The Hill recently published an op-ed by Chi Chi Wu, a staff attorney at the National Consumer Law Center, about the IRS Private Debt Collection (PDC) program. It argued that Congress should (again) dismiss the idea of the IRS using private collection agencies (PCAs), which are commonly used in both the public and private sectors. Wu’s characterization of the program was biased and failed to mention commonly known relevant facts.
Wu: The IRS tried using private collectors twice, and the results were “disastrous” both times. The second experiment began in 2006 and ended three years later after a net loss of almost $4.5 million to the government...The nation would be better off if Congress rejects Section 52106 of H.R. 22, the Senate-approved bill to extend the Highway Trust Fund for six years.
In just over two years, the IRS PDC Program that went live in 2007 collected $98 million in gross tax payments. This is $98 million more than the IRS would have collected on its own because it wouldn’t have otherwise pursued these accounts, and hasn’t since that time.
As you might imagine, the start-up costs for a large program like this are significant on both sides; it’s not uncommon for major contracts to take 24 months or more to break even. It’s unclear exactly where the $4.5 million loss that Ms. Wu refers to comes from, but my assumption is that it must include the initial program development costs – including, as noted above, an unusually significant level of oversight.
Unfortunately, the program was abruptly shut down before it could recoup the full investment, and taxpayers never saw the recoveries IRS estimated to be between $1.5 and $2.2 billion over a 10-year span they would have realized had the program continued.
According to the GAO’s July 2015 IRS Case Selection report, the total tax debt inventory has increased 23 percent since 2009 to $380 billion, while collection staff declined 23 percent. In addition, TIGTA estimated in 2011 that as much as $516 million would go uncollected over the next five years from unassigned cases in the IRS’ inventory that could have been assigned to the PDC Program.
Wu: If lawmakers approve Section 52106, they will be subjecting vulnerable taxpayers to abusive tactics that are unfortunately all too common in the collections industry.
First, it’s 2015, not 1975. PCAs that use abusive tactics have been and continue to be shut down or forced to change the way they do business. The PCAs involved in the IRS program were thoroughly vetted by the IRS, and were continually monitored by a large contingent of IRS employees and TIGTA.
Second, an independent firm was used to evaluate customer satisfaction throughout the program. The IRS published average PCA customer satisfaction ratings of 96 percent, higher scores than the IRS themselves. In addition, PCA employees consistently scored over 99 percent ratings in the areas of Regulatory, Procedural, Customer Accuracy, and Timeliness and Professionalism. The behaviors described by Wu as “abusive tactics” are those which are frequently sensationalized in the news, and often are associated with debt collection scams, not legitimate firms that are heavily supervised and have made significant investments in technology, training, and compliance.
Similar ratings for IRS collection employees were less than 65 percent. In her 2014 annual report to Congress, Nina Olson of the Taxpayer Advocate Service said, “I’ve never seen such low levels of taxpayer service. It’s officially the worst since 2001.”
Third, the IRS is not a model for iron-clad policies and procedures, including those that would protect consumers. A recent press release from TIGTA highlights current findings that, in spite of warnings, the IRS continues to use social security numbers on hundreds of millions of notices and letters mailed to consumers (a practice most PCAs did away with many years ago). This practice is a treasure-trove for identity thieves.
Perhaps a better approach is to tweak and improve a common sense program that has merit, recoups otherwise lost revenue, and saves money for taxpayers who do pay their taxes.
Where is the outrage on behalf of taxpaying Americans who are repeatedly asked to pay more in order to compensate for those who don’t pay their share? Will PCAs earn fees for providing this service? Yes, of course they will. And they will provide American jobs as well -- jobs that are paid for by private companies, not by taxpayers who would have to foot the entire bill regardless of whether the employees are productive.
Let’s stop listening to the naysayers who really don’t have the facts. Let’s rely instead on the factual studies done on the previous PCA initiative that actually proved it was an effective program.
Eidelman is CEO & publisher of insideARM.com, a company that provides news and information about Accounts Receivable Management, debt recovery, accounts receivable jobs and best places to work.