On December 4, 2015 the President signed into law a five-year $305 billion highway bill.
One of the contentious issues was the 18.4 cents per gallon gasoline tax. You know the politics: one side wanted to increase it and the other did not. Unable to come to agreement, Congress looked elsewhere for the money.
One place they looked was the use of private debt collectors for IRS debt.
Ohio routinely farms out its tax collection to private agencies. Does it work? Well, let me answer the question this way: I usually request the file be returned to the Ohio Department of Taxation. Why? Because the collection agency could not care less whether the debt is accurate or not, whether the penalties are correctly calculated, or whether there is even a tax case to be collected. I have, for example, seen Ohio farm out collection on cases where the appeal period was still open. Although Ohio is not especially friendly to work with, they are better than dealing with a debt collector. You would be pressed to find too many Ohio tax CPAs that have positive opinions about this arrangement.
Congress has gone down this path before. The most recent collection program started in 2006 and ended in 2009. The program was widely considered a failure, as was its predecessor in 1996-1997. After accounting for commissions paid as well as internal IRS costs to administer, both programs actually caused losses for the Treasury.
The National Taxpayer Advocate, Nina Olsen, expressed her feelings clearly to Congress:
"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. 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 wound up losing money. We have no reason to believe the result would be any different this time.”
The Federal Trade Commission routinely reports more complaints about debt collectors than any other industry. FTC chairwoman Edith Ramirez stated that over 280,000 federal complaints were filed in 2014 alone.
You know that Congress would not care.
Section 6306 of the highway bill requires the IRS to enter into collection contracts for the collection of certain inactive tax receivables, defined as:
- A receivable removed from active inventory for lack of resources or because the taxpayer cannot be located;
- A receivable where at least one-half of the statute of limitations period has expired and no IRS employee has been assigned; or
- A receivable assigned for collection but at least one year has passed since taxpayer contact
Did you catch the use of the word “requires?” That is quite the departure from pre-existing law, which “authorizes” the IRS to use private debt collection agencies.
There are some exceptions, such as:
- Pending or active offers in compromise or installment agreements
- Innocent spouse
- Deceased taxpayers
- Taxpayers in designated combat zones
- Taxpayers in examination or appeal
- Victims of identity theft
The last one is disconcerting, especially after the Treasury Inspector General for Tax Administration reported in 2014 that it received over 90,000 complaints about scam telephone calls demanding payment from impostors claiming to be the IRS. IRS Commissioner Koskinen cited the TIGTA report and reminded taxpayers that:
"... Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail.”
Well, that used to be true.
About the author
Steven D. Hamilton is a career CPA, with extensive experience involving all aspects of tax practice, including sophisticated income tax planning and handling of tax controversy matters for closely-held businesses and high-income individuals.