Federal Manager's Daily Report

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The latest program to use private debt collection agencies to collect overdue taxes has yielded barely more in revenue than it has cost the IRS to establish and operate, an IG audit has said.

The program was ordered by a 2015 law on the expectation that private collection of tax debt that the IRS otherwise has essentially written off as uncollectable would yield a net $2.4 billion to the Treasury by 2025. However, as of May, the program’s total revenue in its first two years of operation was just $56.6 million, the report said. That was only about $1.3 million more than costs–and just 1 percent of the $4.1 billion in overdue accounts assigned to the four collection companies under contract, far below the debt collection industry-wide average of 9.9 percent.

The program is the third such attempt since the mid-90s. The first was canceled after a year after resulting in a net loss to the government of $17 million, and the second ran about three years and resulted in a net loss of nearly $103 million before it too was canceled.

The latest program includes some lessons learned from those experiences, the report said, but still “may be harmful to taxpayers.” It questions features including a complaint process that is dependent on the collectors reporting on themselves; the absence of assurance that only appropriate cases are sent to the collectors; a communication strategy that “conflicted and contradicted other IRS communications regarding tax scams”; and “authentication procedures that needlessly expose taxpayers to risk.”

IRS management largely disagreed with the report’s recommendations, however.