Privatizing IRS Debt Collection Harms Lower Income Taxpayers, Report Shows

Press Release June 8, 2018

Washington, D.C. – Taxpayers who owe more to the IRS than they can afford to pay are unfairly targeted by private debt collectors working on commission, according to a new analysis of the program’s first year done by the National Taxpayer Advocate.

Congress last year ordered the IRS to submit cases of overdue federal tax debt to private collection agencies, despite concerns that it would harm lower income families by trapping them in payment plans that exceed their regular living expenses.

The National Treasury Employees Union was among those that opposed the use of private contractors to do the work normally done by career public servants at the IRS.

And now, 14 months after the program began, an IRS watchdog has found that of the taxpayers put into payment plans by private collection agents, 43 percent had income lower than their allowable living expenses.

“This pattern of taxpayers whose debts are assigned to (private collection agencies) entering into (installment agreements) and making payments they appear to be unable to afford is continuing,” wrote National Taxpayer Advocate Nina Olson.

The program has already been found to cost the U.S. Treasury more money than it brings in.

“And now we learn that it is adding more financial hardship on American families already struggling to keep up with their bills,” NTEU National President Tony Reardon said. “This is the third time Congress has steered public IRS business to private collection agents, and like the first two times, it should be cancelled.”

In 2016, the IRS’ internal debt collection procedures, using IRS employees, generated $4.7 billion in revenue for the government. But under the privatization program, most of those internal procedures are bypassed in favor of referral to the outside collection agencies, which can keep up to 25 percent of what is collected.

The National Taxpayer Advocate, an independent IRS watchdog that reports directly to Congress on ways to improve IRS operations and policy, issued a directive on April 23 that the IRS stop assigning to private collection agents any cases where the taxpayer had income below 250 percent of the federal poverty level. An agency response is due by June 25, according to Olson. A similar provision has passed the U.S. House and awaits Senate action.

NTEU has endorsed legislation from Rep. John Lewis (D-GA), and Sen. Ben Cardin (D-MD) to repeal the congressional mandate that the IRS outsource collection work to for-profit companies and allow the trained professional civil servants of the IRS to do their job. The bill numbers are H.R. 2171 and S. 2425.

“We cannot continue to put a bulls-eye on the back of low-income taxpayers,” said Sen. Cardin, a senior member of the Senate Finance Taxation and IRS Oversight Subcommittee. “Private collection of tax debt disproportionately impacts economically vulnerable households – and private tax collection programs have lost taxpayer dollars every time they have been tried. It is time to put this failed program aside, for good.”

NTEU represents 150,000 employees at 32 federal agencies and departments.