The risk of outsourcing tax debt collectors

It has occasionally been said that the government has failed to learn from its mistakes. It is well known that failed policies are often brought back in a desperate effort to try and make them work.

2Previous failed policies

Recently the government has attempted to bring back another failed policy. A policy which allows private companies to collect outstanding tax debts has re-appeared as part of the Highway Trust Fund Bill. It sounds strange though becauseyou would have thought that a policy to do with tax debts has appeared on the highway trust bill as the two subjects seem totally unrelated.

It isn’t the first time congress has put two seemly unrelated subjects together in the same bill. Last year the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 affected the date that tax returns were due. Another example waswhen the credit card reporting requirements were part of the Housing and Economic Recovery Act.

Some might say congress are desperately trying to repair the already dilapidated Highway Trust Fund, which actually ran out of money on October 29th. As well as this, congress have tried a few other tactics in an attempt to try and move things forward.

One particular approachto save this act which has been hidden away inside the Highway Trust Fund may look excellent but on closer inspection most certainly is not.Baffling as it may be congress have tried again to make another go at a bill which has already failed multiple times. It’s only because of politics that this hasn’t been passed. The House is not keen on the Inland Revenue Service (IRS) at the moment which could be seen as a move to take down the IRS.

This might sound awesome as to be fair who realistically likes the IRS? Not many. However, it may surprise you to know that the IRS is actually pretty good at what it does which is collections. This does means that there is a lot less government waste due to the IRS collections work.

The tax gap

The tax gap is the difference between what the IRS expects to collect in taxes and what they actually end up the-tax-gap-jeff-fouts-irs-webcollecting. In the U.S. the tax gap is said to be $385 billion. This is all uncollected tax debts as well as non-filers and those who underreport. The IRS claims that the people who underreport are the biggest contributing factor to the tax gap. This does not mean that there are lots of people out there that owe the IRS lots of money.

A good tax attorney will know that although there are people that try to cheat and get around the system, some people just don’t understand it. A tax attorney can help with this however, using private debt collectors will not. In fact they could even make it worse could even make it worse. Recent research has found that 79% of cases that would be affected by private debt collectors have an income 250% below poverty level so won’t be able to pay anyway.

Complaints about private debt collectors is higher than any other industry

The last time private debt collectors were used it resulted in lots of complaints of unfair practises and harassment which is why it was abolished. The private debt collectors ended up making a net loss of $17 million and they weren’t even that successful.

The second time the program was tried in the mid-2000’s resulted in a loss of $4.5 million. This isn’t even the cost of the program the cost of both times this program was tried out cost over $112 million.

IRS-Frustrating-Paperwork-charitable-tax-exemption-501c3-Urban-Birken-nonprofit-attorneys-nonprofit-lawyer-nonprofit-law-firm-Minnesota-WisconsinA chunk of that money was used to ensure the security of taxpayers’ data. The IRS may isn’t 100% secure when it comes to all of the data it holds on taxpayers.It does have strict protections in place though to ensure it is kept as safe as possible. Private debt collectors are much less reliable. The Federal Trade Commission receives more complaints about private debt collectors than any other industry. The Consumer Financial Protection Bureau (CFPB) also reports that the largest amount of complaints they receive are regarding debt collectors.

Fraud and scammers

Another reason to favour the IRS over private debt collectors is the fact that part of their job is to help resolve the issue alongside you. The IRS will work with you and with your tax attorney whereas private debt collectors are there simply to collect debt by which ever means

The final reason the IRS should be favoured over private debt collectors is the issue of fraud. A whopping $23 million has been paid to scammers posing as the IRS over the last 2 years. The IRS do not normally initiate contact by phone, unlike private debt collectors. This could be very confusing and could create lots of new opportunities for thieves.

All the reasons that have been highlighted prove just how ridiculous and full of risk outsourcing tax debt collectors is and could be should congress continue to push this bill.


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