IRS To Use Private Debt Collectors

13368793433_27bdd41d71Does it seem like new IRS scams are coming out faster than they stop them? Every year it seems we go through the same pattern around tax season of telemarketers trying to scam people while posing as the IRS. To make things even more ridiculous, the IRS is going to employ several private debt collectors next year. Already sound like a bad idea? It seems like they are opening a huge door for scammers to say that they are an authorized collection agency. In my opinion this does not add up at all, and seems like it introduce more headaches than the benefits of any additional revenue that may be recovered. There’s also the fact that these firms will need to paid, so wouldn’t it be more cost-effective to hire more employees at the IRS for this purpose?

The IRS had actually tried using private debt collectors from 2006-2009 and in 1996-1997 and both times the project failed miserably. In fact, there is a study that says the IRS was much better at collecting the debt than the third parties. Two studies that suggest for every $1 spent on the IRS, an additional $4-6 in revenue is recovered. I’m sure there is an upper limit to this as bureaucracy takes over, but it seems like a better way to invest our money than outsourcing to third parties. You can read about those at the CBPP and Bloomberg.

It seems that Nina Olson, the United States Taxpayer Advocate agrees with this assessment: “Well, we are working on this right now and this is the third time that the IRS has been told or tried private debt collectors and the first two times, in my opinion, were dismal failures just from a business case, that didn’t bring in the money that we wanted [them] to and [as it] turned out they weren’t any better and, in fact, the IRS was better at collecting the money from the taxpayers and was, in fact, able to talk with the taxpayers about issues other than just how much money can you pay”

The worst part about this is that during the “first period” the private debt collectors were at par or even better at collecting on the debt, but as time went on they were much worse than the IRS. Taken directly from the official IRS bulletin: “These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.”

The IRS is going to be sending them their oldest accounts or the accounts that they probably did not deem worth their resources to go after! So they are sending the exact type of accounts that private firms were terrible at collecting when they first tried this program…to the same type of private firms. You would have thought that someone at the IRS might have been like “Oh hey, this probably isn’t the greatest idea”. I’m thinking this may be a way to extend the IRS budget without having to actually increase the budget. It’s the only way this makes sense. The debt collection firms be paid when they recover money. It’s a way for the IRS to increase their revenue without having to increase upfront cost.

It has been drilled into our heads that anyone demanding money over phone/e-mail/the mail and using a threatening tone is probably a scammer. If something looks or sounds fishy, it’s probably not legitimate. Now you’re going to have the IRS mailing you to let you know your debt has been transferred, and then a third-party firm requesting money from you. Who do you think people would be more likely to pay back? I’m putting my tax money on the IRS itself.

So when you hear about tax scams next year, there will now be the caveat to not accept anything unless it’s from the IRS or one of the four private firms listed on the IRS bulletin. It doesn’t quite have the same effectiveness as saying any claim that doesn’t come from the IRS is fake. This seems like a huge waste of money and time to me. This is the part of the government that catches tax evasion and actually brings in revenue, why are we being cheap?

photo credit: efile989 Destroying Money via photopin (license)

2 thoughts on “IRS To Use Private Debt Collectors

  1. Tax scams are the never ending industry that continually evolves and becomes more sophisticated each year. At least they continue to innovate 🙂 I never knew that the IRS tried to use private debt collectors in the past. Their arms do reach far and deep. Bottom line, stay on top of your tax issues each year and know that any call from the IRS is a scam.

    • Agree with your bottom line, it’s just very frustrating that data is available showing that this didn’t work and yet it’s still happening. I also feel like it makes it easier for the scammers in the next few years.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.