In a report on private debt collection, the IRS has found that the program is not generating net revenues and is a burden to taxpayers in economic hardship.
The Internal Revenue Service has been directed by Congress to use private debt-collection firms to recover the $400 billion owed in tax revenue on an annual basis. The existing rules are written to ensure that only those with “adequate means… for basic expenses” are pursued, but it seems that many who live below the poverty line have been targeted by the outside debt collection firms.
According to research by Taxpayer Advocates, several thousand taxpayers who made payments through private collectors had incomes below the federal poverty level, with a median income of $6,386. An even larger number of cases had a median income of $23,096.
If the IRS had collected these debts directly, a financial analysis would have given the taxpayers a hardship status and found their debts as currently uncollectible. The IRS employees union claims it would do a better job than the private firms if Congress would fund sufficient personnel.
It is unclear by reports if the $13 million additional dollars paid to the collection companies for operating expenses would be enough to fund the matter, but it certainly seems like it should be.
According to Department of Treasury reports, the average IRS salary is $76,000. One of the most common positions is “contact representative,” with an average income in 2016 of $50,000. Apparently it pays well to work for the federal government.
Clerical and administrative support positions paying $50,000 do not require any specialized technical background and it is unclear if it even requires a college degree. Generally, these positions do not pay that well or require a degree in the private marketplace.
In 2014, the median household income was $53,719. Perhaps Congress would not be required to designate even more tax dollars for the collection of tax dollars if the average secretary at the IRS did not make more than the average American household.
Of the $2.5 trillion yearly federal taxes, including corporate and employment taxes, only about $52 billion is collected through enforcement and late payment activity. Targeting the low earners will never recover enough of the $400 billion every year to recoup the costs.
Last year the IRS was forced to apologize for targeting conservative organizations, and denying their applications for tax-exempt status. This is not the first time the Internal Revenue Service has been scrutinized for their political activities and the targeting of specific groups by the powerful agency.
Only about $7 million, less than 1% of the total debt assigned for collection, had been recovered by the private companies at the time of the review. The costs totaled $20 million, covering commissions and program expenses. The discrepancy between program costs and revenue generated is ridiculous. No company that operates at such a large deficit in the marketplace could survive such low return, particularly if it did not have this kind of funding by the government.
Lower-income households owe very little federal income or payroll tax, with the standard deductions and refundable credits exceeding any income tax that may be owed. Payroll taxes on low-income households is around 6.1 percent.
Generally, lower-income households are not going to be a very large percentage of the $400 billion a year that is owed to the IRS. Why a debt collection firm would target the accounts that would generate the lowest return on their dollars spent remains to be answered. Perhaps an audit of these companies and an accounting of the $13 million dollar gap that was spent would shed light on these discrepancies.
The IRS has a history of targeting low-income or the ‘working poor.’ According to the Transactional Records Access Clearinghouse, the IRS has in the past audited more taxpayers with incomes under $25,000 than those with incomes over $100,000. Some believe that the agency has trouble auditing the more complicated higher-income returns.
So, the lower-income returns are easier to audit and target for debt collection. There can be little doubt that those who earn less and have less for defense and processing an audit are more likely to fear an IRS audit. The unnecessarily wasteful process of outsourcing debt collection by the federal agency should be reviewed and reformed to inhibit the harassment of the citizens that live below the poverty line.