May 28, 2014
Turning to debt collectors for unpaid taxes a bad idea
WASHINGTON — The federal government needs money. I get it.
The Internal Revenue Service has a significant number of overdue tax debts it needs to collect. More than 5 million taxpayers were delinquent near the end of April, according to the agency.
But a proposal to allow the IRS to turn over those delinquent accounts to private debt collection agencies isn’t the solution. It’s a bad idea, used before — in the late 1990s and again in the last decade. Both times the outsourcing failed.
Many people are already scared of the IRS if they owe money. I see little upside to this already tenuous relationship if we return to having private collection agencies go after tax delinquents.
This is also what Nina E. Olson, the national taxpayer advocate, said in a 21-page letter to the chairmen and ranking members of the congressional tax-writing committees. Olson noted that she and the Office of the Taxpayer Advocate were involved in the private debt collection program between 2006 and 2009.
“Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue,” Olson wrote. “Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program ended up losing money. We have no reason to believe the result would be any different this time.”
Olson is also concerned that collection efforts would put a “bull’s-eye on the backs of low-income taxpayers,” who make up an overwhelming majority of folks whose accounts would be turned over to debt collectors. “I believe it would be unconscionable for Congress to create a government-sponsored debt collection program that, even if inadvertently, targets such a high percentage of low-income taxpayers,” she wrote.
I fear, as Olson does, that private debt companies driven to collect as much revenue as possible will result in overly aggressive collection tactics, including pressuring people to agree to payments they can’t possibly afford. If someone then defaults, it can cost more money to go back and establish a fairer payment plan.
“Low-income taxpayers often lack financial savvy and are terrified of what a debt collector might do to their lives,” Olson wrote.
The Federal Trade Commission has been regularly going after and sanctioning debt collectors for bad and illegal behavior. Debt collection is among the top consumer complaints received by the FTC. Just recently, the FTC slammed a California operation, obtaining a $4 million settlement from the company over charges that it used deceptive and abusive tactics in collecting credit card debt. The money will be used to provide refunds to consumers. One tactic had collectors posing as process servers or law office employees who claimed they were trying to deliver legal papers related to a lawsuit.
The proposal was introduced by Senator Charles E. Schumer, New York Democrat, and has bipartisan support. But some congressmen and a consortium of 15 civil rights and consumer groups, who also penned a letter to senators, oppose the plan, as does the IRS Oversight Board, a nine-member independent body charged to oversee the IRS. The board also sent a letter to Senate and House leadership objecting to the proposal to use private debt collectors.
“The experiment has failed twice and there is nothing to lead us to believe it will not fail again,” the board said.
Using private collection agencies for tax debt is a foolish, foolish idea.
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