In the highway financing bill currently being considered, Congress is threatening to drive the Internal Revenue Service back into a familiar impasse.
The House-passed version of the bill would allow the IRS to use private collection agencies to pursue unpaid income taxes. But this is not an innovation; it is a return to a practice that was tried and previously discarded. Congress authorized the IRS to use private bill collectors in 2004. Accounts were turned over to collection agencies beginning in 2006, but the IRS abandoned the practice just three years later. The IRS Taxpayer Advocate later produced an analysis showing that, aside from a short-term jump as collection agencies seized the opportunity, the use of collection agencies did not actually generate more revenue compared to collections. internal IRS. Then-IRS Commissioner Douglas Shulman said of stopping the program, “I think this job is best done by IRS employees.” (1)
The 2006 to 2009 race was itself a second attempt. The first, which lasted less than a full year in the mid-1990s, resulted in a net loss of $17 million to the government. The second program lost less, but still lost the government’s money overall. The Taxpayer Advocate’s analysis concluded that “the IRS was significantly more effective than the [private collection agencies] in the collection of tax liabilities in all but the first six months after receipt of the case, collecting approximately twice the percentage of the dollars available for collection.”
In other words, using private collection agencies is more expensive and less effective than giving the IRS the resources to do the work itself.
So why did House Republican leaders want to revive this bad idea? We can guess. They probably supported the measure in part because they needed money to pay the highway bill, and it’s safe to assume that $5 billion can be recovered through private debt collectors, even in the face of evidence to the contrary.
But House Republicans likely supported this addition to the bill primarily because the GOP is utterly fed up with Obama-era partisan abuses by the IRS and its obstruction of congressional investigators investigating those abuses. The idea of increasing the agency’s budget, even for a worthwhile purpose such as raising money that is undeniably owed to the Treasury, is too unpalatable for them to contemplate.
While his frustration with the political streak the Service is going through in its current incarnation is understandable, this supposed solution is hopelessly shortsighted. Bounty hunting is incompatible with a fair and efficient public administration. Whether states abuse unclaimed property laws, law enforcement relies on forfeiture of civilian assets to finance itself, or governments treat traffic cops as revenue collectors, calling for fair enforcement of laws people who operate for their own benefit is doomed to fail.
The IRS, at least in theory, is not concerned with collecting the maximum amount of tax from citizens. The Service’s job is to determine and collect the correct tax, no more, no less. Bounty hunters, in this case private debt collectors, don’t care if they’re right. They could paraphrase an old song this way: if squeezing you is wrong, we don’t want to be right.
IRS agents also have tools at their disposal for working with taxpayers, such as negotiable payment plan schedules, as well as enforcement tools such as property liens, bank account liens, and wage garnishments. These coercive tools cannot be placed in the hands of private collectors acting without impartial oversight.
Overly aggressive tactics are not the only thing taxpayers need to worry about if the IRS decides to use private collection agencies. Every day, phone scammers claiming to represent the IRS seek to defraud taxpayers, and often succeed. Some estimates put the amount paid to these scammers at more than $23 million. The Service even has a hotline for reporting instances of this hoax. IRS spokespersons have continually reminded taxpayers that the IRS initiates contact with taxpayers exclusively by mail and will never require immediate payment over the phone.
Debt collection agencies, however, often rely on the phone as the first method of contact. Now that the House wants to unleash government-paid bounty hunters on the American public, ordinary citizens may need to figure out which aggressive caller is really trying to satisfy a valid tax debt and who is a scammer.
Good luck with that.
Let’s hope the Senate kills this bad idea when the highway bill goes to conference. You won’t pay much in the way of road repair, and you’ll create all kinds of potholes of your own.
Fountain:
1) The Washington Post, “Congress could make the IRS use private bill collectors for its taxes”