The Atlanta Journal-Constitution
Owe taxes? IRS enlists firms to collect
Backers say Treasury could reap $2.4B; foes say door open to scams.
The Internal Revenue Service is about to start using four private debt-collection companies to chase down overdue payments from hundreds of thousands of people who owe money to the federal government, a job it has handled in house for years.
Unlike IRS agents, who are not usually allowed to call delinquent taxpayers by telephone, the outside debt-collection agencies will have free rein to do so. Consumer watchdogs are fearful that some of the nation’s most vulnerable taxpayers will be harassed and that criminals will take advantage of the system by phoning people and impersonating IRS collectors.
Additionally, one of the four companies that the IRS has hired, Pioneer Credit Recovery, a subsidiary of Navient, was effectively fired two years ago by the Education Department from its contract to collect delinquent debt for misleading borrowers about their loans at what the department called “unacceptably high rates.”
Proponents of the plan, who
include Democrats and Republicans, point out that the debtors are shirking their tax obligations and that collecting from them will add to the Treasury’s coffers. The congressional Joint Committee on Taxation estimated that the new debt-collection program had the potential to gain a net $2.4 billion over the next 10 years.
“Collecting tax debt that’s due and not in dispute is a matter of fairness to the many taxpayers who pay what they owe,” said Sen. Charles E. Grassley, R-Iowa. “It’s been clear for a long time that the IRS isn’t collecting the debt that these contractors will focus on.”
Twice before, in 1996 and 2006, the IRS has tried to farm out some of its collection duties. Both times, the programs were shut down and deemed failures. The most recent attempt cost millions more than it took in. It also generated thousands of complaints, including one oft-repeated horror story about an older couple who received more than 150 phone calls in less than a month.
Even so, Congress passed a law in 2015 ordering the IRS to once again outsource some of its delinquent debt. The provision was buried in a $305 billion highway funding bill. The agency hired four companies — CBE Group, ConServe, Performant and Pioneer Credit Recovery — and started giving them cases this month.
The companies will work on commission, earning up to 25 percent of the delinquent debt they collect.
The IRS is owed about $138 billion in severely overdue payments on 14 million accounts, according to agency data, and that huge sum drives lawmakers crazy. Enlisting the private sector’s expertise to solve the problem is an idea that comes up again and again.
High-profile lawmakers on both sides of the aisle backed the latest debt-collection plan. In addition to Grassley, Senate Democratic leader Chuck Schumer has been a proponent of using private collectors for years. Three of the four companies that won the latest IRS contracts are based in the two senators’ states.
Schumer held a news conference in October to announce the 300 new jobs Pioneer planned to add in upstate New York as a result of the IRS contract. The jobs “will help inject new life into the regional economy,” he said.
Proponents of this kind of outsourcing say that the benefits go beyond jobs. During his confirmation hearing, Steven Mnuchin, President Donald Trump’s Treasury secretary, said that employing for-profit collectors to pursue money owed to the government “seems like a very obvious thing to do.”
But Nina E. Olson, whose job at the Internal Revenue Service is to be an advocate on behalf of taxpayers, strongly disagrees.
Outsourcing the collection of federal tax debt is “a bad idea,” she wrote in a letter to Congress. “It disproportionately impacts low-income and other vulnerable taxpayers, and despite two attempts at making it work, the program has lost money both times, undermining the sole rationale for its existence.”
John A. Koskinen, the commissioner of the IRS, said the new program took a “streamlined” approach, with significantly lower overhead than the last attempt. The plan is to turn 140,000 accounts over to the four companies this year, all with a balance of $50,000 or less.
“We will do everything we can to make sure this program is effective,” Koskinen said at a congressional hearing this month. “Because if it works, that would be fine. If it doesn’t work, I don’t want anyone saying, well, we actually sandbagged it some way or the other.”
Both the IRS and the debt collectors say they will be mindful of taxpayers’ rights. Pioneer will “comply with debt collection rules and consumer protections,” the company said in a statement posted on its website. (The other three collectors did not respond to requests for comment.)
That has done little to assuage consumer advocates’ concerns about the potential for abuse. More than two dozen groups sent a letter to Koskinen last year urging the agency to adopt additional safeguards, such as excluding debtors whose incomes are less than 250 percent of the poverty level.
Olson warned that the program appeared “to place a bull’s-eye on the backs of low-income taxpayers.”
In February, the IRS put out its annual list of the biggest tax frauds. Phone calls from criminals posing as IRS agents were the top problem.
“During filing season, the IRS generally sees a surge in scam phone calls that threaten police arrest, deportation, license revocation and other things,” the report said.
At the time, Koskinen was quoted in a news release saying: “If you’re surprised to get a call from the IRS, it almost certainly isn’t the real IRS. We generally initially contact taxpayers by mail.” Now that private companies are authorized to call taxpayers on behalf of the agency, that advice may no longer hold.
“This is like putting out barrels of honey for scammers,” said David C. Vladeck, a professor at Georgetown Law School and the former director of the Federal Trade Commission’s consumer protection bureau.
The IRS says that delinquent taxpayers whose accounts are turned over to the private collection agencies will have already received many letters by mail from the agency, urging them to pay and warning them that the debt would be turned over to a third party for collection.
‘We will do everything we can to make sure this program is effective. Because if it works, that would be fine. If it doesn’t work, I don’t want anyone saying, well, we actually sandbagged it some way or the other.’ John A. Koskinen Commissioner of the IRS speaking at a congressional hearing last month