The union representing Internal Revenue Service employees is denouncing a provision in the pending highway funding bill that would require the Treasury Secretary to contract with private collection agencies as an offset for some of the costs of extending funding for the Highway Trust Fund.
National Treasury Employees Union president Colleen M. Kelley wrote to senators Tuesday, urging them to reject the provision. “The use of PCAs to collect tax debts has repeatedly been shown to be a waste of taxpayer dollars,” she wrote. “The Treasury Secretary currently has the authority, but has chosen not to enter into such contracts.”
The original attempt to privatize tax-debt collection was scrapped a year after the program was launched in mid-1990s, the union pointed out. Taxpayers lost $17 million and some of the companies selected for the pilot projects were found to have violated the Fair Debt Collections Practices Act. The second attempt began in 2006, when proponents estimated the program would collect up to $2.2 billion in unpaid taxes. That effort was stopped three years later, after the program brought in only $4.5 million.
“In addition to being fiscally unsound, allowing PCAs to collect tax debt on a commission basis led to taxpayer abuse,” Kelley wrote. “In one instance, private collectors made 150 calls to the elderly parents of a taxpayer after the collection agency was notified he was no longer at that address.”
Taxpayers who are unrepresented and vulnerable are disproportionately likely to be contacted by private tax collectors. According to the National Taxpayer Advocate, who studied the second failed program, the median income of taxpayers whose cases would most likely be assigned to the PCAs is significantly less than the median income of taxpayers whose cases would be assigned to IRS collection personnel.
In addition, private debt collectors do not have the ability, as the IRS does, to postpone, extend or suspend collection activities for limited periods of time; allow flexible payment schedules that provide for skipped or reduced monthly payments; consider waiving late penalties or postponing asset seizures and Offers In Compromise, or enter into an agreement between a struggling taxpayer and the agency that settles a tax debt for less than the full amount owed.
“If a taxpayer’s case gets assigned to a PCA, the taxpayer effectively has fewer options than other, mostly better off taxpayers,” Kelley said. “To offset the cost of funding the highway bill by letting PCAs—which will pocket up to 25 percent of what they bring in—loose on these taxpayers in not right and should be rejected.”
In addition to the union, the National Taxpayer Advocate and a number of consumer and civil rights organizations have opposed using private tax collectors.
However, the idea has some supporters. Sen. Chuck Grassley, R-Iowa, a former chairman of the Senate Finance Committee, criticized the union’s opposition Wednesday, pointing to the IRS’s declines in taxpayer service. “The IRS union is already opposing the use of private contractors to collect taxes that’s part of the proposed highway bill,” Grassley said in a statement. “Meanwhile, the IRS just had one of the worst filing seasons for customer service on record, according to the agency’s own taxpayer advocate. The number of courtesy disconnects skyrocketed’ this last filing season. That means the IRS hung up on callers because it couldn’t handle the calls. The private contractors would take on accounts involving taxes that are due and owed that are just sitting dormant right now. The IRS isn’t even pursuing them. It seems unlikely to do so any time soon when it has trouble answering the phone from people who are trying to pay their taxes. It’s hard to see the logic for the resistance.”
Lawmakers have been scrambling to provide long-term funding for the Highway Trust Fund.
The House passed a short-term extension last week to provide funding through mid-December, although the Senate is working on a longerterm extension (see House Passes Funding for U.S. Highways Paid with Tax Compliance Measures).
The DRIVE Act, which was introduced Tuesday, would offer a six-year highway authorization to allow planning for important long-term projects around the country, and provides three years of guaranteed funding for the highway trust fund. To fund the bill, it contains a number of tax provisions. Among them are provisions that would require the federal government to use private debt collection agencies to help facilitate the collection of taxes owed the government. The provisions incorporate safeguards such as narrowing the class of receivables subject to collection and giving priority to previously approved contractors to protect taxpayer rights and privacy.
Another tax-related provision involves modification of mortgage information reporting requirements. Current law requires lenders to provide the IRS with each borrower’s name, address, and taxpayer identification number, as well as the amount of interest paid in a given year (including discount points) on a mortgage. This provision would require lenders to also provide the origination date of the mortgage, the amount of outstanding principal at the end of a calendar year, and the property’s address to help reduce inaccurate reporting.
Another provision would require consistency between estate tax value and income tax basis of assets acquired from a decedent. Many years after inheriting property, beneficiaries can overstate the value of a piece of property at the date of inheritance on their income tax returns and, as a result, understate their income tax liability on profits made when they sell it. This provision would require those estates with positive estate tax liability to provide the IRS the value of a piece of property upon the owner’s death. The provision would apply to transfers for which an estate tax return is filed after the date of enactment.
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