In 2015 Congress passed a law that required the Internal Revenue Service (IRS) to use private collection agencies (PDCs) to collect outstanding tax bills. The Government Accountability Office (GAO) conducted a review of the IRS’ PDC program and has found some concerning problems.
What was the problem? The use of private companies to collect taxes has resulted in taxpayer confusion. Taxpayers are more likely to be uncertain if they are communicating with a representative of the IRS. This leaves taxpayers more susceptible to scams. Unfortunately, the problem is more than just theoretical. Scammers impersonated IRS officials and conned over 10,000 taxpayers out of more than $50 million from 2013 through 2017.
As a result, if the IRS does not make changes to the current program it is likely to put more taxpayers at risk for tax fraud.
Is the potential risk worth it? These decisions require a review of the benefits versus the risks. This is not the first time the IRS has attempted to use third party, private companies to collect outstanding tax debt. In 1995, Congress allowed the IRS to use private debt collectors to collect tax debt in much the same way. In 1997, The GAO reported the program cost the IRS approximately $21 million and resulted in a collection of only $3.1 million. As a result, the government cancelled the program.
Thus far, the current rendition of the program has not proven much more successful. The IRS reported to Congress the program resulted in a net gain of $22 million. However, upon further review it appears this report is inaccurate. The IRS’ report to Congress fails to consider funds that were set aside to cover future and current costs of the program. As a result, it is difficult to tell if the true impact of the program.
The issue highlights the need for taxpayers who are contacted by the IRS to take the contact seriously. If you receive a notification of an audit, seek legal counsel. The attorneys with Goldburd and McCone are well versed in IRS and state tax audits and can help better ensure your interests are protected throughout the process.