TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, April 21, 2017

NY Times:  The IRS Enlists Debt Collectors To Recover Overdue Taxes, 'Placing A Bull’s-Eye On The Backs Of Low-Income Taxpayers' And 'Putting Out Barrels Of Honey For Scammers'

IRS Logo 2Following up on Tuesday's post, The IRS's Use Of Private Debt Collectors Will Not End Well (Again):  New York Times, I.R.S. Enlists Debt Collectors to Recover Overdue Taxes:

The Internal Revenue Service is about to start using four private debt-collection companies to chase down overdue payments from hundreds of thousands of people who owe money to the federal government, a job it has handled in house for years.

Unlike I.R.S. agents, who are not usually allowed to call delinquent taxpayers by telephone, the outside debt-collection agencies will have free rein to do so. Consumer watchdogs are fearful that some of the nation’s most vulnerable taxpayers will be harassed and that criminals will take advantage of the system by phoning people and impersonating I.R.S. collectors.

Additionally, one of the four companies that the I.R.S. has hired, Pioneer Credit Recovery, a subsidiary of Navient, was effectively fired two years ago by the Education Department from its contract to collect delinquent debt for misleading borrowers about their loans at what the department called “unacceptably high rates.”

Proponents of the plan, who include Democrats and Republicans, point out that the debtors are shirking their tax obligations and that collecting from them will add to the Treasury’s coffers. The congressional Joint Committee on Taxation estimated that the new debt-collection program had the potential to gain a net $2.4 billion over the next 10 years. ...

Twice before, in 1996 and 2006, the I.R.S. has tried to farm out some of its collection duties. Both times, the programs were shut down and deemed failures. The most recent attempt cost millions more than it took in. It also generated thousands of complaints, including one oft-repeated horror story about an older couple who received more than 150 phone calls in less than a month.

Even so, Congress passed a law in 2015 ordering the I.R.S. to once again outsource some of its delinquent debt. The provision was buried in a $305 billion highway funding bill. The agency hired four companies — CBE Group, ConServe, Performant and Pioneer Credit Recovery — and started giving them cases this month.

The companies will work on commission, earning up to 25 percent of the delinquent debt they collect.

The I.R.S. is owed some $138 billion in severely overdue payments on 14 million accounts, according to agency data, and that huge sum drives lawmakers crazy. Enlisting the private sector’s expertise to solve the problem is an idea that comes up again and again. ...

But Nina E. Olson, whose job at the Internal Revenue Service is to be an advocate on behalf of taxpayers, strongly disagrees. Outsourcing the collection of federal tax debt is “a bad idea,” she wrote in a letter to Congress. “It disproportionately impacts low-income and other vulnerable taxpayers, and despite two attempts at making it work, the program has lost money both times, undermining the sole rationale for its existence.”

In years past, Ms. Olson said, the outside collectors employed by the government used psychological tricks that may have coerced some debtors into payments they could not afford. ...

Ms. Olson warned that the program appeared “to place a bull’s-eye on the backs of low-income taxpayers.” ... Ms. Olson’s office analyzed 360,000 delinquent accounts that could be turned over for private collection; among those who filed recent tax returns, more than a third had income of less than $20,000. ...

In February, the I.R.S. put out its annual list of the biggest tax frauds. Phone calls from criminals posing as I.R.S. agents were the top problem. ... At the time, the commissioner, Mr. Koskinen, was quoted in a news release saying: “If you’re surprised to get a call from the I.R.S., it almost certainly isn’t the real I.R.S. We generally initially contact taxpayers by mail.” Now that private companies are authorized to call taxpayers on behalf of the agency, that advice may no longer hold.

“This is like putting out barrels of honey for scammers,” said David C. Vladeck, a professor at Georgetown Law School and the former director of the Federal Trade Commission’s consumer protection bureau.

He also is among the people alarmed by the agency’s selection of Pioneer, a unit of Navient, a debt-collection giant that the Consumer Financial Protection Bureau sued in January. The bureau accused Navient of failing at nearly every stage of the student loan collection process. “What is the I.R.S. thinking?” Mr. Vladeck said. “There’s a very dark cloud hanging over Pioneer. The idea that the I.R.S. would engage it nonetheless to be its agent in debt collection is just stunning.”

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