Paving Way for Abuse and Scams, IRS Hires Private Debt Collectors

The Internal Revenue Service (IRS) is hiring private debt collectors to snatch up unpaid taxes, which consumer advocates warned Monday could come with a host of problems--from mistreatment to profit incentives to exploitation by scammers.

The four companies hired by the IRS are CBE, ConServe, Performant, and Pioneer Credit Recovery, NBC News reported. The move comes as people continue to demand President Donald Trump release his tax returns, which he has thus far refused to do.

NBC News writes:

These debt collectors won't simply call people out of the blue. Taxpayers with overdue tax bills will always receive several collection notices from the IRS through the mail before their accounts are turned over to the private collectors. The collection agencies will then send a letter of their own, informing the taxpayer that their account has been transferred to them. These companies must clearly identify themselves as working for the IRS in all communications.

[...] The IRS says it will not assign accounts to private collection agencies involving certain types of taxpayers, including: minors, those in combat zones, victims of tax-related identity theft, accounts that are subject to installment agreements, or classified as an innocent spouse case.

Still, the opportunity for abuse is ripe, consumer advocates said--particularly because, as tax law professor Adam Chodorow pointed out last week at Slate, the companies will get to keep 25 percent of the bills they collect.

Chi Chi Wu, a staff attorney with the National Consumer Law Center, told NBC News, "There are so many reasons why it's a bad idea that the IRS has been forced to use private debt collectors. They're the most complained about industry to the Federal Trade Commission [FTC] and the Consumer Financial Protection Bureau. All too often, consumers are being mistreated by debt collectors and now taxpayers are at risk of that in the collection of tax debt."

Wu said most of the people who will be targeted are likely to be below the poverty level, making them eligible for certain compromise programs or non-collectible status--but private debt collectors aren't apt to tell them that.

"The collectors don't have any incentive to do that because they get paid a commission for every dollar they bring in. Their main incentive is to collect money, come hell or high water," Wu said.

Suzanne Martindale, a staff attorney at Consumers Union, the policy and action division of Consumer Reports, added, "When you outsource the work of the government to private companies without simultaneously having a strong oversight program to make sure these firms are treating people fairly, you run into problems."

"The incentive there could be strong to be very aggressive. They're not working for you, they're working for the government and the government wants its money and that's a big part of the problem," Martindale said.

Keeping tax collection in house--and thus removing the profit motive--could encourage agents to "make more humane decisions," Chodorow added.

Another concern with the program is it could give scammers a new opportunity to swindle unsuspecting taxpayers.

"From a fraud standpoint, I'm very worried about this," Susan Grant, director of consumer protection at the Consumer Federation of America, told NBC News. "We've always warned not to believe anybody who calls you claiming to be from the IRS because the IRS doesn't call trying to collect delinquent taxes. And now, people will be calling."

Colleen Tressler, an FTC consumer education specialist, outlined several steps for taxpayers to follow to ensure they're not being scammed.

"Anyone who says they're collecting for the IRS and asks you to make a payment over the phone is a scammer," Tressler wrote.

Ultimately, Chodorow continued, "[a]dministering the tax system lies at the heart of the government's duties, and hiring private collectors is different from hiring private garbage collectors. Taxes are one of the few ways people interact directly with their government. How they are collected has the potential to shape our view of the government and our obligations as citizens."