Don't Mess With Taxes

Despite critics (including me), private debt collectors have been out there trying to bring in unpaid IRS bills for about six weeks.

So far, it seems to be going smoothly. There's been no big outcry about abusive collection practices connected to tax bills. And apparently the private collectors are having some success.

At a Senate hearing last month (more on this later), IRS Commissioner Mark Everson told lawmakers that during the first three weeks of the private collection effort, the program had brought in around $500,000 from 250 different taxpayers.

"These are cases the IRS would not be working," Everson told lawmakers, in part because of inadequate funding to staff such efforts internally. As for problems with a similar, earlier effort, Everson said that 1996 program (blogged here) was not well run and that the current effort is working to avoid similar missteps this time.

The National Treasury Employees Union, which was not part of the hearing, later countered that these private debt collectors also have earned nearly $120,000 from that recovered money, based on a commission of up to 24 percent. Everson acknowledged the additional cost during his testimony, but said even if the agency got more money from Congress, it might be better spent on areas other than collection.

Overall, Everson said he was "cautiously optimistic that [private collection] will bring in more money."

Congressional collection opposition: The House has included language in its IRS funding bill to prevent any future private collection efforts. The ability of Representatives to convince Senators to go along with that restriction will depend in part on the bottom line of the program.

Right now, despite the costs, the pro-private-collection agencies appear to have the upper hand.

Of course, if individuals do encounter abusive collectors, those complaints from voters would sway members of Congress to the IRS-only collection position.

To help prevent that, the IRS has instituted several measures.

First, the IRS has announced procedures it says will safeguard taxpayer rights and privacy. They include collector background checks, pre-collection training by the IRS and limits on what the private collectors can do. Get full details at this IRS page.

The agency also has produced a brochure, "What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency."

New scam potential: Since con artists are likely to use the private collection effort as a hook to cheat unsuspecting taxpayers, the IRS also is warning individuals of the possiblity of collection scams.

The first thing to remember is that very few people will find their tax accounts in the hands of private collectors. Last year, the IRS received 135 million returns. Only 12,000 delinquent accounts have been turned over to private collectors.

So be skeptical if you get a call or e-mail about the collection process. If your account is one of the few marked for private collection, you should have received an official letter from the IRS before being contacted by a collector.

And definitely do not make any checks out to anyone other than the U.S. Treasury. If a purported collector wants you to make it payable to him, her or a private company, it's a scam.

You can find full collection scam avoidance tips in this fact sheet.

Avoid the collector altogether: Finally, you can avoid dealing with tax collectors, either on the IRS staff or private agencies, by paying up.

The IRS is making it easier for taxpayers to do just that by allowing them to apply online for payment agreements.

This new Web-based Online Payment Agreement application lets eligible taxpayers self-qualify, apply for and receive immediate notification of approval. The agency decided to go electronic here, said Everson in announcing the program, because "we think some people may feel more comfortable working out their payments on line rather than talking to a person."

If you're interested, you'll find detail on OPA here.

Hearing happenings: Pardon my wonkiness, but I just have to comment on the Senate hearing mentioned at the beginning of this post.

Everson reported on tax collection efforts before the -- take a deep breath -- U.S. Senate Committee on Homeland Security and Governmental Affairs, Subcommittee on Federal Financial Management, Government Information, and International Security.

The official hearing topic was -- another big breath -- "Deconstructing the Tax Code: Uncollected Taxes and Issues of Transparency."

In his opening statement, hearing chair Tom Coburn, (Rep.-Oklahoma) took the opportunity to argue that the tax gap is produced in large part by the complexity of our tax code, which needs to be simplified. Good luck with that, Senator.

As I was watching the hearing (you can, too, at this link; you know you want to; it'll only take two hours out of your life), the first thing that came to my mind was why is the Homeland Security Committee involved in tax issues? Isn't that why we have the Senate Finance and House Ways and Means Committees?

Apparently those questions popped into some Capitol Hill heads, too.

During his introductory remarks, Sen. Tom Carper (Dem.-Delaware) noted that "some of our friends on other committees have written to us to remind us of their jurisdiction on legislative tax matters …," prompting Coburn to interrupt with this explanation:

"Federal financial management is unlimited when it comes to either receiving dollars or spending dollars and we're not going to limit our inquiry into waste, fraud, abuse or inefficiency."

Spoken like a veteran campaigner.

And now that everyone in the halls of Congress has staked out their apparently overlapping fiefdoms, I'm sure that collecting taxes and simplifying the tax code is going to be a piece of cake.