Today we welcome back guest blogger Mandi Matlock. Mandi is Of Counsel to the National Consumer Law Center. With a significant background in consumer law combined with tax controversy practice experience, Mandi brings us the consumer advocate’s perspective on the Private Collection Agency debate. As you will read, Mandi is not a fan of having private debt collectors collect federal taxes. Keith has written before how he is also not a fan of this practice. For more background, you can read our earlier posts on this topic here, here, and here, as well as a recent Quartz article quoting Mandi. Christine
If you’ve been keeping up with recent news coverage of the IRS’s private debt collection (PDC) program, you might be under the misapprehension that things are going swimmingly. The IRS released its latest quarterly report card last month evaluating the PDC program, showing $51 million in net revenue. In response, Sen. Charles Grassley (R-IA), the program’s most vocal Congressional proponent, asserted that the program “continues to prove its value.”
He is joined in this sentiment by, well, no one really, unless you count the Partnership for Tax Compliance, the debt collection industry trade group formed just to promote this program. According to the industry group, it is “crystal clear” the PDC program is “very profitable.”
Even Sen. Charles Schumer (D-NY), a key supporter of the legislation that forced the IRS to try to resurrect the twice-failed program, kept quiet about its value to taxpayers when the report card came out. To the extent he commented at all on the updated data, he characterized it as a boon to New Yorkers, stating that it was “all about” debt collection agency jobs for his constituents. (Yes, one of the four private collection agencies participating in the PDC program is headquartered in New York. Two of the remaining three are headquartered in Grassley’s backyard.)
Meanwhile, the National Treasury Employee’s Union President acerbically commented, “It took a year-and-a-half and millions of taxpayer dollars, but [the PDC program] has finally brought in more money than it cost.” The National Taxpayer Advocate has studied and written extensively about the PDC program in many of her annual reports to Congress. Her focus has primarily been on what she considers to be the significant burden the IRS’s operation of the program places on low-income and vulnerable taxpayers. Senator Warren and others in Congress have expressed similar concerns.
And, of course, there was that bombshell TIGTA report two months ago that thoroughly savaged the PDC program. In its report, TIGTA concluded that while the program is minimally cash-positive, it generally harms taxpayers and jeopardizes tax compliance. The IRS rejected all but one of TIGTA’s recommendations to improve the program.
Setting aside for just a moment the prodigious valid concerns about harms to taxpayers and to tax collection generally, did much change in the program’s profitability between the TIGTA report and the recent report card?
The best, honest spin I could find was this: The PDC program is slightly more minimally cash positive. Here are the indisputable facts:
- Private collection agencies are collecting an average of 1.7% of assigned receivables (up a whopping 0.3% since the previous report card). Compare this with the debt collection industry standard of 9.9%.
- The return on investment for collection by the IRS is 21 to 1 (according to fiscal year 2017 Treasury data). Meaning, IRS collected $21 for every $1 spent on its collection program. Current return on investment in the PDC program? 2.64 to 1. And the 2.64 figure is artificially high because the IRS has thus far not tracked and shared the estimated opportunity costs involved, as it did in previous iterations of the PDC program. (“Opportunity costs” would be the dollars the IRS could have collected if resources had not been diverted to operate the PDC program.)
- Grassley’s presser lauds $14.5 million in collections that the IRS retains. But that only adds about one third of one percent to the IRS’s enforcement budget.
The PDC program makes no financial sense. None. Well, except for maybe to the PCAs – who are happily hoovering up cash from the public fisc and out of the pockets of low-income and vulnerable taxpayers. Add to this the potential for hardball collection tactics, a system that relies on PCAs to self-report debt collection abuses (!), the reduced collection alternatives available to taxpayers contacted by PCAs, and so much more that is wrong with the PDC program.
When will lawmakers fairly weigh the real harms against the illusory benefits of this program? In its current form the PDC program makes sense for PCAs, and no one else. Unless we start to see some hard scrutiny of the real numbers, taxpayers shouldn’t expect change soon.