There are still more questions than answers and a lot of mixed opinions over what the final product will look like now that the Internal Revenue Service has been given Congressional approval to outsource collections of unpaid tax debts to third-party agencies.
Collection agency professionals remain somewhat optimistic that the development will be good news for the industry, but the main question is the extent to which the industry will benefit.
Some in the industry expect that the contracts and accounts will end up with larger agencies, similar to how the Department of Education uses third-party agencies to collect on unpaid student loans. Only a handful of companies have been approved under that program. Others think that the IRS will specifically target smaller agencies, especially those owned by minorities and women, as a means of furthering the government’s initiatives to grow those types of businesses. For now, until the IRS releases its Request For Proposal, one thing is for sure.
“It’s an even playing field and everyone has a chance to put their best foot forward,” said Ed Saleh of Acer Capital Recovery in Tonawanda, N.Y. “As of this minute, I think this will be an opportunity. I think you’ll see a lot of agencies go for the business.”
The outsourcing program was part of a bill that was used to reauthorize funding for interstate highways and mass transportation. Under the law, the IRS can outsource collection of what are known as “inactive tax receivables,” which include
- At any time after assessment, the Internal Revenue Service removes such receivable from the active inventory for lack of resources or inability to locate the taxpayer,
- More than 1⁄3 of the period of the applicable statute of limitation has lapsed and such receivable has not been assigned for collection to any employee of the Internal Revenue Service, or
- In the case of a receivable which has been assigned for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection of such receivable.
Consumer advocates have complained that outsourcing collections to third-party agencies harms low-income Americans the most.
This is not the first time that the IRS has outsourced collections of unpaid taxes. The IRS tried a very similar program a decade ago, which received very mixed reviews. According to some data, third-party agencies were only able to collect about 15% of what was expected. In fact, the government actually spent more money administering the program than it recovered.
This time could be different, if the IRS has learned from its mistakes. The compliance burden has shifted significantly in the past seven years since the IRS ended its last attempt. The Consumer Financial Protection Bureau was not around back then and the regulatory compliance requirements were not nearly as onerous. Adding that on top of whatever process the IRS will conduct in evaluating agencies could mean that only a few collection shops will have the necessary deep pockets to be in line for accounts, said Harry Strausser of The Remit Corp.
“Realistically, only a handful of large companies are going to be eligible,” Strausser said. “But I do think our industry could do a dynamite job. We can do it and be good at it.”
