Since the IRS implemented the private debt collection (PDC) initiative in 2017, National Taxpayer Advocate Nina Olson warned that low-income taxpayers whose debts are assigned to private collection agencies (PCAs) are being locked into debt servicing installment plans they cannot afford, as many are unable to cover basic living expenses.
That was the conclusion reached by Olson in a June 6 report, who documented that 43 percent of taxpayers assigned to PCAs via the IRS had an income lower than their allowable living expenses.
“I have been concerned that taxpayers whose debts are assigned to private collection agencies will make payments even when they are likely in economic hardship – that is, they are unable to pay their basic living expenses,” she wrote in a blog. “This is exactly what has been happening.”
According to the Government Executive, the IRS’ private debt collection program has recently restarted, after the program closed several times because it failed to bring in an adequate amount of recovered taxes.
Here are the four private companies participating in the program: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, California; and Pioneer of Horseheads, N.Y.
Olson has long scrutinized the private debt collection program, which she suggested in her January annual report to Congress that the program has had a series of complaints about harassing low-income taxpayers.
Her office, the Taxpayer Advocacy Service, analyzed tax returns of approximately 4,100 taxpayers who made debt servicing payments to the IRS after their debts were assigned to PCAs through September 2017.
Here is what the Taxpayer Advocacy Service discovered:
- 28 percent had incomes below $20,000;
- 19 percent had incomes below the federal poverty level; and
- 44 percent had incomes below 250 percent of the federal poverty level.
The Government Executive specifies that “debt-ridden low-income taxpayers are asked to pay all of what they owe, but have the option of entering into—without submitting financial information—installment agreements up to seven years.”
“This pattern of taxpayers whose debts are assigned to (private collection agencies) entering into (installment agreements) and making payments they appear to be unable to afford is continuing,” Olson warned in a blog last week.
Olson’s research team studied the financial circumstances of 2,102 taxpayers’ ability to meet their “allowable living expenses,” between April 2017 (when the IRS started assigning tax debts to PCAs) and September 2017.
IRS data from April 2017 through March 29, 2018, of 9,751 taxpayers who entered into installment agreements and made payments while their debts were assigned to PCAs indicated:
- 24 percent had incomes below the federal poverty level – all of these taxpayers’ incomes were less than their allowable living expenses;
- 22 percent had incomes at or above the federal poverty level and below 250 percent of the federal poverty level; 80 percent of these taxpayers’ incomes were less than their allowable living expenses; and
- Overall, 43 percent who entered into installment agreements had incomes less than their allowable living expenses.
On April 23, 2018, Olson issued a Taxpayer Advocate Directive (TAD) requesting the IRS to stop assigning PCAs any more new debt of taxpayers whose income was less than 250 percent of the federal poverty level. Olson said, “I ordered the IRS to respond to the TAD, either by agreeing or by appealing the TAD to the Deputy Director for Services and Enforcement by June 25, 2018.”
“And now we learn that it is adding more financial hardship on American families already struggling to keep up with their bills,” NTEU national president Tony Reardon said in a statement Friday. “This is the third time Congress has steered public IRS business to private collection agents, and like the first two times, it should be canceled.”
Democrats in the Senate and House, among them Sen. Ben Cardin, D-Md., and Rep. John Lewis, D-Ga., have recently introduced a bill that would discontinue the PCAs program:
“We cannot continue to waste money using private collection agencies to collect tax debt,” said Cardin, who serves on the Senate Finance, Taxation and IRS Oversight Subcommittee. “Putting a bullseye on the back of low-income taxpayers has lost taxpayer dollars every time it has been tried. It needs to stop for good.”
Collecting debt is a nasty business which is why the IRS turned it over to the private sector. The result, well, these debt collectors are crushing low-income America with installment payments stretching out as far as seven years. Many cannot afford basic living expenses, therefore, stripping them of the power to consume, which is transforming low-income America into more debt servitude. Crushing the poor and middle class is not how America will be made great again.