ANOTHER TAX PROFESSIONAL DISCUSSION: OUTSIDE COLLECTION AGENCIES

 

As reported by CCH –

“On December 3, 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST) (HR 22). The vote in the House was 359 to 65, and the vote in the Senate was 83 to 16. House Speaker Paul Ryan, R-Wis., noted that the bill was the first long-term transportation legislation in a decade. The President is expected to sign {has signed - rdf} the legislation.”

An earlier CCH item told us (highlight is mine) –

“The Fixing America’s Surface Transportation (FAST) Act, as agreed to in Conference, directs the IRS to contract with private collection agencies for the collection of inactive tax receivables. These include cases that have been removed from active inventory because of lack of resources or inability to locate the taxpayer. Certain cases, however, would not be worked by private collection agencies, such as cases where the taxpayer has a pending or active installment agreement, innocent spouse cases and victims of identity theft.”

I recently posted the following poll at local and national tax professional Spacebook groups –

“Should the IRS, or NJDOT, use outside collection agencies to collect delinquent tax debt?”

Not a single respondent felt that having the IRS, or any tax agency, outsource collections was a good idea.  I am not aware of any tax professional, or government tax agency employee or representative, who supports this idea.  Since the members of Congress are idiots (the picture above obviously refers to the idiots in Congress, and not to the Tax Professionals of the post title) I guess that explains why they included it as part of the Highway Bill.

What follows are some of the responses I received.  The first one sums up the correct answer very nicely.  Many respondents felt, as I do, that if the IRS, or state tax agency, was properly funded it could more appropriately and effectively perform all collection duties.

ü “The utilization of an outside collection agency is a very bad idea.”

ü “Just yesterday I had a bad experience with that........client is STILL being hassled by an outside collection agency that is used by the Division of Taxation for a return that was settled through an amendment in October.”

ü “With all the phone scams going on now, what makes anyone think we should tell our clients to pay any attention to someone ‘claiming’ to be from a collection agency?!?!”

ü "Believe it or not, a lot of the public will still respond to a threatening voice on the phone with money. The ability of the government to hire an outside agency will just open the flood gates of fraud.”

ü “No. Privacy issues abound”.

ü “If the IRS collection scams aren't enough, this will only perpetuate that problem.  If Congress would approve funding to start with, maybe more people would be compliant.  Budget approval should be first and foremost in Congress right now, and it's time to impose term limits and clean house.”

ü “Most of the third party collections cases I encountered with debt owed to the State of New Jersey were ultimately brought back to the State and resolved by the State in a manner that was fair to the taxpayer and the citizens of New Jersey. The third party collection agencies minimized the humanity of the taxpayer.”

ü “Absolutely NOT. We went through this a few years back and it was a disaster. How about Congress just fully fund the IRS. When they are fully funded, they collect their money.”

ü “The State of Louisiana did this a couple of years ago.  Unmitigated disaster.  The collections agencies, typically, broke all the fair credit rules, the State would no longer help a client with the case, it had to be pulled back from the third party, cases in IA got mixed up in the collection agencies stuff, people started getting harassed even though they were current in their payments, and I could go on.  It lasted about 18 months then the State canned it.”

ü “No. Unless the collection company employees are governed by the same privacy and confidentiality rules and subject to the same sanctions as Enrolled Agents, CPAs, and attorneys, taxpayers' rights will be violated. And in today's climate of rampant identity theft, when government agencies have been unable to protect the security of personal and tax data, how likely is it that a collection agency will adequately safeguard taxpayers' information?”

And here is a response from an employee of an actual tax agency -

ü “I'm seeing lots of short-sightedness in federal and state budget planning. If society needs tax revenues . . . then governments need to put resources into administering the system.  Third party collection is a cop out.  Government tax workers, in theory, know the rules and can validate a debt.  We can also adequately see if your client’s position has merit when we eliminate debt.  Third party collection can do neither of these things.  By using a third party, governments are saying the tax revenues are important but the taxpayer is not. If tax revenue is important, why gut the tax agencies to the point that they're unable to provide service?”  

For my more than 2 cents on the question see my earlier post “No! No! A Million Times No!”.

My advice to anyone who is contacted by an outside collection agency regarding an alleged outstanding IRS, or state, tax delinquency has always been the same - write to the agency, with a copy to the IRS, and tell them that you refuse to deal with a private collection agency and will only deal directly with the IRS.    

So, what do you think?

TTFN

 

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NO! NO! A MILLION TIMES NO!

To borrow a quote from an Alan Jay Lerner lyric – “Damn! Damn! Damn! Damn!”.  Or, a more contemporary reference – “Oops! They did it again!” 

Kelly Phillips Erb reports “Despite Complaints, Past Failures & Opportunities For Fraud, {the idiots in} Congress Pushes Private Tax Collection” at FORBES.COM.

“’Those who fail to learn from history are doomed to repeat it.’ - Winston Churchill

Sometimes it feels like the government does this best. Failed policies are often recycled – often many times – in some sort of desperate attempt to make them work. Or to spend taxpayer dollars to promote self-serving agendas. Sometimes it’s hard to tell the two apart.”

Kelly goes on to report –

“The latest attempt to recycle failed policies is the outsourcing of tax debts to private collectors, an item which has re-appeared as part of the Highway Trust Fund Bill. Yes, you read that right. And no, the two really have nothing to do with each other. But this is, as you know, something that Congress loves to do.”

So, instead of giving the IRS proper funding for tax administration, the idiots in Congress would rather give a not unsubstantial piece of outstanding tax collected to an outside collection agency, verifying once again their status as idiots.

The government must not outsource tax collection to private agencies!  And not just because, as Kelly points out (highlights are mine) –

“About 20 years ago, the IRS tried their hand at using private debt collectors. That lasted a year and was canned amid complaints about unfair practices and harassment. Congress made another go at private tax debt collectors during the George W. Bush administration as part of the American Jobs Creation Act. It didn’t end happily. That program ‘resulted in a number of complaints, including one case in which a private debt collector made 150 calls to the elderly parents of a taxpayer’ even after the collection agency discovered the taxpayer was no longer at the address.”

And -

“The 1996-1997 program resulted in a $17 million net loss to the government. That second go in the mid-2000s? Another loss of $4.5 million. Those aren’t costs. They’re losses.”

Why should the government not outsource tax collection to private agencies?  

The Internal Revenue Service, and state tax agencies, have an ethical, and I believe legal, obligation to make sure that alleged outstanding debt is properly and correctly assessed.  They have a fiduciary responsibility to the Nation, or the State, and its taxpayers to be fair, equitable, and ethical in the administration of tax collection.  They must investigate taxpayer claims that debt, penalties and interest was assessed erroneously.

Outside collection agencies don’t give a rat’s arse about the legitimacy of an alleged outstanding tax debt.  They only make money if they collect money, whether the money is actually due or not.  And they will continue to unethically harass alleged tax delinquents, as they do when collecting alleged private debts, and as they been proven to have done in prior outsourcing programs. 

Kelly and I are not alone in my opposition to using outside collection agencies.

Linda Beale, a law professor who teaches tax courses at Wayne State University Law School and author of the blog A TAXING MATTER, pointed out quite correctly in October of 2007 that (highlight is mine) “If we would provide the IRS the resources and personnel to do the debt collection directly, we could collect more money with less taxpayer cost”, and posed the question - “If the White House is so concerned about the inequity of taxpayers avoiding their obligation to make payment on tax debts, why isn't it lobbying Congress for adequate funding of IRS enforcement needs?”

National Taxpayer Advocate Nina Olsen has long opposed the use of outside collection agencies and criticized the program in place at the time in her January 2008 report to Congress, stating that (highlights are mine) “the program is falling far short of revenue projections. To date, the costs of the program have exceeded the revenue the program has generated, and the IRS cannot project when the program will break even”.

In 2014 she sent a letter to members of the Senate Finance Committee and House Ways and Means Committee outlining in detail her concerns with using private collection agencies.  Click here to read her letter.

IRS Oversight Board chairman Paul Cherecwich, Jr. also wrote to the leaders of the House Ways and Means Committee and the Senate Finance Committee, stating (highlight, again, is mine) “The concept has already failed twice”, said “When direct administrative costs are included, which the Joint Committee on Taxation failed to do, the program costs more to administer than the revenue retained. We concur with the NTA {National Taxpayer Advocate – rdf} in that outsourcing federal debt collection is a bad idea and it makes little sense to resurrect.’”

The 2014 proposal resulted in objections from consumer groups and civil rights organizations such as the NAACP, the National Council of La Raza, the Consumer Federation of America and the National Consumer Law Center. These groups cited ongoing problems with overaggressive private debt collectors used to rein in unpaid student loan debt. Click here to see the letter they sent to lawmakers at the time. 

Yesterday Ways and Means Oversight Subcommittee ranking Member John Lewis, ranking committee-member Sander Levin, and Budget Committee ranking member Chris Van Hollen issued a statement expressing objections to the use of private collection agencies.  Click here to see their statement.

My advice to taxpayers back in 2007 was – “If you receive an IRS Letter 3998-C stating that your account has been referred to an outside agency, write to the IRS and tell them that you refuse to deal with a private collection agency and will only deal directly with the IRS because of your privacy concerns.”

And to taxpayers who received a letter from a collection agency stating that your account has been “outsourced” – “Write to the agency and tell them that you are not permitting them to proceed with your case and you would like them to return any and all information relating to you and your tax situation to the IRS. Send a copy of this letter to the IRS as well."  In other words tell the agency you refuse to deal with them and that you will only deal directly with the Internal Revenue Service.

The bottom line – to repeat, The government must not outsource tax collection to private agencies!  

TTFN

 

  

STUFF

A few items of note.

* You can sing along to the TAX FREEDOM DAY song with Joe Kristan at the ROTH AND COMPANY TAX UPDATE BLOG.

* An update to The Tax Book reminded me of a Revenue Ruling from the end of 2007.

In Rev Rul 2007-72 the IRS states that amounts paid by healthy individuals for self-initiated diagnostic tests and similar procedures are deductible as medical expenses, even though no symptoms currently exist and it was not prescribed or recommended by a doctor or other health professional.

The example used in the update is of a home pregnancy test. It is deductible even though it is used to test the “healthy functioning of the body” and not to detect disease.

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* Recently the House passed the Taxpayer Assistance and Simplification Act of 2008 by a vote of 238 to 179.

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The bill repeals the controversial IRS Private Debt Collection program, which has been criticized for spending $75 million to collect just $35 million for the IRS from three private firms that take a 24 percent cut of the taxes they collect.

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Good move!

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* The IRS has issued a special reminder to retirees, disabled veterans and others who normally do not file a tax return that even though April 15 has passed there is still time to submit a 2007 form and get a “stimulus” rebate check.

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People who normaly do not have to file a tax return but have at least $3,000 in qualifying income should file a simple Form 1040A. Qualifying income includes any combination of earned income, nontaxable combat pay, and certain payments from Social Security, Veterans Affairs and Railroad Retirement.

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According to IRS Commissioner Doug Shulman, “Don’t worry if you did not file a return by April 15. If you meet the criteria, you are still eligible for a stimulus payment. The quicker you file, the quicker you’ll get your payment.”

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The reminder applies to all taxpayers as well, not just “non-taxpayers”. The IRS further pointed out that you “must file a return by October 15 to receive an economic stimulus payment this year”.

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TTFN