One of the primary goals of the Internal Revenue Service (IRS) is to collect all of the tax revenue owed to the agency. Because the agency only has so many resources to dedicate to tax collection, it employs private debt collectors to help with this task.
While using private debt collectors has many proponents, the practice may not actually be as cost effective as once imagined, as the IRS recently paid $20 million to collect $6.7 million in back taxes. Here are a few facts about the government’s use of private debt collectors and advice that can help you deal with back taxes.
The IRS has long struggled to collect all the taxes it is due, which is one of the main reasons that many members of congress have pushed for the privatization of debt collection. Unfortunately, using private debt collectors for public debt has failed to be the effective solution that many had hoped that it would be.
In 2015, Congress passed a law that required the IRS to use contractors to collect tax debt. The goal of this legislation was to help the government recoup the $138 billion in taxes still owed by taxpayers. In the latest fiscal year, private debt collectors received $20 million for their services, but were only able to collect $6.7 million in taxes, resulting in a loss for the government.
Another problem with this program is that contractors were also getting paid for work that they didn’t perform in some cases. The Taxpayer Advocate Service, an independent group that works within the IRS, has estimated that private debt collectors received pay in 25% of debt collection cases that were exclusively handled by the IRS.
The IRS began using private debt collectors in April of 2017, and since that time, there have been serious concerns about the functionality of the program, especially as it relates to taxpayers’ rights. The report released by the Taxpayer Advocate Service stated that the use of private debt collectors circumvents protections of taxpayer rights, resulting in substantial financial harm.
The use of private contractors for debt collection is particularly harmful to the nation’s most vulnerable taxpayers. While the IRS wants to collect the taxes owed to the agency, it does provide a hardship exemption for certain taxpayers so that they can continue to afford essential life expenses. Private collectors, it appears, do not respect this hardship threshold. During its review of private collections, the Taxpayer Advocate Service found that nearly half of collections were from individuals that qualify for the hardship excuse. Additionally, many of these taxpayers received payments from Social Security.
Besides describing the drawbacks of using private debt collectors, the Taxpayer Advocate Service report warned that the new tax law would put additional burdens on the already strained IRS. When adjusting for inflation, the IRS budget has decreased by almost a fifth since 2010, and because of the requirements of the new tax law, the agency may have trouble completing important tasks such as:
Responding to taxpayers is likely to be the biggest challenge that the IRS faces. In a given year, the agency receives nearly 100 million calls from taxpayers. Most of these calls take place during filing season, and the IRS is only able to respond to about 60% of these communications. The regulations of the new tax law are expected to increase these calls, which means the IRS will have even more difficulty keeping up with demand.
Early estimates indicate that the IRS will need to spend almost $500 million in the next two years in order to comply with the new tax law. The majority of this money will fund tasks such as:
A lack of funding is the main problem identified by the Taxpayer Advocate Service report, although it is not the only problem that the IRS will need to overcome. There are several issues that may impact the agency’s ability to collect taxes and could potentially harm taxpayers nationwide.
Like many government agencies, the IRS is increasingly migrating its services online. Unfortunately, this effort to limit direct contact with taxpayers may end up doing more harm than good. For instance, millions of taxpayers do not possess a reliable internet connection, meaning they would have great difficulty accessing these online services. Also, because tax issues can be very complicated and costly, many taxpayers still prefer to speak to an actual IRS representative.
Another problem identified by the report is that many taxpayers do not receive adequate notice about important tax issues. In particular, citizens who are at risk for losing their passport because of tax debt are not receiving enough warning to deal with the issue before their passport gets revoked.
Finally, there is a concern that some organizations have received undeserved tax-exempt status. With error rates of nearly 50%, this can pose a big problem when it comes to tax revenue.
Trying to get out from under tax debt can be very stressful, particularly if a private debt collector comes knocking on your door. Fortunately, there are several actions that you can take to clear your debt and get your finances back in order.
If you simply can’t pay off your tax debt all at once but do have room in your budget for periodic payments, you can contact the IRS and ask for an installment plan. With an installment plan, your tax debt will be more manageable, and you’ll eventually be able to pay off your debt entirely.
Another solution is working with a debt relief company that can hopefully help you negotiate a settlement with the IRS. At Solvable, we want to help you choose the right debt relief company for you, which is why we provide reviews of the best companies in the country that can help with your debt. Read a few of our reviews, and you’ll be able to select a company that will make getting rid of your debt easy.