It’s unavoidable that Uncle Sam, the taxman, will get into your financial affairs. But does he need to let private bill collectors get into your business too?


U.S. Department of the Treasury Internal Revenue Service (IRS) 1040 Individual Income Tax forms for the 2014 tax year are arranged for a photograph in Tiskilwa, Illinois, U.S., on Monday, March 16, 2015. The deadline for filing 2014 U.S. income taxes is Wednesday, April 15, 2015. Photographer: Daniel Acker/Bloomberg

Congress is considering legislation that would again allow the Internal Revenue Service (IRS) to use outside collection agencies, after previous programs failed twice.

The first attempt, from August 1996 through June 1997, lost money. So did the second one.  Former IRS commissioner Douglas Shulman stopped the 2006-2009 effort, saying “I believe this work is best done by IRS employees.”

[IRS Gives the Boot to Private Tax Collectors]

Plenty of people in and out of Congress oppose the use of outside bill collectors, but not Sens. Chuck Grassley (R-Iowa) and Chuck Schumer (D-N.Y.).

“This program would create hundreds of jobs in two of the poorest areas in New York, all while increasing federal revenues and not costing a single government job,” Schumer said in a statement. “It draws on past efforts and ensures that lessons learned are applied going forward. We have crafted a plan that has the safeguards necessary to protect taxpayers, the infrastructure to make it work effectively, and the resources it needs to succeed. Both on the merits of the program itself and for jobs in New York, it makes eminent sense.”

Whatever merits they can find, the IRS doesn’t think they make “eminent sense.”

Current law now permits the use of private collection agencies, but the IRS does not, “because of revenue outcomes, taxpayer service and cost effectiveness,” current IRS Commissioner John Koskinen told Congress last year. “The 2006-2009 initiative lost revenue, taking all activities into account. Additionally, the PCAs (private collection agencies) do not provide the same protections to taxpayers from aggressive collection practices and anecdotal evidence suggested some taxpayers were being subjected to aggressive collection practices by at least some PCAs.”

Groups of senators and House members agree.

Sixteen senators, including Ben Cardin and Barbara Mikulski, both Maryland Democrats, sent a letter to the congressional leadership last month detailing their opposition to the measure, which is included in a highway funding bill. Among their objections:

  • Commission incentives could lead private collection agencies to “jeopardize taxpayer rights” if they “minimize due process in order to maximize profits.”
  • The 2006-2009 program resulted in “the Treasury collecting $63.4 million in revenue while accruing total costs of $67.8 million, a loss of $4.4 million to the federal government.”
  • Private collection agencies “will unfairly target low-income taxpayers.” The IRS can work with taxpayers by allowing them flexible payment schedules or suspending collection actions or reducing the amount owed. But private collectors’ “sole interest is to collect from a taxpayer the balance due…They cannot provide any advice or use the tools IRS employees have.”

Reps. John Lewis (D-Ga.), Sander Levin (D-Mich.), and Chris Van Hollen (D-Md.) called the plan “misguided and harmful to taxpayers.” They pushed an effort by 11 House Democrats to kill the provision.

The National Taxpayer Advocate, an IRS office that bills itself as “your voice at the IRS,” also opposes the use of private collection agencies. In a May letter to Congress, Advocate Nina E. Olson said the plan “places a bulls-eye on the back of low income taxpayers.” She cited an IRS study that found 79 percent of the cases considered “inactive tax receivables,” which the private collectors would attempt to collect, involve low-income people.

“I believe it would be unconscionable for Congress,” she wrote, “to create a government-sponsored debt collection program that, even if inadvertently, targets such a high percentage of low income taxpayers.”

Nonprofits that work with low-income communities and others agree. They’ve joined with the National Treasury Employees Union, which represents IRS employees, in the fight against using private debt collectors.

“A number of civil-rights groups like the NAACP and the National Council of La Raza, consumer-advocacy organizations like the National Consumer Law Center also oppose the PCA provision,” NTEU President Tony Reardon told reporters. “They say it could unleash a fresh round of taxpayer abuse. We concur.”

As expected, the collection industry has a much more positive view of the plan.

Cindy Sebrell, a spokeswoman for ACA International, the association of credit and collection professionals, pointed to a 2008 taxpayer advocate report that found collection agencies had a 96 percent customer satisfaction rating. A headline in that same report, however, says “The IRS’s Private Debt Collection Initiative is Failing in Most Respects.”

That doesn’t deter Sebrell, who said “third-party debt-collection agencies are often subjected to negative perceptions they don’t deserve.”

Really?

Consider this proud note from ACA: “The Council of Better Business Bureaus recently released data from 2014 showing that debt collectors have dropped to fifth place among the most complained-about service providers by consumers.”

[Read the Council of Better Business Bureaus ranking of industries by complaints.]

But having the fifth highest number of complaints — out of 3,959 industries listed — is nothing to brag about. That places collection agencies one step above used car dealers and two steps below cable companies.