IRS paid private debt collectors $20 million to recoup $6.7 million from low-income Americans

CREDIT: Joe Raedle/Getty Images

The Internal Revenue Service (IRS) spent millions of dollars over the past financial year to contract private debt collectors that targeted some of Americas poorest citizens for unpaid taxes and only recovered a small fraction of the funds they were supposed to return to the agency, a new report released on Wednesday found.

The report, by the independent Taxpayer Advocate Service, found that the debt collectors had cost the IRS $20 million but had only brought in $6.7 million — less than one percent of the total amount targeted for collection. In some cases, the private agencies received commissions for work they hadn’t actually carried out.

But perhaps more damning was the Americans that the debt collection firms targeted. Congress directed the beleaguered IRS to use private contractors in 2015 in an attempt to make some headway into the $450 billion of unpaid taxes owed to the federal government. The contractors, however, were expected to adhere to the IRS rule that is supposed to ensure that taxpayers “have adequate means to provide for basic expenses.” But as USA Today reports, of the 4,141 taxpayers assigned to the private contractors, 19 percent had a medium income below the federal poverty level and an additional 25 percent had income below 250 percent of the federal poverty level — a common indicator of low income.

The report concluded that the use of private debt collectors was one of the agency’s “most serious problems.”

“The program as implemented has not generated net revenues and results in the IRS improperly paying commissions to [private collection agencies] for work the did not perform,” the report read. “In the meantime, the most vulnerable taxpayers are making payments and entering into installment agreements they cannot afford, according to the IRS’s own measures.” The report also added that the IRS is aware that’s it’s paying debt collection agencies commissions for work already carried out by the IRS but has “no plans to change its procedures.”

Republicans have consistently advocated for using private companies to collect money owed to the IRS. As the New York Times reported, when Treasury Secretary Steve Mnuchin was asked about private debt collectors to recoup money owed to the government during his confirmation hearing he said “it seems like a very obvious thing to do.”

Democrats also bear responsibility for the shoddy state of the IRS’ funding — since 2010 its funding has shrunk by a fifth. A good example of the IRS’ funding woes can be seen with its telephone assistance program, which the Taxpayer Advocate Service described as a “dying relic.” The agency currently only expects to be able to answer half of the 95 million calls it receives per year.