IRS debt collection hits poor hardest
Watchdog report also says IRS losing money by using private collectors
The Internal Revenue Service’s handling of its private debt-collection program is harming lower-income Americans who can least afford to repay tax debts, a federal watchdog warned Wednesday.
While Congress directed the IRS to use private debt-collection firms to seek nearly $400 billion owed, the tax agency also was expected to follow an existing rule designed to ensure that taxpayers “have an adequate means to provide for basic expenses,” National Taxpayer Advocate Nina Olson said in the annual report to Congress.
But the watchdog’s review of tax returns filed as of late September by 4,141 taxpayers who made tax payments after their cases were assigned to private collectors found 19% of the group had incomes below the federal poverty level. These taxpayers had a median income of $6,386.
Additionally, 25% of the group had incomes below 250% of the federal poverty level, a common low-income marker. They had a median income of
$23,096, the report said.
The IRS likely would have given these taxpayers hardship status and classified their debts as currently uncollectible if the tax agency had handled the accounts itself, Olson wrote. Instead, the tax agency assigned the cases to private debt-collection firms that don’t conduct financial analyses before contacting the taxpayers for repayments, the report said.
“No one is making the IRS make these bad decisions,” wrote Olson, who called the actions an end-run around Congressional safeguards. “The harm to these taxpayers is something IRS leadership consciously decided to do despite efforts to stop it.”
The report also suggested private debt collections are a waste of money.
The tax agency assigned nearly
$920 million of “inactive tax receivables” to private collection firms through Sept. 14. About $7 million, or less than 1% of the total tax debts assigned for collection, had been recovered as of that date, the report found in a review of IRS data. The costs totaled approximately $20 million through Sept. 30, with roughly $1 million in commissions paid to the private debtcollection firms and the rest covering other program expenses.
“No one is making the IRS make these bad decisions,” National Taxpayer Advocate Nina Olson says.