Nina Olson, the Taxpayer Advocate within the Internal Revenue Service, which is the office dedicated to helping taxpayers who have problems with the agency, has published its 2017 annual report, and it takes the IRS’s private debt collection operation out to the woodshed.
The total cost of the program — $20 million — is three times higher than the amount collected by the private collection agencies, according to the report. In fact, the letter that the IRS sends to individuals notifying them that their debt is about to placed with a private collection agency is generating 40% as much as the efforts of the collection agencies themselves. And the IRS is paying a 25% commission to those accounts, even though nothing is being done by the agency.
About $920 million of unpaid taxes have been assigned to the four collection agencies selected by the IRS to work on its behalf, and $7 million, or 1% of what has been assigned, has been collected. About $1 million has been paid to the collection agencies in the form of commissions and the program has experienced $18 million in other expenses.
The program also seems to be singling out taxpayers with lower incomes. Nearly one in five of the 4,141 individuals who have made payments to a private collection agency and filed a tax return had an income below the federal poverty line. The median income of that group was $6,386.
“The PDC program as implemented has not generated net revenues and results in the IRS improperly paying commissions to PCAs for work they did not perform,” the report stated. “In the meantime, the most vulnerable taxpayers are making payments and entering into installment agreements they cannot afford according to the IRS’s own measures.”
The IRS is sending accounts to collections that it should not, because those taxpayers fall below a financial hardship threshold that should exempt them from collection efforts. About 45% of the payments that have come in to private collection agencies have come from individuals whose accounts should not have been placed for collection in the first place, according to the report.
The private debt collection program was one of about 20 “Most Serious Problems” cited by Olson in the report. Some of the other most serious problems are: poor telephone service and capabilities, granting exempt status for non-exempt organizations, and not helping victims of identity theft well enough.
Olson uses the report to highlight all the ways in which the IRS is being dramatically underfunded, and uses the recently enacted tax reform law as yet another logistical problem that the IRS is being asked to solve, without providing any additional resources.
“Limited resources cannot be used as an all-purpose excuse for mediocrity,” Olson wrote. “There is not a day that goes by inside the agency when someone proposes a good idea only to be told, ‘We don’t have the resources.’”
