February 14, 2018

Warren, Cardin, Brown Call for an End to Federally-Funded Private Debt Collection Agencies

Allowing contractors to collect taxes on a commission basis incentivizes aggressive collection tactics and minimizes due process.

Bill Text (PDF)

Washington, DC - United States Senators Elizabeth Warren (D-Mass.), Ben Cardin (D-Md.) and Sherrod Brown (D-Ohio) have introduced legislation to repeal authority from the Internal Revenue Service (IRS) to contract with private collection agencies (PCAs) to collect unpaid taxes. Now in its third iteration, each time the program has been allowed to function, it has been shown to cost the federal government more money than it takes in while targeting some of the most vulnerable taxpayers - potentially violating their rights.

"The IRS private debt collection program is nothing more than a waste of taxpayer money," said Senator Warren, a member of the Senate Banking Committee. "Not one penny of Americans' hard-earned pay should be going towards ineffective private collection agencies. I'm glad to work with Senators Cardin and Brown to finally abolish this harmful program."

"We cannot continue to waste money using private collection agencies to collect tax debt," said Senator Cardin, a senior member of the Senate Finance Taxation & IRS Oversight Subcommittee. "Putting a bulls-eye on the back of low-income taxpayers has lost taxpayer dollars every time it has been tried. It needs to stop for good."

"Taxpayer dollars shouldn't be spent employing private collection agencies so they can shakedown low-income workers. This is a textbook example of government waste, and we should fix it before more taxpayer dollars are misused," said Senator Sherrod Brown, ranking member of the Senate Banking Committee.

In 2015, a provision requiring the Secretary of Treasury to contract with PCAs was included as an offset to the highway funding extension bill. At the time, many Senators, the Treasury, the National Taxpayer Advocate (NTA), and a coalition of civil and consumer rights groups objected to its inclusion, citing concerns that ranged from cost to taxpayer confusion.

 These concerns were not without precedent.  Every previous attempt to use PCAs to collect taxes have resulted in revenue loss, despite projections that their use would generate billions in unpaid taxes. The first attempt, a 1996 pilot program that was projected to raise $27.5 million, resulted in a $3 million loss to taxpayers. The second attempt, extending from 2006 to 2009, was projected to raise $2 billion in revenue, but resulted in a loss of $4.4 million. 

 Unsurprisingly, the third attempt at the PCA program has resulted in many of the same problems. Preliminary data from the IRS and NTA show that the latest PCA program is losing revenue. In addition, according to information received by NTA, the IRS has paid commissions to PCAs for payments from taxpayers that are actually attributable to IRS action.

In addition to be a fiscally dubious proposition, using PCAs have been shown to jeopardize taxpayer rights. Unlike the IRS, PCAs do not have the same tools available for taxpayers who actually want to satisfy their debt. Allowing contractors to collect taxes on a commission basis incentivizes aggressive collection tactics and minimizes due process. The 2006 to 2009 attempt to turn over tax collection to PCAs resulted in contractor fines for violations totaling thousands of dollars. In one instance, these violations led to one of the contracts being terminated.  

Many of the taxpayers assigned to PCAs are likely to be experiencing economic hardship.  Twenty-eight percent had annual incomes of less than $20,000.  Forty-four percent had incomes below 250 percent of the federal poverty level.  Some of these taxpayers were placed by PCAs into installment agreements that they cannot afford based on IRS collection standards.  Despite the IRS agreeing to exclude the debts of SSDI recipients from assignment to PCAs, SSDI recipients are among those taxpayers who have been subject to the program.