News IRS to outsource some collections

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The discussion centers around the IRS's decision to outsource the collection of small tax debts to private companies, a move initiated by the Bush administration. Critics argue that this approach is illogical, as it will be more expensive than internal collection efforts, with costs estimated at 22 to 24 cents per dollar collected compared to the IRS's 3 cents. Concerns are raised about potential abuse, inefficiency, and the integrity of the selected collection agencies, particularly given a history of bribery by one firm involved. Participants express frustration over the perceived unfairness in tax burdens, especially for W2 employees who feel they pay more than their fair share while self-employed individuals exploit loopholes. The conversation also touches on privacy issues and the potential for collection agencies to drag out the process for financial gain. Overall, there is skepticism about the effectiveness of outsourcing tax collection and doubts about the motives behind the decision, suggesting it may be more about political optics than genuine cost savings.
edward
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I don't think this is a wise idea. There is too much chance for abuse and in reality, the IRS can do it cheaper.

Within two weeks, the I.R.S. will turn over data on 12,500 taxpayers — each of whom owes $25,000 or less in back taxes — to three collection agencies. Larger debtors will continue to be pursued by I.R.S. officers.

The move, an initiative of the Bush administration, represents the first step in a broader plan to outsource the collection of smaller tax debts to private companies over time. Although I.R.S. officials acknowledge that this will be much more expensive than doing it internally, they say that Congress has forced their hand by refusing to let them hire more revenue officers, who could pull in a lot of easy-to-collect money.
http://www.nytimes.com/2006/08/20/business/20tax.html

(you may need to go through the free registration to access this link.)

I have no idea why the company below would be one of the ones selected.

One of the three companies selected by the I.R.S. is a law firm in Austin, Tex., where a former partner, Juan Peña, admitted in 2002 that he paid bribes to win a collection contract from the city of San Antonio. He went to jail for the crime.

I can see where a smaller govenment might be the goal in outsourcing here, but when it is going to cost more money than in house collection there is certainly is no logic involved in making this decision.
 
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edward said:
I have no idea why the company below would be one of the ones selected.
...where a former partner, Juan Peña, admitted in 2002 that he paid bribes to win a collection contract...

No idea? I can think of one.
 
We have long debated fair taxation of the wealthy versus the poor. But I think this is just as important to discuss if not more. Having been a W2 employee my entire life, I have always paid more than my fair share of taxes (single, no children, etc.). I know too many self-employed people who do not pay taxes, and one who negotiated his debt pennies to the dollar. All are better off financially than I am. Excuse me if I resent this, as it results in increased taxes for me and those like me.

Nothing is worse than a collection company on your case. I bet the increased results will more than cover the expense. If so, I support it. In the meantime, I hope they keep closing the loop holes used by the self-employed.
 
SOS2008 said:
We have long debated fair taxation of the wealthy versus the poor. But I think this is just as important to discuss if not more. Having been a W2 employee my entire life, I have always paid more than my fair share of taxes (single, no children, etc.). I know too many self-employed people who do not pay taxes, and one who negotiated his debt pennies to the dollar. All are better off financially than I am. Excuse me if I resent this, as it results in increased taxes for me and those like me.

Nothing is worse than a collection company on your case. I bet the increased results will more than cover the expense. If so, I support it. In the meantime, I hope they keep closing the loop holes used by the self-employed.

The private comapanies will have a big incentive to drag out the collection process. The more time that passes the more the amount of penalties paid to the IRS will be. This of course means more will go to the debt collector.

The IRS claims that even with the expense of extra agents they could collect the debts for 3 cents on the dollar. Private companies will cost the government 22 to 24 cents on the dollar.:rolleyes:
 
edward said:
The private comapanies will have a big incentive to drag out the collection process. The more time that passes the more the amount of penalties paid to the IRS will be. This of course means more will go to the debt collector.
The agency usually buys the debt at a fixed amount and it behooves them to collect quickly. I would have to see what kind of contract the IRS is doing with these agencies.
 
Evo said:
The agency usually buys the debt at a fixed amount and it behooves them to collect quickly. I would have to see what kind of contract the IRS is doing with these agencies.

There has been a lot of speculation, including 25% of collection going to the contractor. I can't find a solid link on the payment method. The IRS has a list of safeguards, but it seems to pertain mostly to the knowledge and intergrity of the private collection employees. Just the word integrity used in the same sentence with, debt collector doesn't set well with many people.:rolleyes:
http://www.irs.gov/newsroom/article/0,,id=155065,00.html

To me any deal between the IRS and private debt collectors is a partnership made in hell. And I see nothing in the IRS safeguards that prevent the companies selected from outsourcing the work even further.

The IRS safeguards also appear to require a lot of man hours to insure compliance by the private companies.
 
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What is the basis for your belief that this is anything other than the way standard collections agency relationships work? As Evo said, typically, there is no "partnership", the collections agency simply purchases the debt and walks away with it. I'm not saying you're wrong, I'm just saying I don't see anywhere a description of the actual functioning of this program.

The only thing the article says is this:
The private debt-collection program, however, is outside the budget rules because, except for the start-up costs, the collectors are to be paid from the proceeds.
...which doesn't really clarify much: it could be either.
 
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russ_watters said:
What is the basis for your belief that this is anything other than the way standard collections agency relationships work?

Basically according to the link the collected money is to go directly to the IRS. This would indicate other than a standard collections agency agreement.
I am not concerned specifically about the contractual relationship between the IRS and collection agencies. I do have a problem, however, with the fact that IRS officials have mentioned that the cost incurred by the govenment would be higher than in house collection.

I also have a problem with collection agencies in general. Like with any other business there are the good the bad and the just plain evil. From my own experience collection agencies have a preponderance of the bad and the evil.

russ_wattersAs Evo said, typically, there is no "partnership", the collections agency simply purchases the debt and walks away with it.

According to the links the debtors will be sending checks directly to the IRS. Whatever portion goes to the collection agencies will have to come to them from the IRS.

russ_watters said:
I'm not saying you're wrong, I'm just saying I don't see anywhere a description of the actual functioning of this program.

I see your point here. The only thing I have read for sure is that the checks will go directly to the IRS. I have ,however, read a number of links and only posted one + one from the IRS.

The only thing the article says is this:
The private debt-collection program, however, is outside the budget rules because, except for the start-up costs, the collectors are to be paid from the proceeds.
which doesn't really clarify much: it could be either.

The program being outside the budget rules is another reason that I don't like it. From what I have read the outsourcing has more to do with making the IRS budget look good, than saving money.

I will try to find some more definitive links.
 
Even this doesn't explain the exact payment method. It does indicate that the payment to a private collection agency can be up to 25%

SEC. 6306. QUALIFIED TAX COLLECTION CONTRACTS.

`(a) IN GENERAL- Nothing in any provision of law shall be construed to prevent the Secretary from entering into a qualified tax collection contract.

`(b) QUALIFIED TAX COLLECTION CONTRACT- For purposes of this section, the term `qualified tax collection contract' means any contract which--

`(1) is for the services of any person (other than an officer or employee of the Treasury Department) to locate and contact any taxpayer specified by the Secretary, to request payment from such taxpayer of an amount of Federal tax specified by the Secretary, and to obtain financial information specified by the Secretary with respect to such taxpayer, and

`(2) prohibits each person providing such services under such contract from committing any act or omission which employees of the Internal Revenue Service are prohibited from committing in the performance of similar services.

`(c) FEES- The Secretary may retain and use an amount not in excess of 25 percent of the amount collected under any qualified tax collection contract for the costs of services performed under such contract. The Secretary shall keep adequate records regarding amounts so retained and used. The amount credited as paid by any taxpayer shall be determined without regard to this subsection.

`(d) NO FEDERAL LIABILITY- The United States shall not be liable for any act or omission of any person performing services under a qualified tax collection contract.
http://thomas.loc.gov/cgi-bin/query/z?c108:H.R.+1169:

I can see a big problem with privacy issues and possible loss of personal data using private companies to collect taxes.
 
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  • #10
edward said:
I am not concerned specifically about the contractual relationship between the IRS and collection agencies. I do have a problem, however, with the fact that IRS officials have mentioned that the cost incurred by the govenment would be higher than in house collection.
Well, every time you have another mouth feeding from the same pot, the share for each goes down.

Frankly, with the power the IRS has available, I don't see why they need collections at all: they are capable of simply garnishing the wages of debtors.
 
  • #11
Does "outsourcing" simply mean contracting out a job to an outside agency? I always thought it was specific to work that was contracted to workers outside of the US.
 
  • #12
loseyourname said:
Does "outsourcing" simply mean contracting out a job to an outside agency? I always thought it was specific to work that was contracted to workers outside of the US.

Apparently outsourced has become sort of a one size fits all term. That was the term used by the news accounts. The IRS calls it:
A QUALIFIED TAX COLLECTION CONTRACT.

This link uses the terms privatize and outsource interchangeably.
http://www.corpwatch.org/article.php?id=14030
 
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  • #13
Apparently even the IRS is not totally confident about negating possible consumer fraud as a result of using private debt collectors.

WASHINGTON — The IRS warned taxpayers Wednesday not to be duped by scammers posing as private debt collectors the agency has hired to chase unpaid tax debts.
http://www.mailtribune.com/archive/2006/0824/biz/stories/irsscam.htm
 
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  • #14
As far as I have seen the IRS is not terribly efficient at going after people for money owed. Private sector collectors would have much more of an incentive to collect. If they don't they don't get paid.

I don't particularly like debt collectors since I have had my share of experiences with them but I would think they would be more cost efficient technically.
 
  • #15
TheStatutoryApe said:
As far as I have seen the IRS is not terribly efficient at going after people for money owed. Private sector collectors would have much more of an incentive to collect. If they don't they don't get paid.

The IRS has claimed that, even after hiring extra agents, they could do the collections in house for 3 cents per dollar. The contracts with private collection agencies will cost up to 25 cents per dollar.

The whole point here is that the Bush administration wants the private agencies because they will not show up in the budget. Hiring extra agents would.

This is more about politics and making the IRS budget look good temporarily than anything. (I think that was in one of the links) There will be no long term savings.

Everson also said IRS workers can pursue the cases being sent to private firms, but suggested Congress hasn't given the agency enough money for staff. "While using our resources would be a cost-effective means for collecting tax debt, current resources are insufficient to fully address outstanding receivables," Everson wrote. He noted the House cut the IRS' 2007 fiscal-year budget request by $104.5 million.
http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=google&guid=%7B52E45914-F5D3-4ACB-B70B-674F4FA0C15C%7D&keyword=

I don't particularly like debt collectors since I have had my share of experiences with them but I would think they would be more cost efficient technically.

I don't like those people either. I once had a collection agency calling me twice a day, even at work. It took two weeks before I finally convinced them that they were looking for a person with my same name. The other guy lived 2,000 miles away.

If people are gutsy enough to stiff the IRS, they aren't going to worry much about a private collection agency.
 
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