Private Tax Debt Collection Heavily Impacts the Poor

Many citizens might be unaware that the IRS has begun to farm out the task of collecting back taxes to private tax-debt collectors. Furthermore, it seems that the taxpayers who are least able to make payments are the ones being targeted by the contracted tax-debt collector firms. Nina Olson, National Taxpayer Advocate, blogged about the effects of private tax collection as already-poor people who are living in economic hardship are being targeted to pay owed tax amounts, although they can’t afford to, sending them further into the poor house.

Private Debt-Collection Program

The controversial private debt-collector program is made up of four contractors whose share totals 25 percent of their collections. Olson reported that the reinstated 2017 program brought $6.7 million to the Treasury, but cost the agency $20 million. Of that 28 percent, 19 percent were living on incomes below the federal poverty level. The people being targeted with the recent IRS’s private tax collection were the same people who were declared exempt from debt repayment pressures in 1998 by Congress.

Debt Repayment Options

Although the IRS is legally allowed to dock debtors by 15 percent from government payments like Social Security, individuals living below the 250 percent of the poverty line had formerly been given a reprieve. Under the recent IRS changes, the program hits debt-ridden and low-income individuals the hardest as they only have two options: pay the total debt of what they owe, or pay the debt in up to seven years through agreed payment installments.

Allowable Living Expenses

The IRS designates ‘allowable living expenses’ as the levels that taxpayers need to meet their food, housing, utilities, health care and transportation needs. The IRS reported that of 9,751 individuals on the tax installment plan, 24 percent had incomes below federal poverty level and below allowable living expenses.

Of the group as a whole who had committed to payment installment agreements, 43 percent were living on incomes that were below their allowable living expenses. What that means is that the majority of people who, likely unable to pay the total debt amount at one time, opted for the payment installment plan, were unable to meet basic needs like food, housing, transportation, and health care.

House and Senate Outlook

While Olson has issued the IRS with a directive not to assign private debt collectors to individuals living below the federal poverty level, the IRS has until June to appeal. Many House and Senate members have suggested passing legislation that bans private tax collection. They feel that targeting low-income tax payers ultimately costs tax payers, as a whole, more money, not to mention the devastating effects it has on low-income individuals and families that are already struggling.

So who exactly should be charged with the task of collecting back taxes? According to the National Treasury Employees Union, the duty lies with trained IRS staff whose titles make it their responsibility, rather than private debt-collection agencies. The NTEU has never been a supporter of private tax collection and points out the fact that Congress is now attempting to use private collection agents for the third time. Tony Reardon, NTEU president, states that just like the first two attempts, this one, also, should be disbanded.

Low-income individuals who were contacted by the debt collectors were faced with two repayment options: paying the total sum at once, or entering into a payment-installment plan for up to seven years. The IRS’s own data revealed that lower-income individuals and families would be targeted and suffer the most.