Taxpayer Advocate Report Identifies Several Problems Including Net Loss on Program, Collections Individuals Qualifying for "Currently Not Collectible" Status
The Taxpayer Advocate has highlighted several problems within the Internal Revenue Service's most recent attempt to utilize private debt collection agencies to collect past due taxes. The Advocate has named Private Debt Collection their "Most Serious Problem #1" in their 2017 Annual Report to Congress published on January 10, 2018.
Background
The Internal Revenue Service is required under 26 U.S. Code § 6306 to enter into at least one contract with a private debt collection agency to collect certain classes of tax liabilities. The requirement was signed into law by President Obama on December 4, 2018, as part of the Fixing America's Surface Transportation Act (FAST Act).
IRS Losing Money on Private Debt Collection Efforts
Among the most serious concerns that the efforts by the IRS to collect taxes through private debt collection resulted in a loss for the Service. According the the IRS, in Fiscal Year 2017 private debt collections agencies paid proceeds of $6.7 million in collected taxes to the IRS at a cost to the IRS of $20 million. As a result of private debt collection efforts, the IRS lost $13 million in Fiscal Year 2017.
Taxpayers With Financial Hardship Pursued By Collection Agencies
The authors found that 44% of the Taxpayers making payments and 34% of the proceeds collected by private debt collection agencies came from Taxpayers having income at or below 250 percent of the Federal Poverty Level. That level of income, at or below 250 percent of the Federal Poverty Level, generally qualifies Taxpayers for 'Currently Not Collectible' Status and allows Taxpayers to enter into a deferred collection agreement. While not established conclusively based on the available information, the collection pattern suggests that private debt collection agencies are not making Taxpayers aware of their right to defer payments to the IRS if collection would cause a financial hardship.
Conclusion
The IRS's latest implementation of private debt collection resulted in a loss for the Service while also causing financial hardship for a significant number of low income Taxpayer. Unless changes are made, the Service is likely to again seek Congressional relief of the obligation to collect past due taxes through private collection.
Sources:
26 U.S. Code § 6306
. Qualified Tax Collection Contracts.