T- T T+

IRS Partnership with Debt Collection Agencies Becomes Law

Dec 07, 2015

As part of the recently-passed highway bill, the IRS will work with private collection agencies to recover more than $300 billion in consumer tax debt.

President Obama signed the Fixing America’s Surface Transportation (FAST) Act – a five-year highway funding bill – into law Friday. The FAST Act includes a provision requiring the Internal Revenue Service to use private debt collection agencies to recover unpaid tax debt.

Under the new law, the IRS must use private collection agencies to collect “inactive tax receivables,” which often amounts to tax debt the IRS hasn’t collected in the past due to lack of time or resources. Currently, the IRS is unable to collect $380 billion in tax debt – a 23 percent increase since 2009–according to a July report from the U.S. Government Accountability Office.

The IRS would be in charge of negotiating any contracts with private collection agencies, determining an acceptable fee structure and developing requirements for how the debt is collected. Any debt collector involved in the IRS program will be thoroughly vetted by the IRS and continually monitored by IRS employees.

As an added measure of accountability, the law stipulates the IRS must present two reports to Congress detailing the effectiveness of the program. One report would focus on the total amount of tax receivables outsourced to private collection agencies,  the total amounts collected by these agencies and the subsequent costs incurred by the IRS. The second report is an independent performance evaluation of the agencies contracted with the IRS; it will include a comparison of best practices between the IRS and private collection agencies.

When the IRS last worked with private collection agencies to collect consumer tax debt in 2006, an independent study found that collection agencies had a customer satisfaction rating of 96 percent – higher than the IRS’ rating.

Even though the original tax collection program between the IRS and private collection agencies brought in $98 million in revenue the IRS wouldn’t have otherwise collected, Congress ended the program in 2009, claiming that it was losing money. However, in 2010 the GAO released another report clearly stating that the program evaluation used by the IRS had flawed design and methodology deficiencies, making it ineffective at supporting the IRS’ decision to end the partnership.

Private collection agencies already put $55.2 billion dollars in revenue back into the U.S. economy, according to the ACA International and Ernst & Young study on the Impact of Third-Party Debt Collection on the U.S. National and State Economies in 2013. Recovery of consumer debt by third-party debt collectors on behalf of America’s public, private and nonprofit sectors keeps the credit-based economy afloat and has significant positive effects on our nation’s overall economic health.

Follow ACA on Twitter @ACAIntl and @acacollector or Facebook for news and event updates. ACA’s LinkedIn Group includes news updates, member discussions, event promotions, jobs and more. Visit the group page and request to join today.

ACA International Event Calendar
ACA International - 4040 W. 70th Street - Minneapolis, MN 55435