IRS Set To Introduce Private Tax Debt Collectors

by Leroy Baker, Tax-News.com, New York

25 November 2004

The US Internal Revenue Service is planning to introduce private collection agencies from January 2005 to help the agency recoup an estimated $120 billion in unpaid taxes.

The new measure, which is part of the American Jobs Creation Act, will see the around ten of the country’s largest debt collection agencies being hired, with each company taking up to 25% of the debt collected.

According to the latest available data, as of September 2001, an estimated 76,686 taxpayers had outstanding tax bills in excess of $100,000. The IRS has described most of these as average taxpayers rather than users of more sophisticated tax planning arrangements.

The scale of the task dwarfs any other project undertaken by the debt collection industry in America so far.

The private firms will be expected to pursue some 2.9 million cases per year, and for its first year target, the IRS has identified around $13 billion worth of debt that it considers will be the easiest to collect.

However, the move is not without its critics and is being opposed by consumer groups and many lawmakers, who fear that private companies will not be as familiar with tax law as IRS employees.

They warn that this may leave the system open to abuse, especially as many collectors and agents are likely to be on incentive schemes. Observers have also pointed to the failure of a pilot scheme launched in the late 1990s which eventually had to be scrapped.

According to Treasury Department projections, an additional $1.4 billion in tax revenues will be collected over ten years through the employment of private debt recovery agencies.

Recommended