The I.R.S. Will Soon Be Using Private Debt-Collection Companies To Collect Overdue Tax Payments

04.20.17 3 months ago 7 Comments

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It’s difficult to think of an industry more hated than the private debt collection industry in America, and they’re nothing next to their leg-breaking Russian colleagues. So, the news that the IRS is going back to using private debt collectors on some debts is probably bad enough amid people discovering on tax day their refunds are being seized over student loan repayment. But the truth is that not even the IRS wants to do this, and Congress is forcing them to enact a failed policy yet again. In fact, the law is requiring the IRS to use debt collectors other parts of the government are suing for fraud and incompetence.

The law in question was enacted in 2015, and was buried in a must-pass transportation funding bill called the FAST Act as an offset to the spending in the bill itself. The requirements of the bill have come under fire before they’ve even been passed, as debt collectors are regularly in trouble with regulators such as the Federal Trade Commission.

It’s also, critics argue, overly broad. The law requires the IRS to use private debt collectors for “inactive tax receivables,” IRS jargon for debts where they can’t find the debtor, the IRS hasn’t assigned anybody to talk to the debtor, or more than a year has passed since the IRS contacted the debtor. It’s not an insubstantial amount of money, either: The GAO estimates it at $380 billion.

The problem is twofold: Who the IRS has hired, and the fact that the program, in the past, just hasn’t worked. For example, Pioneer Credit Recovery is better known to many Americans as Navient, the student loan provider currently being sued by the government’s student loan program for lying to consumers and botching payment processing. Another, Performant, has a conflict of interest in the form of having Betsy DeVos, secretary of education, as a major investor.

But even that pales to the fact that the IRS has made two high profile attempts to outsource the collection of taxes, and both times, taxpayers wound up paying the bill. Critics note that a pilot program attempting this in 1996 was shut down after a year and cost taxpayers $17 million. When it was tried again in 2006, the IRS found that it was twice as efficient as the three debt collection agencies it contracted with. And just to rub it in, two of those three collection agencies, CBE Group and Pioneer, are being brought back yet again ten years later.

The problem, of course, is that nobody likes the IRS, and giving the IRS more money is politically unpopular. But the idea that private debt collectors can do the job better has been put to the test before, and it’s not clear why Congress expects the third time to be the charm.

(via The New York Times)

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