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Our next tax trivia question is:
The IRS announced this month that they would no longer be using the private collections companies authorized during the Bush administration. The Bush administration was not the first to have tried using private companies for collection. Which former President also authorized private companies for collection, a program which ended in scandal?
Don’t forget: the first correct answer wins free CCH tax prep software.
What’s your guess?
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.
It’s kind of appropriate that the crisis management post that I had planned was to hit today. You see, I’m a little backed up on my things to do because, well, I had a crisis, of sorts. Following up on weeks (and weeks!) of my children contracting every bug/virus/infection known to man, I got slammed pretty hard yesterday and spent a little time recovering in the Emergency Room.
That means that my post didn’t get up on yesterday, my compilation post for today wasn’t up this morning bright and early. Well, you get the idea.
Here are my two cents on crisis: bad things happen. No matter how organized you are, how fabulous of a planner you are, how many strategies you have to avoid crisis, bad things happen. People will get sick, servers will go down, things will break. And some times, they happen in spades.
Since you can’t stop bad things from happening, how you react to a crisis is important. The same rules apply when it comes to tax.
In the tax world, it’s easy to bury your head in the sand when you miss a filing date or fail to make a payment. This is the worst reaction that you could have.
This is the scoop… When it comes to the IRS, it’s always better to come to them than have them come to you. So when you realize that you have made a mistake on your taxes or failed to file a return, fix the mistake yourself. There’s no magic to it. Just amend your return or file as soon as you can – there are links to returns as far back as 1990 online at irs.gov. If you’re not sure how to file a prior year return, ask your tax professional. Just take that step yourself – you don’t want the IRS to file it for you.
Similarly, if you don’t have the money to pay, don’t make it worse by not filing at all. There are penalties for failing to file and you don’t want to add to your worries. If you can’t make your payments, file timely and then consider an installment plan.
But if you fail to be proactive and the IRS comes for you? It’s still not the end of the world. You can work with a tax professional (I suggest a tax attorney or CPA and not a “service”) to address the issues in your notices from IRS. The worst thing that you can do is to continue to ignore the IRS – if you fail to respond, the IRS can garnish your wages or levy your bank accounts to collect taxes they believe to be due.
Even if you’re at the collections stage, there are options to “fix it” as much as possible.
My point? It’s easy to become overwhelmed when bad things happen. And trust me, bad things will happen. It’s how you respond to those things that makes the difference. Don’t hide from bad news – face it. You’ll be glad that you did.
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?
