A year after several members of Congress blasted the Trump administration’s plan to revive the use of outside contractors to go after delinquent taxpayers, the outsourcing is costing more money than it is bringing in, according to Nina Olson, the IRS’ national taxpayer advocate.
“According to the IRS, the [private debt collection] program generated net revenue in Fiscal Year 2018 but has yet to break even,” she wrote. The national taxpayer advocate, or NTA, is an independent IRS watchdog established by Congress in 1996.
Lost $10 million in 11 months
“How much more proof do we need that replacing the professional civil servants of the IRS with for-profit collection agents working on commissions is a bad financial decision for the U.S. Treasury?” National Treasury Employees Union President Tony Reardon said in a statement.
According to Olson’s analysis, the private contractors have not only cost more money than they have brought in, but they targeted lower-income taxpayers who are getting locked into repayment plans they won’t be able to maintain. Almost half of the households the contractors went after had incomes below 250 percent of the federal poverty level.
“The [private debt collection] initiative as implemented does not involve any financial analysis and thus does not take into account any of these taxpayers’ specific facts and circumstances,” the NTA report stated. “For lower-income taxpayers, the consequence is that they are not paying for things they need. They are not meeting their basic living expenses.”
Violating rights
Last July, Sens. Elizabeth Warren, D-Mass., Cory Booker, D-N.J., Benjamin Cardin, D-Md., and Sherrod Brown, D-Ohio, wrote the Federal Trade Commission about the telephone scripts being used by the outside debt-collection companies, which they contended pushed settlement strategies rooted in ruinous financial advice.
“[We are] particularly concerned that these call scripts may include implied threats to taxpayers, violations of taxpayer-privacy protections due to information shared with third parties, and inadequate responses to taxpayer cease-and-desist requests,” the four senators wrote to the FTC.
The call scripts suggested that taxpayers should raid their 401(k) retirement funds, ask their employer for a loan, or put their tax debt on a credit card. In the case of an early withdrawal from a 401(k), the taxpayer could actually incur an additional federal tax liability in an effort to resolve back taxes.
Under the terms of their contract with the IRS, the debt-collection outfits receive a 25 percent commission on whatever they collect. The four companies are CBE Group, ConServe, Performant Recovery and Pioneer. The IRS is owed hundreds of billions in past-due taxes.
IRS staff cuts continue
The Trump administration’s push to privatize tax collection comes after years of successive cuts to the IRS workforce. “In 2010, the IRS had 92,148 full-time employees to administer tax laws and process 230 million tax returns,” according to a statement released by the NTEU. “By the close of 2017, that number had fallen to 70,573 people to administer a more complicated tax code and process 245 million much more complex tax returns.”
The White House’s proposed $11.1 billion budget for the IRS in 2019 would cut more than $295 million from the agency’s 2017 funding level and further reduce the number of full-time employees by 5,800. “There are now 7,700 fewer revenue officers and revenue agents since 2010, and the rate of returns audited is at its lowest point in 16 years,” according to an NTEU fact sheet.
“NTEU strongly believes that only by providing the IRS with additional resources will the IRS be able to meet the rising workload level, stabilize and strengthen tax compliance and customer service programs, and allow the Service to address the federal deficit in a serious and meaningful way,” Reardon wrote. “Without additional funding to meet the expected rising demand, taxpayers will continue experiencing a degradation of services, including longer wait times to receive assistance over the telephone and increasing correspondence inventories.”
NTEU represents 150,000 employees at 32 federal agencies and departments.
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