Deja vu: IRS outsources collection

When the IRS's major union and its taxpayer advocate agree something is a bad idea, maybe it's time to take another look.

When the IRS’s major union and its taxpayer advocate agree something is a bad idea, maybe it’s time to take another look. That’s what the National Treasury Employees Union is asking Congress to do.

This idea of outsourcing the collection of past-due tax returns doesn’t feel right. First of all, isn’t that an inherently governmental function? Secondly, given the considerable powers Congress has granted to the IRS over the decades, the agency has the built-in leverage it needs. Third, federal employees have more discretion than a contractor would to maybe work out something with a person who is both delinquent and indigent or has a cash flow problem.

Plus, outsourced tax collection has already proven problematic. Twice in recent years the IRS abandoned the practice to bring it back in-house. One reason: Complaints from citizens about heavy-handed tactics by the private collection agencies, or PCAs. Now-retired NTEU president Colleen Kelly used to trot out numbers showing how low the return on investment was for using PCAs.

In effect, the IRS is sending in the repo man. Will some dude with garlic breath and a tattoo come banging on taxpayers’ doors?

IRS brass didn’t ask to outsource tax collection. Congress required it through a provision in last year’s highway funding bill. You know how that works. It’s something of a partisan issue, with Republicans mostly for the outsourcing, Democrats mostly against.

Turns out, IRS has company — lots of company. The Centers for Medicare and Medicaid Services already uses one of the companies the IRS has hired for the spring — Performant Corp. of Livermore, California. So does the Education Department for delinquent student loans. Performant’s website lists lots of capabilities in analytics and what it calls recovery of value.

Another contractor, CBE Group, has a spooky home page. It has no links to anything except these two: “Did you receive a call or letter from CBE Group (click here)” and “client login.” But the Waterloo, Iowa company’s CBE companies site houses the corporate information.  Like Performant, it does collection for both industry and government, and it works at the state and municipal level as well as federal. It does tax, health care bills and student loan recoveries.

The market for collection, debt recovery, receivables analytics and similar services is a competitive one.

If Congress doesn’t listen to the NTEU or to Taxpayer Advocate Nina Olson, and the IRS proceeds with private collection this spring, the agency will have a couple of challenges. It will need to measure its ROI. Collection companies get to keep a good chunk of what they collect. And will need to closely monitor the tactics the contractors use to make sure they don’t cross the line. It took the IRS 20 years to get over the “jackbooted thug” image. It won’t want to re-acquire it by proxy.

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