Private collectors aren’t collecting much tax revenue

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The Internal Revenue Service successfully implemented a congressionally mandated program involving private debt collectors in collecting unpaid taxes, but they haven’t yielded very much in terms of revenue – and the program may end up being harmful to taxpayers, according to a recent report.

The report, from the Treasury Inspector general for Tax Administration, looked into the private tax debt collection, or PDC, program that was created by the 2015 FAST Act, which required the IRS to enlist private collection agencies in collecting certain kinds of tax delinquencies (despite the failure of two similar efforts previously).

According to TIGTA, the IRS set up and deployed the latest PDC program successfully, and began giving the four selected collection agencies delinquent accounts in April 2017.

As of May 31, 2018, the program had brought in revenue of $56.62 million, just over a million dollars more than its costs of $55.33 million.

The TIGTA report noted that this amounted to just 1 percent of the $4.1 billion in delinquent revenue that the IRS had assigned the collection agencies, while the industry average for collection agencies is 9.9 percent. It pointed out, however, that the average age of the cases the agencies were assigned was just under four years, and that accounts that are that old are considered “nearly uncollectible.”

Danger for taxpayers?

Of more concern to the TIGTA auditors were some of the program’s associated policies that “may be harmful to taxpayers:”

  • A complaint process that relies on the debt collectors reporting themselves;
  • The lack of a referral unit to make sure the right cases are sent for private debt collection;
  • Conflicts and contradictions between the IRS’s communication strategy for the PDC program and its warnings about tax scams; and,
  • Authentication procedures that “needlessly expose taxpayers to risk.”

The report also noted other concerns, including the potential risk that taxpayers who can only pay a part of what they owe may be ignored by the IRS, that the PCAs have been left to address “subsequent noncompliance,” and that some payment terms don’t comply with the law.

TIGTA recommended a number of steps for improving the efficiency of the program and to protect taxpayer rights. Specifically, it suggested:

  • Including newer delinquent accounts; (no
  • Establishing a complaint panel to identify and act on systemic problems; (no)
  • Establishing a referral unit to make sure that inappropriate cases can be identified and recalled from the PCAs; and, (no)
  • Revising the program’s communication program.

The IRS disagreed with all but the last recommendation.

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