IRS Commissioner Doug Shulman has announced that the IRS will not renew its contracts with two private debt collection agencies. Those contracts expire this year.
You may recall that I was not a fan of turning over collections matters to private companies. Like many other tax professionals, I had concerns about the tactics used by commercial debt collectors, including the real possibility that those collectors might not advise taxpayers of their rights and alternatives. I was skeptical of the rates of return using private companies and the effect that turning over collections work to private companies might have on Offers in Compromise, Installment Plans and Appeals. Most disturbing, however, were issues related to taxpayer privacy; though the agencies were allegedly screened, at least one of the agencies involved in the initial collections plans had already been investigated for misconduct.
The IRS anticipates hiring over 1,000 new collection personnel in 2009. They had hoped to do this in prior years but Congress turned them down, despite studies that showed projected $1.1 billion collection from private companies versus $87 billion from IRS revenue officers. Instead of hiring new collections personnel, Congress forced IRS to resort to private companies who collected fewer dollars at a higher cost to taxpayers. And we wonder why the country is operating in the red…
The Commish swears that the ramping up of collections personnel does not signal a shift away from the kinder, gentler IRS that we’ve been promised. Shulman said:
In these challenging economic times, I have asked all IRS employees to go the extra mile to help financially distressed taxpayers. IRS employees have more options available to them to resolve difficult collection cases.
Let’s hope so. Call me crazy but I think effectively enforcing collections rather than raising taxes would go a long way towards balancing the budget.
My recent post about an Offer in Compromise (where a taxpayer pays less than their existing liability as part of a deal) gone bad is in stark contrast to a rosier picture painted by CBS News. CBS seems to imply that offers are a bad idea because they reward those with outstanding tax liabilities by giving them a “break” that may not be deserved. Advocates argue that it is administratively more efficient to offer compromises because it’s better for the IRS to accept a dollar today than to take its chances on accepting a dollar tomorrow.
What do you think? Today’s Fix the Tax Code Friday question is:
Are Offers in Compromise good tax policy? Or are they unfair to taxpayers who regularly pay their obligations?
Apparently not.
It’s rare that I blog about client matters. I like to keep them private for a variety of reasons not the least of which are ethical considerations. But a recent client matter has me steamed. Really steamed. And it’s blog worthy. I’ll keep it generic.
Client had a tax matter that needed immediate attention. IRS Rep #1 advises me, quite candidly, that the current administration is leaning on the IRS to collect outstanding liabilities and despite earlier pledges of a “kinder, gentler IRS”, the marching orders are to take no prisoners, make no deals. Client submits offer with helpful suggestions from rep.
Client’s offer is kicked around for months and months. One rep, different rep, different rep. Finally, specialist steps in. Specialist advises us that our proposed deal is not acceptable and sends us in writing a deal that he claims is acceptable. Specialist even includes specific language for use in our offer and sends us a completed form for signature. More months pass. Nothing.
One day, deal is inexplicably denied by IRS. Adding insult to injury, collection activity immediately resumes for client’s “failure” to resolve the matter.
When we question why this happened, this is the response we get: The IRS cannot be bound by its employees’ actions. And further, while this cost our client time and money, there is nothing further that can be done.
Really?
Unbelievable.
(Yes, quietly contemplating next move but completely floored by IRS’ “ain’t our fault, we just hired the guy” attitude.)
The House has approved legislation that would end the extremely unpopular program that allows private collection agencies to collect tax debts for the IRS. The IRS had previously argued that the policy was not financially viable.
Of the $32 million brought in since the collection bill went into effect, the IRS collected $7 million on its own. The collection agencies received almost 25% of the total. That leaves a net collections by the agencies of less than $20 million, which pales in comparison to the $71 million in start up costs. Further, it has been estimated that spending that $71 million on more agents would have resulted in $1.4 billion in revenue.
Senate Republicans claim that the bill won’t pass. However, if it does, the White House threatened a veto by President Bush. Hmm, anyone else find that interesting considering that one of the three collection agencies is a Texas law firm?
