Bill Proposes Private Debt Collection of Back Taxes

A bill proposed in the Senate would require the Internal Revenue Service to turn over debt collection records on back taxes to private collection agencies. The provisions of the bill would call for all “inactive tax receivables” to be assigned to private debt collection companies if the IRS is unable to find the owing taxpayer. The bill would revive a previous program that was a target of complaints from both taxpayers and the IRS.

Schumer Sponsors Tax Debt Collection Bill

Senator Chuck Schumer (D-NY) sponsored the tax debt collection measure in a meeting of the Senate Finance Committee. The committee agreed to add the proposal to a larger tax bill aimed at restoring a range of expired tax incentives. The larger tax bill is expected to win a Senate vote this week. A conflict with House leaders over restoring the expired tax breaks will likely prevent President Obama from making a decision on the bill anytime soon.

Functions of the Tax Debt Collection Bill

According to Senator Schumer, the debt collection bill would bring in $4.8 billion in back taxes over the next ten years. Half of this additional revenue would make up for the expansion of the expired tax breaks for startup businesses engaged in research and development. The other half would be used to hire more IRS agents and to compensate the private debt collection agencies. The bill would exempt some taxpayers from targeting by the debt collection agencies, including military members in combat zones and spouses unaware of their partner’s tax situation.

Private Debt Collection a Boon for New York State?

Of the four private debt collection agencies authorized by the IRS to collect back taxes, two are from Senator Schumer’s home state of New York. ConServe, a debt collection agency out of Fairport, and Pioneer Credit Recovery, out of Arcade, are in what Senator Schumer described as “two of the poorest areas in New York”. His bill “would create hundreds of jobs”, according to his statement, while “not costing a single government job”.

Debt Collection Bill Draws Complaints from Taxpayers, IRS

The Schumer bill is not the first time the IRS has used private debt collection agencies to collect back taxes. The revenue agency used a similar program in the late 1990s for a year, and again in the early 2000s during the first George W. Bush administration. Both times, the program was scrapped due to complaints from taxpayers and the IRS.

In his testimony before the House Ways and Means Committee, IRS Director John Koskinen said that the agency “ended up losing money” both times. Taxpayer advocate Nina Olson wrote a letter to Congress urging them to reject the measure. She callec it a “bad idea” and stated that the bill “disproportionately impacts low-income and other vulnerable taxpayers”.

Source: Newsday

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