The Internal Revenue Service is not giving the four private collection agencies it contracted with to collect on outstanding debts very good accounts, according to the results of an audit released last week by the Treasury Inspector General for Tax Administration, but those collection agencies are also not very good at reporting issues or complaints and are putting individuals at risk of identity theft because they are using Social Security numbers to verify accounts.
A copy of the audit can be accessed by clicking here.
During the first 14 months of the program, the IRS had placed 502,893 accounts with the four agencies, representing $4.1 billion in unpaid taxes. The four agencies have recovered $56.6 million of that amount, about 1% of what they have been assigned. The audit notes a “study commissioned by the collection industry trade association showed the national debt collection average for Calendar Year 2016 was 9.9%.”
One possible reason why the recovery rate is so low is the age of the accounts being placed with the private collection agencies. The average age of an account is 3.97 years, which as the audit states, is “nearly uncollectible.”
Overall, the program has lost money during the first 14 months, recovering $1.3 million less than it has cost to get the program up and running.
While noting that the IRS has to place older accounts with the agency as part of the rules of the program, the IRS also has the option to place newer accounts with the agencies, and should consider doing so, TIGTA said in its report.
Through the first seven months of the program, the four collection agencies self-reported 50 complaints from consumers. Because the commission structure of the arrangement offers the private collection agencies an incentive to maximize the number of calls they make and perhaps be more aggressive in attempting to collect, the IRS should be more involved in being made aware of complaints from individuals, TIGTA said. Because 22 of the 50 complaints have been reported by one of the four agencies, it is likely that the agencies are using different criteria in determining when to report a complaint, the audit said.
There is also some confusion because of previous IRS mandates that nobody will ever call an individual and demand payment, and yet that it exactly what the private collection agencies are doing. This is causing many individuals not to believe the agencies when they call, thinking it is a scam and not a legitimate attempt to collect a debt.
When an account is placed with a collection agency, the IRS sends the individual a letter, notifying the individual that the debt has been placed with a private agency. The agency is also then required to send a letter to the individual, called an Initial Contact Letter. In both the letter from the IRS as well as the letter from the collection agency, the individual receives what is known as a Taxpayer Authentication Number, similar to an account number, which is used to verify the individual when contacted by the agency. If the individual does not have access to the Taxpayer Authentication Number, the agency can use a Social Security number to verify the individual’s identity. Scammers can “exploit this process” to try and steal the identity of the individual being contacted, TIGTA warns in its audit. The agencies should not be allowed to use SSNs when verifying individual’s information.
In most cases, the IRS disagreed with the recommendations of the audit.
Finally, and perhaps most importantly, the IRS is choosing not to work any accounts that are returned by the collection agencies because the individuals are not planning on repaying the debt. Such “willful noncompliance” may only embolden other individuals to not pay when contacted by a private collection agency, if the individuals know the IRS will not take any further action.
“When the Government encounters willful noncompliance but does nothing to address the taxpayer’s conduct, it runs the risk of emboldening future willful noncompliance by that taxpayer and other taxpayers as well,” the auditors wrote. “The PCAs should have a mechanism to flag and return accounts in which willful noncompliance is identified so the IRS can take appropriate action.”