The IRS just blew millions of dollars on a project that already failed before

accountant taxes filingAndrew Burton / Getty

  • A 2015 bill directed the Internal Revenue Service to
    begin using private debt collection agencies to recover some
    outstanding tax debts.
  • The program cost $20 million in fiscal year 2017, but
    the private collectors only regained $6.7 million of the $920
    million of debt assigned to them.
  • The private collectors also disproportionately
    collected from low-income Americans and from people getting
    Social Security benefits.
  • Private collection of outstanding tax debt was also
    tried from 1996-1997 and 2006-2009. Both times, the program was
    ended because it lost the IRS and the government

The Internal Revenue Service paid $20 million to private debt
collectors in fiscal year 2017 as part of an effort to recoup
unpaid taxes, an initiative kicked off by a 2015 bill from

There’s one problem: the private collectors only recovered $6.7

According to
a new report
from the IRS internal consumer advocate, the
Taxpayer Advocate Service, the private debt collection brought in
only a sliver of the amount it was designated to recoup. And it
ran afoul of some of the program’s designed guardrails.

The IRS assigned private collection agencies (PCAs) $920 million
in “inactive tax receivables” — or outstanding tax payments. That
means the PCAs got back just 0.7% of the money assigned, while
the program to retain the collector cost over three times as

“Thus, it does not appear that PCAs are particularly effective in
collecting the debts assigned to them,” the report reads. “In any
event, the cost of the PDC program thus far exceeds the revenue
it generates.”

The report also found that the agencies disproportionately
received payments from people of low incomes. Overall, 44% of the
people who made payments to the collectors make up to 250% of the
federal poverty limit, around $31,000 for an individual.

The Taxpayer Advocate Service also found that in many cases, the
PCAs were entering low-income Americans into payment plans that
were unaffordable and financially burdensome. 

Additionally, the service found that some of the payors to
private collections agencies were Social Security recipients,
despite the law forbidding the agencies from going after people
on Social Security.

The push to privatize the collection of outstanding taxes was a
long-time goal of congressional Republicans, though the 2015 law
that created the new program as a way to pay for infrastructure
investment had bipartisan support.

It is also not the first time PCAs have been utilized by the IRS
for collection purposes. These collectors were used from 2006 to
2009 and similar to the current situation, the program lost

a 2014 letter to members of Congress
discussing the
possibility of using the PCAs again, Nina Olson, the head of the
Taxpayer Advocate Service, warned that the program from 2006 to
2009 was a failure.

“Based on what I saw, I concluded the program undermined
effective tax administration, jeopardized taxpayer rights
protections, and did not accomplish its intended objective of
raising revenue,” Olson wrote. “Indeed, despite projections by
the Treasury Department and the Joint Committee on Taxation that
the program would raise more than $1 billion in revenue, the
program ended up losing money. We have no reason to believe the
result would be any different this time.”

Another effort to partially privatize the debt collection
functions of the IRS from 1996 to 1997 similarly result in
failure and the termination of the program. 

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