted that the collection program was not particularly cost effective.

In a statement to Congress, former IRS Commissioner Charles O. Rossotti suggested that the IRS could collect about $9 billion per year with a total administrative cost of only about $296 million if the collections were done in-house. Instead, under the outsourcing plan, the IRS is expected to collect $1.4 billion over 10 years, with a $330 million cost.

According to the IRS, Congress declined to provide funding for additional revenue agents who would be assigned to collect these debts.

Kelley, however, claims otherwise. "The IRS and this administration have never asked Congress for more money or more funding to do this collection work," she said. "I do not see any benefit to the taxpayers at all, or the IRS, because the IRS commissioner has testified and acknowledged that IRS employees can do this work at less cost to taxpayers."

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access