The IRS shut down its pilot program to use private collection agencies to pursue some tax delinquents in 2009. We were told the IRS was more effective at collecting the taxes. Now the Treasury Inspector General for Tax Administration has a report showing how that’s worked out:
When the PDC Program was discontinued in March 2009, the IRS recalled cases with a total assessed balance of $848.5 million from the remaining contractors. TIGTA reviewed the effectiveness of collection actions taken by the IRS on taxpayer accounts returned by the PDC Program.
The IRS did not always pursue collection actions on cases returned to the IRS or analyze the best practices of the private debt collection agencies in the PDC Program for possible improvement of IRS collection practices, TIGTA found.
TIGTA reviewed a statistical sample of 62 cases returned in Fiscal Year 2009 and found that collection actions were not taken for 29 (47 percent) of the 62 cases. These cases were not selected for collection action due to collection policies and inventory assignment practices. TIGTA estimates that potentially $30.7 million in collections will remain as outstanding liabilities. In addition, TIGTA estimates that the IRS may not collect an additional $103.2 million per year, or $516 million over the next five years, from similar cases in its inventory that would have otherwise been assigned to the PDC Program.
While I hate to ever agree with politicians, I agree with Senator Grassley’s take, as reported by Tax Analysts ($link):
“The IRS assured us all that the agency could do a better job with these tax cases than outside firms and didn’t need any help. It turns out that the IRS isn’t doing a better job and in many cases, isn’t doing the job at all,” Grassley said in a statement. “The IRS and Treasury Department went out of their way to stop a means of collecting tax debt that the IRS otherwise will never collect. They bowed to union pressure and terminated an alternative collection program before it had a chance to reach its full potential. It’s a shame the IRS continues to let tax debt slide while honest taxpayers pay what they owe. The agency should explain why that’s the case. And the Administration should be focused on collecting existing taxes owed before trying to impose new taxes, as is being suggested in deficit reduction proposals.”