Private IRS Debt Collectors Target Large Numbers of Low-Income Taxpayers

Chris Gaetano
Published Date:
Jun 11, 2018

National Taxpayer Advocate Nina Olson said that since the reauthorization of private debt collectors to go after delinquent taxpayers, they have targeted large numbers of low-income individuals, 44 percent of whom had incomes below 250 percent of the federal poverty level, according to Accounting Today.

The program, which had been tried twice before, was revived through the passage of the 2015 FAST Act, which was ostensibly about highway infrastructure. The program specifically authorizes private collection agencies to go after debts that the IRS lacks the resources or ability to collect itself; debts that have gone through one- third of the statute of limitations without being assigned for collection by an IRS employee; or debts for which the receivable has been assigned for collection but the taxpayer has not communicated with the IRS in more than a year. Olson said that most of the people who hold such debts are low-income taxpayers who,are entering into payment plans that they cannot afford. 

Her office examined 4,100 taxpayers who paid the IRS after their debts were assigned to private collection agencies. Of these taxpayers, 28 percent had incomes below $20,000, 19 percent had incomes below the federal poverty level and 44 percent had incomes below 250 percent of the poverty level, which the federal government uses as a proxy for economic hardship in several situations, such as in administering the Federal Payment Levy Program.

Olson expressed concern about the program in her 2017 report to Congress. She noted that the IRS, under statutory and administrative rules, generally must refrain from trying to collect money from taxpayers experiencing economic hardship, yet the law enabling private collectors to be used has no such restriction. This means private debt collectors might end up pursuing taxpayers in financial hardship for taxes that  the IRS itself couldn't collect. She also pointed out that the IRS has tools to address economic hardship cases, like offers in compromise, that private agencies lack. She also bemoaned the lack of required transparency and oversight in the private companies' procedures, in contrast to even previous private debt-collection programs, as well as lack of training and guidance for their employees. She noted that the IRS has no plans to train private collection agencies on matters such as IRS audit and collection procedures, the role of IRS appeals, or collection alternatives like offers in compromise or partial payment installment agreements. 

Finally, Olson said that the program's payment structure between the IRS and the collection agencies can lead to inefficiencies. Under the program, collection agencies are paid based on taxpayer remittances paid 11 days after they receive notice that their accounts are being transferred to a private agency. This can lead to situations, however, where a collection agency winds up getting a commission on payments that it played no role in actually collecting. 

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