Tim’s Tax News on the Tenth – April 2022

As Ralph Waldo Emerson once said, “Of all debts, men are least willing to pay the taxes…” Nevertheless, millions of unsung men and women dutifully pay exorbitant taxes in a timely manner to avoid harsh penalties. Still, every year (whether it is due to an unexpected illness, a failed business venture, procrastination, or a myriad of other reasons) a number of people fail to pay their taxes by the dreaded April 15 deadline, resulting in billions of dollars in unpaid tax debt.

In an effort to collect outstanding tax debt, the IRS has outsourced the job to private companies. In fact, since 1995, the IRS has launched at least three different privatization debt collection programs. The first two programs were quickly cancelled due to poor management and negative returns. The most recent program was launched last year, after Congress authorized the program in 2015 under Obama. But this last program has not been without controversy and has received great pushback from many lawmakers, government groups, and employee advocates who warned that history has shown that outsourcing tax debt collection to private companies has never worked, targets the most vulnerable, and leaves many taxpayers defenseless to scams and exploitative practices.

According to the Treasury Inspector General for Tax Administration (“IG”), this latest private debt collection program has thus far brought in a total of nearly $970 million through fiscal 2020, but it has only led to a net revenue for the government of $679 million (after the private companies took their 25% cut). Considering the Congressional Budget Office had projected the program would have earned at least $1.9 billion by now, the collected revenue is far below target.

Making matters worse, because it failed to track the full price of background checks, printing, postage, counsel, and cyber security, the IRS has also underreported the costs of the program by at least $7 million thus far, according to the IG. The IG also found that the private companies the IRS hired to do the debt collection were leaving taxpayers vulnerable to scams.

Another critic of the program is The National Taxpayer Advocate group, claiming that last year the IRS unfairly terminated thousands of repayment agreements with taxpayers and that the program targets many people living below the federal poverty line and who are struggling to meet even the most basic living expenses.

The IRS has disputed the accusations, claiming it has largely followed its statutory obligations and that even though some repayment agreements were terminated, it has since worked to reestablish those plans under its new vendors. But the agency has thus far failed to give a full accounting of what it has taken to operate the privatized debt collection program and many unanswered questions remain. This has resulted in yet another attempt by some Democratic lawmakers to introduce legislation to force the IRS to terminate its privatized debt collection program for good, claiming it has lost taxpayer dollars every time it’s been tried.

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 29 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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Lavelle Law, Ltd. is registered with the Illinois Department of Financial and Professional Regulation as an approved continuing education provider for CPE for CPAs and Enrolled Agents. If your organization is seeking CPE courses in the area of Business Law, Innocent Spouse Relief, IRS Collections, Tax Scams (including ID Theft), or other areas in tax law that can be taught at your office, please contact me at thughes@lavellelaw.com