The Internal Revenue Service has not collected delinquent taxes for nearly half the past-due tax cases left behind from its shuttered private debt collection program, according to a new government report.
The Treasury Inspector General for Tax Administration (TIGTA) reviewed the effectiveness of collection actions taken by the IRS for the returned accounts. TIGTA reviewed a sample of 62 cases and found that the IRS had not taken collection actions on 29.
From 2006 to 2009, the IRS contracted with three private collection agencies to pursue taxpayers who owed outstanding tax debts. The three agencies initially awarded contracts were: CBE Group Inc., in Waterloo, Iowa, Linebarger Goggan Blair & Sampson LLP in Austin, Texas, and Pioneer Credit Recovery Inc., in Arcade, N.Y.
The program collected $98.2 million from delinquent cases that were considered low-yield and therefore not generally worked on by IRS employees, Accounting Today first reported.
Controversial from the start, the private collection program was discontinued in 2009 after complaints from the National Taxpayer Advocate and the National Treasury Employees Union, among others.
When it ended, the IRS recalled cases with a total assessed balance of $848.5 million from the contractors. The cases were not selected for collections because of collection policies and inventory assignment practices at the IRS.
But TIGTA estimated that potentially $30.7 million in collections would remain as outstanding liabilities. What's more, TIGTA estimated that the IRS might not collect up to $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.
Sen. Chuck Grassley, R-Iowa, of the Senate Finance Committee, an early supporter of the private collection program, said it should never have been dropped.
"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," he said in a statement. "It turns out that the IRS isn't doing a better job and in many cases, isn't doing the job at all. 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."
In response to the report, IRS officials partially agreed with the recommendations and said they have begun taking steps to address TIGTA‚s concerns. The IRS implemented a process to improve balance-due case prioritization and reviewed collection agency operations to identify potential best practices.
