Outsourcing to collect tax debt: Congress considers proposal

The budget problems of the IRS have not only impacted the agency’s ability to offer customer service to taxpayers. Those problems have also affected the IRS’s capacity to conduct tax audits and perform other tax collection functions.

As we noted in our March 11 post, the National Taxpayer Advocate has been vocal in expressing concern about how this trend undermines the ability of the IRS to promote voluntary compliance with tax law.

In this post, we will take note of how Congress – which has cut the IRS’s budget in recent years – is now considering the use of private debt collectors to go after taxpayers in Texas and across the country who owe tax debt to Uncle Sam.

The IRS tried using private debt collectors before, during the George W. Bush administration. But the IRS discontinued the program when it ran into many problems.

One problem with the previous program was creditor harassment. Many taxpayers complained that private debt collectors harassed them when trying to collect on tax debt.

The IRS also concluded that the program was not cost effective.

But the idea of using private debt collectors to go after tax debt is back again anyway.

The proposal to do so came last week from Sen. Charles Schumer of New York. As the Washington Post pointed out, New York is the home base for two private debt collection companies that would be likely to benefit if the proposal becomes law.

The proposal calls for “inactive tax receivables” to be referred to private collectors under specified circumstances. The assignment to the private collectors would occur if the IRS cannot find the debtor or if IRS agents do not contact that debtor within a year.

To be sure, there are certain exceptions to this broad requirement. Military service personnel, for example, would be exempted if they are on active duty in a combat zone abroad.

Overall, however, the proposal would allow for widespread outsourcing of tax collection duties. It has already received considerable criticism, particularly by the National Taxpayer Advocate.

Source: The Washington Post, “Congress moves to turn back taxes over to debt collectors,” Lori Montgomery, May 15, 2014