Despite failed attempts with the Internal Revenue Service’s (IRS) use of private bill collectors, Congress mandated the agency try again. This raises significant issues — including taxpayer privacy and allowing private contractors to do sensitive government work. Now, a parade of reports reveals problems that emerged when the latest iteration began last year.
One vexing problem — private tax collectors are not collecting nearly the amount of money predicted.
But first the good news.
TIGTA says “private collection agencies are performing well based on internal revenue service established performance measures.” That comes with an important caveat.
The performance metric, TIGTA’s cautioned, “focuses mainly on the telephone call with the taxpayer and not the handling of the case itself.”
By email, the Partnership for Tax Compliance, which represents the bill collectors, pointed out that the four private collections agencies (PCA) employed by IRS “received a combined (average) customer satisfaction score of 93 percent.”
Acknowledging “these are positive results,” TIGTA noted “the survey is only administered on calls that last at least 10 minutes and to taxpayers who are still on the line at the conclusion of the PCA employee’s attempt at collection. These may tend to be the most satisfied customers.”
No matter how good the telephone operation, financially, the program is making little money and much less than projected. Collecting the $2.4 billion in additional revenue through fiscal 2025, which the report said the congressional Joint Committee on Taxation estimated, is out of reach unless something changes. As of May 31, total program revenue was $56.6 million, just $1.3 million more than its $55.3 million in costs.
Collecting about $4 million a month during the first 14 months of the private debt collection program, it is far behind the rate needed to reach $2.4 billion. If this rate continues, by 2025, it would have collected about 20 percent of the committee’s estimate.
Collections by private tax collectors run well behind the national average of bill collectors, according to a collection industry trade association study cited in the report.
Despite these facts, Sen. Charles E. Grassley (R-Iowa), a proponent of the program, accentuated the positive: “The report confirms revenue brought into the federal treasury exceeds program costs, helping recuperate lost taxpayer dollars and make the tax collection system fairer.” Another supporter, Sen. Charles E. Schumer (D-N.Y.), declined to comment.
A possible reason for the low private collection rate is the age of the cases the agencies get, almost four years on average. “Such aged accounts are generally thought to be nearly uncollectible,” the report said.
TIGTA noted that the bill collectors might have more success if IRS sent them “newer cases of the type that it would not likely work.”
The report also listed IRS policies that could harm taxpayers, including:
• “A complaint process that is dependent on private debt collectors reporting on themselves.”
• No coordinating referral unit that would ensure “only appropriate cases are sent to the PCAs.”
• “A PDC (private dept collection) program communication strategy that conflicted and contradicted other IRS communications regarding tax scams.”
• “Authentication procedures that needlessly expose taxpayers to risk.”
Other complaints against the program were lodged in June by the National Taxpayer Advocate, which said the program “continues to unnecessarily burden taxpayers experiencing economic hardship and produces installment agreements with high default rates,” and a July TIGTA document titled “Private Collection Agency Security Over Taxpayer Data Needs Improvement.”
Tony Reardon, president of the National Treasury Employees Union, said it “has long opposed the use of private contractors, who work on commission, to take the place of professionally trained civil servants of the IRS. Like two previous failed attempts that ended up losing $17 million and almost $21 million respectively according to TIGTA’s previous reports, there is growing evidence that the third attempt to operate a private debt collection program is equally flawed.”
IRS officials issued a strong rebuttal to TIGTA’s new report, disagreeing with its analysis, several findings and most of the recommendations.
“The report introduces each section by outlining the failures of a prior debt collection effort in 2006, yet several of the recommendations suggest we implement components of that failed program,” Mary Beth Murphy, the IRS small business/self-employed division commissioner, wrote in a letter to the inspector general’s office.
She said the agency is “committed to running the private debt collection program as intended by Congress … We have learned a lot from previous private collection efforts and our current program reflects this. We will continue to closely monitor the program and make adjustments as needed.”
Those adjustments do not include the many inspector general’s recommendations IRS rejected.
“Of your thirteen recommendations, we agree with communicating messages about the PDC program to the public, not assigning cases permanently to a private collection agency, and providing telephone numbers to the private collection agencies” so the companies can call taxpayers, Murphy said.
Rep. John Lewis (D-Ga.) has another recommendation the tax collectors won’t like — stop using outside bill collectors.
“The use of private collection agencies is a disservice to the taxpayer and to the IRS mission and mandate,” he said. “Private debt collection failed in the 1990s, in 2006, and it’s failing taxpayers today. Congress should not be in the business of wasting tax dollars, creating confusion, or increasing taxpayers’ vulnerability to fraud and identity theft."
“This is the third report released this year to find significant problems with the outsourcing of a core, constitutional government function,” he added. “The solution is simple — Congress should repeal this fundamentally flawed program so that we can focus on the will and the needs of the taxpayer.”