IRS Private Debt-Collection Program to Face Tax Writers’ Scrutiny

With a loss of $13 million on the books, lawmakers say they’re willing to examine the contracts—but not to dump the program.

AP Photo/J. David Ake
Feb. 7, 2018, 8 p.m.

When the Internal Revenue Service closed its program contracting private debt collectors in 2009, it was beset with problems. The program was a money-loser, swamped with taxpayer complaints and under political pressure to shut down.

Lawmakers mandated the agency restart the program in a 2015 bill. But now, with the same problems cropping up, key GOP members appear open to making changes to it, though they stop short of saying they will scrap it altogether.

“I’ve always been a strong supporter of private debt collectors within the IRS,” House Ways and Means Committee Chairman Kevin Brady told reporters Monday. “But, like anyone else, they need to perform. They need to prove their worth, and so if there are any challenges we should be addressing them.”

With the tax overhaul enacted in December, Republican tax writers hope to begin work soon on a bill to overhaul the IRS in what they say is an effort to restore customer service to the agency. The Ways and Means Oversight Subcommittee, which would head up the effort, held a hearing Jan. 30 to hear ideas from lawmakers.

A spokesperson for subcommittee chairwoman Lynn Jenkins said that the panel plans to review the debt program’s implementation.

“The IRS has an obligation to administer the laws passed by Congress in [a] fiscally responsible … manner and we intend to hold them to that standard,” a Jenkins spokesperson said in an emailed statement.

The latest effort to restart the program stems from 2015, when lawmakers slipped language into an end-of-year highway-funding bill requiring the IRS to again contract private debt collectors. It was a pay-for, one that the Congressional Budget Office expected would raise $2.4 billion over a decade.

The program started in April 2017, and in its first year CBO projected it to raise $187 million. Instead, it lost more than $13 million, according to IRS Taxpayer Advocate Nina Olson’s January report to Congress.

The program does have its key backers, however.

Senate Minority Leader Chuck Schumer and Republican Sen. Chuck Grassley are longtime supporters of the private debt-collection program. Of the four collection agencies involved in the IRS program, CBE Group Inc. is based in Grassley’s home state of Iowa, while ConServe and Pioneer are based in Schumer’s home state of New York. The fourth company is Livermore, Calif.-based Performant, according an IRS list.

In October 2016, Schumer held a rally with executives and employees of Pioneer to announce the company would add 300 new jobs at its facility in Horeseheads, N.Y., because of the IRS contract.

Schumer’s office did not respond to requests for comment on the IRS debt-collection program’s future.

Some of the program’s backers say it hasn’t reached full capacity, and thus wouldn’t have been able to collect the amount of revenue projected for 2017.

Grassley, a member of the tax-writing Finance Committee, secured support for the private debt program from Treasury Secretary Steven Mnuchin during his nomination hearing in early 2017. The senator told reporters Tuesday that the program is necessary. He said that if there are issues with waste or mismanagement, they should be addressed.

“But you don’t throw the baby out with the bathwater,” Grassley said.

The current program requires the IRS to hire one or more companies to collect outstanding tax receivables, tax debt the agency considers too difficult to collect, or debt carried by taxpayers who have been out of contact with the agency for more than one year. That amounts to about 140,000 overdue accounts with debt under $50,000.

The agency has been on this path twice before, once in 1996-97 and again between 2006 and 2009. In 2009, the agency shuttered its private debt-collection program in part because of complaints that companies used high-pressure tactics. Critics said the program harmed low-income taxpayers, the biggest holders of tax debt. Both times, the programs were unprofitable as well.

Many of the current program’s targets are those who could least afford to pay back the debt, the latest Taxpayer Advocate’s report said. The report found that in the program’s first year, of 4,100 taxpayers who made payments to the private debt collectors, the median income was about $41,000, with 28 percent making less than $20,000. Among those taxpayers, some were recipients of Social Security Disability Insurance benefits, even though the agency had agreed not to assign those individuals to private debt collectors, the report said.

As with the previous programs, the current rollout has come under scrutiny from consumer groups over aggressive tactics from collection agencies. Months after the latest program began in 2017, Democratic senators obtained copies of call scripts used by employees of one firm in which they suggested debtors use credit cards or second mortgages to pay off tax debt, according to a June 2017 New York Times report.

Some Democrats have pushed back against the 2015 language and have proposed scrapping the program ever since. At the Jan. 30 hearing, Oversight Subcommittee ranking member John Lewis proposed legislation that would in part repeal the program.

“The program is a shame and a disgrace, and it must end,” Lewis said at the hearing.

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