IRS Debt Collection Policies Change

IRS Ends Its Controversial Policy of Out-Sourcing the Collection of Past Due Taxes. Some Local and State Governments are Also Reconsidering Use of Private Debt Collection Firms

IRS debt collection policies have generated a great deal of controversy over the past several years, and that’s about to change. The IRS announced in March, 2009 that it was ending its 4-year policy of using outside debt collection firms to collect past due taxes from consumers and will hire 1,000 additional IRS employees to help the agency collect past due federal taxes.

The IRS debt collection outsourcing program had been criticized as expensive and a waste of taxpayers’ dollars and, in fact, a recent study conducted by the IRS found that the agency could have collected far more past due taxes if it had not outsourced that job. In addition, there have been complaints from consumers that some of the private debt collectors used by the IRS had been abusive to consumers and used deceptive practices to try to collect money from them. Also, ever since the IRS first entered into contracts with private debt collection firms consumer advocates had voiced concern that consumers’ personal data would be at risk.

According to the IRS Commissioner, IRS employees who try to collect past due tax debt will have more options for collecting what consumers owe than the private debt collectors have had. For example, IRS employees can forgive some tax debts under certain circumstances, and extend consumers’ tax payment installment plans, among other things. Also, research shows that the IRS resolves past due tax debt problems faster than the private sector does, which affects how much interest and penalties consumers who owe past due taxes end up paying to the IRS.

The decision by the IRS to bring debt collection in-house reflects what is beginning to happen at the local and state government levels. In recent years, some local and state agencies had contracted with private debt collection firms to collect past due taxes, utility bills, parking tickets, library fines, and so on. Their thinking was that the private sector could do a better job than their own employees could. However, in response to problems with inefficiencies and over charging as well as allegations that some of debt collection firms had bribed state or local public officials and broken debt collection laws, some of those agencies have decided that debt collection is best done in-house.

This article was posted in March 2009

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