A law passed in 2015 requires the Internal Revenue Service (IRS) outsource collection of certain tax debt to private debt collection (PDC) programs. This is not the first attempt at using third party businesses to collect on tax debt. In 2004, Congress granted the IRS to create a similar program. After three years, the IRS chose not to renew the program due to inefficiencies.
Tax advocates are keeping a close watch on the current reboot of this program. Unfortunately, it appears some of the same problems that plagued the 2004 version are still an issue. In addition to remaining inefficient, as discussed in a previous post available here, additional problems present with PDC programs include:
- Increased risk of scam. Use of PDCs makes it more difficult for a taxpayer to know if they are dealing with someone that has the authority to collect taxes. Unfortunately, this risk is more than just theoretical. From 2013 through 2017, over 10,000 people were victimized out of more than $55 million in tax payments by individuals impersonating the IRS.
- Unrealistic payment plans. The Government Accountability Office (GAO) report found the use of PDCs resulted in an increase in the likelihood taxpayers would agree to debt payments they could not afford. This ultimately wastes the time of the PDC, IRS and taxpayer as well as potentially resulting in the loss of a more reasonable tax collection payment the IRS could have received.
- Lack of plan to improve PDC programs. The GAO analysis also found the IRS has no plan in place to review the progress of the PDC program. If the agency reviews PDC results, it could identify characteristics of cases with high collection results and focus on sending cases with similar characteristics. This would increase the efficiency of the program as well as reduce the burden on taxpayers.
If the IRS can address these and other problems listed in the GAO report, PDC programs could offer a viable option to aid in tax collection efforts. The current iteration is not yet there.