Federal Manager's Daily Report

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The inspector general’s office at the IRS again has raised issues with the agency’s program in which some tax debt is referred to private debt collectors, this time focusing on the accounting of costs related to the program.

Under the program—which previously was tried but abandoned in 1996-1997 and 2006-2009—the IRS assigns certain delinquent accounts that it otherwise would not make a priority to pursue to private collection agencies, which can keep up to 25 percent of the amount collected. Each version has been the subject of controversies, including over whether tax collection should be done only by IRS employees.


A report by the IG last year said that that too many employees of those companies have access to taxpayer banking information, increasing the risk of fraud, while one from the Congressional Research Service raised concerns that the program “imposes economic hardships on low-income taxpayers” because the collection agencies do not have the flexibility the IRS has to reach installment agreements with those who are in arrears.

Issues raised in prior reports resulted in passage of a 2019 law adding restrictions including a ban on assigning to the collectors debt owed by those below certain income levels or debt less than two years past due, and giving individuals seven years rather than five to pay in installments.

Issues raised in the new IG report include: that auditors identified “over $7.1 million in underreported costs (background investigations, contracts, labor, etc.) not included by the IRS as part of the PDC program for FYs 2016 through 2019”; that the IRS “incorrectly calculated the indirect cost for FY 2019, which resulted in overstating indirect costs” by more than $600,000; and the IRS “did not distinguish $30.1 million of $121.2 million in PDC program costs as startup costs or identify what costs were reimbursed by the program or paid with discretionary funds for FYs 2016 through 2020.”

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