Congress moves to turn back taxes over to debt collectors

http://www.washingtonpost.com/business/economy/congress-moves-to-turn-back-taxes-over-to-debt-collectors/2014/05/15/152d2f7a-dc4d-11e3-bda1-9b46b2066796_story.html

By Lori Montgomery, Published: May 15, 2014

The Internal Revenue Service would be required to turn over millions of unpaid tax bills to private debt collectors under a measure before the Senate, reviving a program that has previously led to complaints of harassment and has not saved taxpayers money.

The provision was tucked into a larger bill, aimed at renewing an array of expired tax breaks, at the request of Sen. Charles E. Schumer (D-N.Y.), whose state is home to two of the four private collection agencies that stand to benefit from the proposal.

It requires all “inactive tax receivables” to be assigned to private debt collectors if the IRS cannot locate the person who owes the money or if IRS agents are unable to make contact within a year.

Some taxpayers would be spared the barrage of notices and phone calls, including innocent spouses, military members deployed to combat zones and people “identified as being deceased.”

But bereaved relatives could find themselves under siege for unpaid estate taxes under the proposal. So could people who incur a tax debt under the new Affordable Care Act — either because they owe a penalty for not buying health insurance or because the government was too generous in estimating the size of their health-care tax subsidy.

As the measure arrived on the Senate floor this week, Nina E. Olson, the nation’s taxpayer advocate, wrote a long letter to lawmakers, urging them to withdraw the proposal.

“Outsourcing the collection of federal tax debts is a bad idea,” she wrote. “It disproportionately impacts low-income and other vulnerable taxpayers, and despite two attempts [in the past] at making it work, the program has lost money both times, undermining the sole rationale for its existence.”

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It is unlikely to reach Obama’s desk quickly, however, because of a continuing dispute with the House over reviving the expired tax breaks.

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Although the IRS aggressively pursues those judged able to pay, Olson, an IRS employee who serves as the taxpayers’ voice in the agency and before Congress, said the agency takes a more flexible approach to those who are struggling financially. In many cases, she said, the IRS simply waits for the taxpayer to amass a refund and uses that money to bring the account current.

“Why am I paying the private collection agencies 25 percent when just for the cost of the machine running we get the money anyway?” she said.

More to the point, Olson said, private debt collection has not worked well in the past. During the most recent attempt, from 2005 to 2009, IRS information shows that private agencies collected about $98 million. But they were paid $16.5 million in commissions. And it cost the IRS an additional $86 million to administer the program, including money spent to make sure the contractors did not use sensitive IRS data to benefit their private customers, such as credit card companies.

Last week, in testimony before the House Ways and Means Committee, IRS Director John Koskinen also urged lawmakers to reject the idea, citing past experience. “We ended up losing money,” he said.

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“There’s this myth that there’s this pool of accounts that nobody’s doing anything about and that we would be able to get a ton of money from. And if that were true, you could make a case for private collection agencies. But it’s just not true,” Olson said.

“We are getting money from these accounts through the refunds. And there are also a larger number of accounts that are just not collectible, the taxpayer cannot afford to pay the tax.

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