The IRS's private debt collection program is set to begin this week, with four private companies trying to collect overdue taxes on the government's behalf.
The IRS debt collection program is a new version of a program established in 2006 that was shut down in 2009 because it wasn't profitable. The new program was mandated by Congress in the 2015 Fixing America's Surface Transportation (FAST) Act, and the agency is under pressure to make it work this time around.
According to National Taxpayer Advocate Nina E. Olson, the IRS has significantly reduced oversight in order to bring down costs. In addition, she said that the rollout of the new program will be deliberately small to allow the IRS to identify any issues that might result, such as a data breach. This type of methodical process doesn't only help the IRS, Olson said. One would think the private debt collectors "wouldn't want a bad experience right out the gate either," she said.
Bill Banowsky, the IRS's private debt collection program leader, said the agency learned several lessons from the first iteration of the program. The IRS needs to ensure that taxpayers are confident they are actually speaking to a private debt collector, not an impersonator, and the agency has taken steps to address this issue, Banowsky said.
"We also learned that it's important for us to share enough information with private collection agencies so that they can work the case to completion," Banowsky said. One of the main roadblocks to the success of the first program was the constant back-and-forth with the private collectors so that they could get approval to access certain information, he said. The agency is now able to share those details to expedite the resolution of a taxpayer's account, he said.
In terms of other changes under the new program, Olson said that taxpayers who have open cases with the Taxpayer Advocate Service have been taken off of the private debt collection list. The taxpayer advocate handles all aspects of those cases, including debt collection, she said. Those services are free for the IRS, whereas the agency has to pay for private companies to do the same job, she said.
Under the private debt collection program, the IRS is able to retain 25 percent of the amount collected by the private collection agencies to pay for the cost of the program. That doesn't include what the companies are paid because they get their own 25 percent slice. The IRS also keeps another 25 percent for personnel hiring and training related to tax compliance.
The National Treasury Employees Union isn't optimistic about the program's potential. "Every time this has been tried before, it has failed," said NTEU National President Tony Reardon in an April 4 statement. "But once again Congress has forced this policy on the IRS, and we expect the results to be the same: collection agents getting paid to harass taxpayers, many of whom need assistance, not threats."
The 2006 program was projected to bring in $2.2 billion in new revenue, but data from the IRS showed that the program resulted in a net loss of almost $4.5 million to the federal government, after subtracting $86.2 million in program administration costs and more than $16 million in commissions to the private collection companies, according to NTEU.