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IRS Gears Up for Third Try at Outsourced Tax Collection

This week, the IRS unveiled its plan to outsource federal tax debt collection to the private sector. It will be the third time in 20 years the IRS employs private debt collection companies to recover delinquent federal income taxes, which currently amount to $458 billion.

As the Project On Government Oversight (POGO) documented in our Bad Business report and on our blog, the IRS’s previous experiments with private debt collection, in 1996 and 2006, were resounding failures. Both times, program costs offset the amount of revenue collected, and taxpayers complained of abusive and underhanded tactics by the collection companies. Government tax collectors have one critical advantage over private collectors: discretion. IRS agents can exercise discretion and flexibility when working with delinquent taxpayers, while contractor collectors can only demand payment.

Nonetheless, Congress is still gung-ho on the idea. It passed a highway funding bill last year which included a provision requiring the IRS to turn over some unpaid tax accounts to private collectors.

The program is expected to go into effect in the spring of 2017, at the earliest. The IRS awarded contracts to four companies: CBE Group, ConServe (aka Continental Service Group), Performant Recovery, and Pioneer Credit Recovery.

The fact that two of the contractors—CBE and Pioneer—took part in the ill-fated 2006 program does not bode well for this latest attempt. Pioneer’s recent track record, in particular, does not inspire confidence. Earlier this year, Pioneer and another debt collection company paid $575,000 to settle alleged violations of the Electronic Fund Transfer Act and the Fair Debt Collection Practices Act. Last year, the Department of Education terminated contracts with Pioneer and four other companies after finding they made “materially inaccurate representations” to federal student loan borrowers. Pioneer reportedly drew the most borrower complaints to federal regulators. A 2012 Bloomberg exposé of the student loan collection industry singled out Pioneer for its coercive and deceptive collection practices.

Another cause for concern is that the tax collection program comes amid a recent surge in phone scams in which callers impersonate IRS agents and swindle victims into paying fictitious tax debts. The agency’s promise to “do everything it can” to mitigate this danger, including notifying taxpayers that their account is being transferred to a private collection agency, seems unconvincing.

Will the third time be the charm for private tax debt collection? POGO remains skeptical.