The Privatization of the IRS
Update: On April 4, 2017, the IRS confirmed the start date of the private Collection Agency Program. beginning in April of 2017 the IRS will be transferring a portion of taxpayers with liabilities to private collection agencies. Read more about how this happened and what to do if you are a target of collections – or phone scams. Unfortunately it may be difficult to tell the difference between legitimate collections calls and scams/identity theft calls.
A History of IRS Private Collections
Way back in 2015 the Fast Act was signed into law by President Obama. The FAST Act’s long title is Fixing America’s Surface Transportation Act, a bill that funds surface transportation infrastructure spending. The vote passed 359-65 in the House and 83-16 in the Senate.
The five year, $305 billion, bill is funded without increasing transportation user fees such as the federal gas tax, which makes it a lot easier to vote for than saying to your constituents, “I think you should pay more to for gas.” The money for the Fast Act instead is generated through changes to Federal Reserve Bank dividends (complicated and not relevant to our focus on tax liability issues), changes to passport rules (The State Department can now yank your passport if you owe the IRS taxes) and the privatization of tax collection. You read that right: the IRS is going to outsource tax collections to collection agencies.
This is not the first time the IRS outsourced tax collections to private companies. The Taxpayer Advocate Service, a US governmental agency tasked with overseeing the IRS studied the last effort at privatized tax collections. Below is the Taxpayer Advocate Service’s summation, from its 2013 Annual Report to Congress:
TAS study results show that the IRS was significantly more effective than the Private Collection Agencies (PCAs) in collecting tax liabilities in all but the first six months after case receipt, collecting about twice as much as a percent of the dollars available for collection These results likely understate the difference in IRS and PCA effectiveness, since our analysis placed the IRS at a significant disadvantage:
A) All of the cases were older when the IRS got them, and some were more than two years older; and
B) The PCAs worked the cases first and collected the easy dollars, while the IRS only got cases the PCAs had already worked
How Did Privatized IRS Collections Pass?
First, America’s infrastructure needs work. Nobody disagrees with that. But how to pay for it, without the aforementioned dreaded gas tax? Let’s look at the main players in the FAST Act bill.
The FAST Act had two primary sponsors in the Senate: Senator Charles Grassley R of Iowa; Senator Charles Schumer (D) of New York. In recent years it has been quite rare for the Democrats and Republicans to agree on anything, so what was so inviting to these adversaries that they united for America?
When the IRS revealed the collection agencies that were the winners in this private collections bonanza, guess what? Of the four collection agencies, two were in New York and one was in Iowa.
- Performant, based in California
- CBE Group, based in Iowa
- ConServe, based in New York
- Pioneer Recovery, based in New York
Unless you are a direct or indirect beneficiary of one of these collection companies you should rightly be shaking your head at the graft. But it’s the law for now and what does that mean to anyone who owes – or doesn’t owes – the IRS?
Provisions by the IRS to Safeguard the Taxpayer
This IRS not happy about this because it takes away their power and autonomy. More important, however, is that it diminishes their own ability to actually do the difficult job of collecting taxes. They are not ignorant to the fact that scams and taxpayer abuse is going to rise. The IRS is stuck with this law too, but the law looks to reassure everyone that things will go smooth. Here are the safeguards established by the FAST Act to protect us all from fraud and abuse.
Only “Old” Accounts
The IRS says the private collection agencies will pursue taxpayers who owe money, but who the IRS is not currently pursuing. This makes sense right – go after old accounts receivable? The problem is that the IRS budget has been reduced many years in a row. The US Government Accountability Office reports that since 2010 the number of IRS staff devoted to enforcing tax laws has dropped from over 50,000 to below 39,000. This a decline of 23 percent in five years.
The effects of the budget cuts has been fewer collections and epic customer service failures. They now even have a “courtesy disconnect” when you are on hold too long. We are not making this up. Again from the Taxpayer Advocate Service, July 15, 2015:
The IRS answered only 17 percent of calls from taxpayers who called after being notified that their tax returns had been blocked by the Taxpayer Protection Program (TPP) on suspicion of identity theft, and the hold times averaged about 28 minutes. In three consecutive weeks during the filing season, the IRS answered fewer than 10 percent of these calls.
The number of “courtesy disconnects” received by taxpayers calling the IRS skyrocketed from about 544,000 in 2014 to about 8.8 million this filing season, an increase of more than 1,500 percent. The term “courtesy disconnect” is used when the IRS essentially hangs up on a taxpayer because its switchboard is overloaded and cannot handle additional calls.
The IRS Will “Let You Know” You Are in Private Collections
The IRS notify each taxpayer they are being handed to a collection agency and said agency will then send a second separate letter to the taxpayer.
What can go wrong here? All the tax relief companies we talk to tell us it is very common that people have changed their mailing address and have not updated the IRS. They won’t get this important mail from the IRS or the collection agency before they have someone on the phone saying pay, or else…
The IRS has made many loud statements on their website, press releases, and public service type announcements they NEVER call, due the susceptibility of financial scams, theft and fraud. Just one example from IRS.gov, dated October 18, 2015:
Scams cost victims over $23 million. The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.
The IRS will not: Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
The IRS is rather “old school” in their methods to pursue a taxpayer. They send mail to the last known address. Collection agencies are light years ahead. Have you registered for a cell phone or a cable TV account, registered a vehicle, or myriad other potential accounts that leave a trail? The collection agencies are plugging into databases that allow them to get that information as soon as the next day. Ring.
Private Collection Agency Will Say, “We’re with the IRS”
Again, back to the scams calls that have cost Americans tens of millions of dollars. Many people may owe the IRS, or the IRS thinks they owe due to a problem on a return or a W2. A big problem arises because a lot of these people don’t even know they owe tax or the IRS thinks they owe tax.
So what happens when these people get a call out of the blue? So now the new Modus Operandi of the IRS is to say “we don’t call about taxes, hang up, except when we do call about taxes, then talk to them…”
The IRS Doesn’t Want to Confuse You
The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.
That has not worked out so well so far.
While everyone should agree that we all should be paying our fair share of taxes, leaving it up to your neighbor at a private company to chase down the money should not apart of the deal. The opportunity for both taxpayer abuse, an increase in fraud while fraud is already at an all time high is too now going to increase. Not to mention it’s a poor use of taxpayers money.
I Got a Call from a IRS Collection Agency – What Should I Do?
You could deal with the private collection agency. It’s an option, but not the one we would pursue. You are better off talking to the IRS itself or engaging a tax professional to put a layer of protection between you and the IRS. If you have a CPA who has been filing your taxes and you do not think you owe, that would be a good first call.
If you are unsure if you owe, a good tax relief company can pull your IRS transcripts for free, letting you know if and what you may owe to the IRS. And we stress that you SHOULD NOT pay someone to pull your transcripts. A reputable company will do this free of charge.