Congress, Ignoring History, Considers Turning Over Tax Debts To Private Collection Agencies

The tax gap in the United States is estimated to be about $385 billion. The tax gap is the difference between what the Internal Revenue Service (IRS) expects to collect in taxes and what they actually collect. That sounds like a lot of money. And I agree that it is. But considering that the IRS collects more than $2 trillion in federal taxes each year, it’s actually not as bad as it sounds: it works out to about 84% voluntary compliance. That means that most taxpayers pay their fair share on time. What to do about those that don’t pay …

Taxes from A to Z: O is for Offset

If you owe money to the federal government, your federal income tax refund can be seized to satisfy your debt. This is often referred to as “offset” since the seizures are part of the Treasury Offset Program (TOP); the program is administered by Financial Management Service, a branch of the U.S. Department of Treasury. Examples of debts that might trigger offsets include federal income tax delinquencies and student loan defaults. Seizures don’t just apply to federal debts. Under TOP, states may enter into agreements with the IRS to intercept, or offset, federal tax refunds for state tax obligations or money …

IRS Reverses Course on Collections

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 …

Fix The Tax Code Friday: Offers in Compromise

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? …

Are IRS employees actually responsible for anything?

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 …

House Cleaning.

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 …

You Mean the IRS is Going to Collect Taxes?

What? You think that’s crazy talk? You would if you have been following the debacle that is allowing private debt collectors to pursue the collection of taxes even though it is more expensive and is expected to collect fewer tax dollars. Government at its finest, no? Concerns about privatizing tax collections have included privacy issues, the integrity of the collections agencies selected and the consequences of an incentive-based collections system. With this in mind, the Ways and Means Committee had a hearing to investigate whether the relatively short-lived system should be abolished. They decided it should. On July 18, the …