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IRS private collections program less successful than expected

| Oct 1, 2018 | back taxes or tax debt

A tax collection program that relies on private companies to chase down debts brought in just more than it cost to set up and operate, according to an audit by the Office of the Inspector General. The Internal Revenue Service set up the program based on legislation from 2015 to pursue overdue taxes in Maryland and across the U.S. The expectation of lawmakers was that these companies would net $2.4 billion for the U.S. Treasury by 2025.

In the first two years of the program, though, it has generated only $56.6 million in revenue, according to the IG report. That represents a $1.3 million margin over costs. It is also just more than 1 percent of the $4.1 billion in late accounts that were assigned to private collections companies. There are four collections companies working with the IRS in the program.

This is the third time private collections companies have been employed to pursue overdue taxes since the mid-1990s. The first similar effort was canceled following the first year; it resulted in the government taking a net loss of $17 million. The second time private collections were contracted lasted roughly three years and cost the government $103 million. This most recent program incorporates lessons taught by those earlier iterations, but the program may still be harmful to taxpayers, according to the IG report.

People with tax debts may want to consult a lawyer. In cases where the IRS is pursuing collections, a lawyer with experience in tax law might be able to communicate with government officials or negotiate payment terms that work for the client. In some cases penalties for late payment may be forgiven or a payment plan may be established.