IRS Fires Private Debt Collectors, Plans To Pursue Deadbeats On Its Own

The IRS has ended a controversial program that allowed private debt collectors to pursue individual debts owed to the government. The private debt collectors, described as “bounty hunters who collect taxes from vulnerable people for profit,” were allowed to keep 25% of any collected debts for themselves. Before we celebrate, let’s all take a moment to join Senator Charles Grassley of Iowa in thinking about those poor private debt collectors who no longer have jobs harassing and abusing people…

Sen. Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, blasted the decision to end the program, saying the IRS was caving in to “union-driven political pressure.”

“The administration has decided that after spending nearly a trillion dollars in the stimulus bill to keep people working across the country, they are going to cut a program that provides jobs to hundreds of people during the middle of a recession, including 60 in Iowa,” Grassley said in a statement.

[..]

Under the privatized program, the IRS turns over delinquency cases, often in the $5,000 to $10,000 range, that the IRS lacks the manpower to pursue.

The program costs about $7.6 million a year to administer, and private contractors are allowed to keep about a quarter of the taxes they collect.

The contracts the private agencies were working under expire Friday. The IRS has been reviewing the program for the past month to determine whether to extend the agreements.

Private debt collectors are notoriously ruthless, and cutting them loose is a big win for taxpayers. The federal government plans to replace the private debt collectors with 1,000 new federal tax collectors.

IRS to drop private debt collection program [AP]
PREVIOUSLY: I.R.S. Employ Of Private Debt Collectors Criticized
(Photo: olarte.ollie)

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  1. ViperBorg says:

    About time.

  2. AgentTuttle says:

    I’ve learned that if you treat collections people SUPER nice, then they are nice as well. I guess it also helps you keep cool if the debt wasn’t yours either which was my case.

  3. edwardso says:

    I don’t understand Grassleys logic, cutting the jobs of hundreds and employing another 1000 creates jobs. Federal employees aren’t just in Washington, they’re all over the country

    • bohemian says:

      @edwardso: But then people are paid a living wage with benefits via federal jobs. So typical republican logic. Underpaid private sector with no benefits is better than more jobs in the federal sector with decent pay and bennies.

      • tsume says:

        @bohemian: Any job related to the IRS is a position in which the taxpayers are paying for… so, it does make a little sense that the Senator is kinda irked, but not for the reason he said. He should be mad because if “hundreds” of jobs are being lost, then they shouldn’t be creating more than “hundreds” of new jobs- why does it take the government 1000 people to do the job that say 300 people did in the private sector?

        I really have a hard time respecting anyone in a government position as they are typically overpaid and underworked.

        • OwenKlient says:

          @tsume: That’s a pretty outrageous statement. Government workers are rarely “overpaid,” and in my experience, never underworked. I have worked in both the private and government sectors and I’ve never noticed any difference in the intelligence or motivation of either, even if the focus and nature of their work is different. I have never understood the vitriol aimed at government workers. It makes no sense. I sometimes think most people bad-mouth government workers more out of political motivation than anything.

  4. jmujeff says:

    My wife can terminal cancer and had some pre-marital debt that collectors have been calling on. This conversation actually happened with a debt collector:

    Collector: “This is [so-and-so] with [debt collection agency]. You realize that [account name] is in default for [amount] right? What do you plan to do about that?”

    Me: “My wife has terminal cancer and due to medical bills is unable to pay this debt. I am sorry but this will become an insolvable account when she passes away”

    Collector: “You know that you’re responsible for this right?” (note: not true) “Why doesn’t she just go to the doctor and get surgery or treatment or something?”

    I’ve got a lot more fun examples. These agencies are mostly scumbags. I’ve encountered a few that were reasonable after I faxed them a doctor’s note.

    • johnfrombrooklyn says:

      While I certainly sympathize with your and your wife’s condition, unfortunately a debt collector hears stories all the time that are not true. I can’t condone their response for a second, but you’d be amazed how many people make up stuff hoping that a debt collector will just go away. @jmujeff:

    • ViperBorg says:

      @jmujeff: “Sir, what part of TERMINAL cancer eludes you?”

  5. GTB says:

    These guys were actually pretty effective, but non-union, so they had to go. I will be shocked if the IRS people they are replaced with bring in the same amount of money.

    • Mr. Gunn says:

      GTB: I’m sure they won’t, but since a good chunk of that was money that wasn’t owed in the first place, and because they won’t be paying the 25% to the bottom-feeders, I think it’ll come out about even.

  6. humphrmi says:

    I see that the reply function still isn’t working, so at least I know it wasn’t because I was drunk last night :)

    @edwardso: Grassleys logic is that he’s losing jobs in his state, which probably won’t be replaced in his state. Poor guy.

    But hey, on the upside, at least someone is backing the collection sharks – they have no friends! Grassley probably don’t laugh at lawyer jokes either! ;-)

  7. DoodlestheGreat says:

    *Thinks about poor debt collectors for a moment*

    *Dances like a monkey*

    You were saying?

  8. Christopher Greer says:

    @jmujeff
    Wow. Just…wow. That’s one of the more impressively horrible things I’ve heard of these bastards saying.

  9. edwardso says:

    @humphrmi: He also hates the smell of rain, walking on the beach and puppies

  10. bohemian says:

    About time! I was never on the receiving end of one of these thugs for hire from the IRS but the dept. of ED has been doing this for years. I was in default on my loans years ago and got to experience these 3rd party collectors. One agency was using prison inmates to call me and harass me about my loans. I have some concerns about prison inmates having all my personal information. Then a firm in GA started calling me. That one actually threatened me twice so I turned them into the dept of ED. It was a total nightmare.

    The govt needs to put a blanket ban on all federal agencies from using 3rd party collectors for anything.

    • johnfrombrooklyn says:

      @bohemian: How do you know it was prison inmates?

      • speedwell (propagandist and secular snarkist) says:

        @johnfrombrooklyn: I’ve heard of student loan collection agencies using prison inmates. The inmates probably told the debtor that’s what they were, in order to boost their harassment and intimidation factor. At that point, even if they weren’t prison inmates, they probably should have been.

    • Trai_Dep says:

      @bohemian: I didn’t realize that Erectile Dysfunction had its own Federal department.
      Quick: we need a Shwang Czar!

  11. esd2020 says:

    And the thing people somehow overlook in this debate is that private collectors do a *worse job collecting*. They’re not making money for the gov’t, they’re LOSING money by collecting debts less efficiently than the IRS could do itself if it would just hire more people.

    The only reason it went on like this for so long is because nobody wanted to risk looking like they were “expanding the government”

    • johnfrombrooklyn says:

      @esd2020: Cite your sources please that they do a “worse job”. Somehow I doubt it.

    • GTB says:

      @esd2020: Yeah, actually I’m not sure if they did a *better* job than the irs collectors they replaced originally, but I do know that they were indeed making money for the government. Even paying for the service, uncle sam ended up with a “profit” of tax money. It wasn’t a huge profit, but like every other late stage collection process, you rarely end up with as much as you were supposed to get originally.

      The contract wasn’t ended because the collectors were failing, the contract was ended because the union didn’t like the private industry taking jobs away from its members. Which is entirely what the union is there for.

    • Hobart007 says:

      @esd2020: To be honest the idea that private debt collectors do a worse job is based on the assumption that the IRS will overcome the general level of inefficiency which exists in government work to the point of being able to function like a normal group of private collectors. I work for a private organization as a loss mitigator in a debt collection department and we have, in the past, employed third party collectors for accounts not seriously delinquent. They generally did poorly until trained properly by our organization in what we wanted and until management there was held accountable for numbers achieved. If the IRS does a poor enough job managing their vendors that outsourcing does not pay then I don’t see things getting much better by bringing the overhead in-house and managing it just as poorly.

  12. kwsventures says:

    The IRS just needs to garnish wages (if the deadbeat is unemployed just wait in the weeds for them to get a job sometime). You can run, but you can’t hide from the IRS.

  13. sarahq says:

    It’s been widely reported that it’s less expensive for the IRS to collect taxes themselves, and yet people who claim to be fiscally conservative are still angry at this change?

    Nevermind that private debt collectors are hardly in the business of providing decent customer service. They can’t offer to reduce fees or set up a payment plan they way an IRS employee can.

    For those above seeking citations related to the additional expense of using private collection agencies, see the National Taxpayer Advocate’s 2006 Report to Congress (in particular, see the executive summary).

    Note also that “the contract employees who have been doing the work will be invited to apply for the [new] jobs” (see Looking To Save, IRS Stops Outsourcing Collections).

    • GTB says:

      @sarahq:

      “…Note also that “the contract employees who have been doing the work will be invited to apply for the [new] jobs” (see Looking To Save, IRS Stops Outsourcing Collections)…”

      This is a line the federal government rolls out a lot, and it is technically true. However, almost none of the people effected by this layoff will receive jobs with the government because current IRS employees will receive preference. It’s worked into the hiring system that way, and it’s fairly transparent. Additionally, the jobs opening up will likely be permanent positions, which are in high demand. The process works like this:

      The job is first posted on the federal intranet: only people who currently work for the IRS are eligible to apply.

      After the positions have been filled by any current employee who wants one (and there will be a lot because perm jobs are very very hard to come by) it’s posted to the internet, usually usajobs.gov, at which point anyone on the “outside” can apply for whatever is left, if indeed there is anything left.

      At that point, the people who used to do the job have the *same exact chance* of getting the job as people who just apply off the street. Their previous experience *might* be taken into account, but because of how the federal hiring process works, it likely won’t be. The only things that really matter at this stage are veteran’s preference (veterans get to be first in line) Everyone else, regardless of experience, education, etc, basically starts on the same footing.

      The public information on the hiring process doesn’t read like that, but in practice, that is what actually happens. After the veterans, it’s mostly first come/first serve, and also how well you score on their online skill questionnaire.

      So yes, the people who got “displaced” will certainly have the *opportunity* to apply for the new job, but I would be surprised if more than 5-10% of them actually got in. Likely it will be much lower than that.

    • Trai_Dep says:

      @sarahq: Great post, and appreciate the cites.
      Not that providing facts n’ stuff will quiet the naysayers or anything. But for those with an open mind, yours is a great comment.

  14. wardawg says:

    @johnfrombrooklyn: He sent them a picture of the money, they sent him a picture of a shank.

  15. N.RobertMoses says:

    So how much will the salary, benefits, and retirement packages of the new non essential government employees cost?

    • GTB says:

      @N.RobertMoses:

      My guess, and this is totally a guess based on previous limited experience, is that it will end up being less than what the IRS pays the contract company.

      • N.RobertMoses says:

        @GTB: Maybe in the short run, but remember, we are going to be paying for these non essential government employees until they all become ex-parrots because of their pensions. That is one of the reasons more government is a bad thing.

  16. Bog says:

    I had a client where the collections agency purchased the debt and then tried to go after the person. So they start threatening the individual. But with simple due diligence it was dismissed by the judge before it even got to a trial.

    1) Oh you purchased the debt?! Gee that was nice of you, thanks very much, that means the debt was paid in full… Anyone who purchases a debt dose so a the full risk of loosing their investment. There are rulings that do state once a debt is paid in full the debtor has not obligation to the debtee, that even includes if a third party purchases the debt (epically for pennies on the dollar.)

    2)Oh, I see that we don’t have a contract with you, sorry.

    2b) Oh, I see that you can’t produce a contract with the original claimant.

    3)So, why can’t you provide proof and validation of the debt? No validation, no debt. See-Ya!

    4) Gee, It looks like you don’t have a license to collect debts in the state of _______. Buh-Bye!

    5) Wow, It looks like you made too many aggressive contacts were made with our client and others after you were given a contact limitations order. Pursuant to the Collections act one told so you can only converse by registered postal mail. Guess you will be paying a civil fine to my client now.

    • speedwell (propagandist and secular snarkist) says:

      @Bog: Bog, you’re a lawyer, you say? I would appreciate a link to your case, if one is available; I’d really like to see the judge’s ruling in writing. I’m asking seriously. Please.

      Incidentally, that post is a stellar example of why you have a secretary or assistant do your documentation. Don’t have one? Get one.

  17. Corporate-Shill says:

    “hundreds” of people in the private sector will be replaced by “1000” new Federal employees.

    Just goes to prove how wasteful Big Government can be.

  18. B says:

    Besides the predatory tendencies of the private debt collectors, the difference here is they were paid on commission, whereas the government employees most likely will not be. And the Senator isn’t counting the commissions in the $7.6 million the program costs.

  19. coren says:

    Weren’t some of these agencies also charging you to go to a debt workshop they ran, or was that at a state level?

  20. du2vye says:

    Junk debt collections has soared by 300%. It’s not an old established trade. It was created by the lack of recourse consumers had when a collector abused the Fair Debt Collections Act. I got hit with one, re-aged debt (not IRS) and discovered there’s not a lot anyone can do. A person can sue the credit reporting agency and they sue the collector. Yeah, right. That never happens. There are millions of complaints. At least the government’s not getting involved with these creeps. All they need was permission to look at your credit record and they scour it for everything they can – unrelated to the debt they are charged with. It’s a racket.

    Anytime an extra layer of administration, management, personal is added to do a function, it will cost more. The IRS already has collection powers that no one else has.

    When I owed the IRS, I was able to talk to someone who could make decisions about the debt. It took awhile and I had to go through several agents before I got to that level. Those were my rights. I can imagine that would be nearly impossible to do with a private collector.

    That first collector I mentioned got a hold of my report because of an error. It took six months and the attorney general to even find out who it was. What a joke.

  21. Anonymous says:

    Having trouble replying directly to comment, maybe because I am a guest user? Anyway, someone said that we will be paying for these 1000 govt employees until they die I guess because of govt retirement programs ie pensions.
    It is not bad to let people retire, but it is bad to take taxpayer money to fund govt pensions.

  22. Anonymous says:

    What’s all the fuss over the IRS and debt collections. All that would be needed is for the Obamessiah to nominate everyone for a position in his cabinet and the stampede to pay past taxes would stuff our treasury full.

  23. helenmaynard says:

    Why not use the best of both worlds? How about closing down the abusive private companies, hire IRS agents for the collections… and … give the government employees bonuses based upon how much they collect?

    Why are we against giving government employees performance-based bonuses? I say let’s give it a try.

    • JustThatGuy3 says:

      @helenmaynard:

      Public employee unions would never let it happen – they’re generally dead-set against anything resembling pay for performance.

  24. Anonymous says:

    While the Govt. is bailing everyone out why not collect some fast cash? The Republican from Texas introducing the bill this year to waive penalties has the right idea, but I am afraid that it was done in jest and not a serious well thought out proposal that would have an opportunity to pass.

    Why does the IRS have a program called “Offer in Compromise”? The IRS does not compromise on the amount owed that is the root of the problem, their stiff & arrogant approach has ultimately created this unsolvable collection problem. The tax gap is not necessarily all created by cheating, but by the inability to pay when due and then the penalty of default is worse than a PayDay Loan Shark Operation. You can’t squeeze blood from a turnip, wouldn’t it be great if they could pick up 150 billion (50% on the dollar).? We could afford to start another war with Iran and rebuild all the interstates in the entire country like Obama desires.

    The real solution to the “Tax Gap” is a national amnesty for six months to a year eliminating all interest & penalties and zeroing in on the principal delinquent balance of billions. Guarantee the policy not to be offered or proposed again for example twenty years. If someone takes the offer they would never again be eligible for a similar program in a lifetime or perhaps subject to probation withholding on future returns. Agents would not have to deal with mounds of “offer of compromise” for the duration which are just being passed back and forth without any headway. The States (e.g. Missouri) have had tremendous success with this type of program flooding their coffers quickly.

    What about offering delinquent accounts a 25% discount for a short window of opportunity versus the private bill collector commission fee? The cost of the certified letters making the offer is minimal and the success of returned funds would be at least equal or many times greater compared to anything a powerless private bill collector would be able to achieve with phone calls & form notices. How much money has been spent behind the scenes lobbying politicians to pursue this absurd program?

    The first 40,000 targets owing less than $25,000 already had tax liens filed by the IRS and any assets (W2, personal property, monetary accounts) of record seized. Repetitive calls from a phone bank and demanding letters is the least effective way to deal with the issue.

    From what I understand there is a 10 year statute of limitation to collect, how many people are walking away every year, even a savvy bill collector will take 10% on the dollar in the last year of legal collection.

  25. Nick Bornemann says:

    I liked Grassley better when he was taking down Mega-Churches.

  26. Bs Baldwin says:

    Well some Iowans are going to lose their jobs, but those positions are going to be filled. This policy was wrong to begin with, letting outside contractors performing a job without any oversight by the IRS.

  27. MooseOfReason says:

    Can we do the opposite with the USPS?

    Or at least let a company compete with them on first-class mail? One that won’t post billions of dollars in losses yet stay in business like the USPS.

  28. Subsound says:

    I like this simply because the private debt collectors are scumbags to the extreme. Besides reading second hand all the crap they try to pull on MSN (threatening to put you in jail, trying to convince you to pay things that you are not obligated, calling all hours, misrepresenting themselves), I’ve always had bad experiences with them…and yet I have never had a debt go into collections myself.

    My last position I would get debt collectors calling me to collect on a former employees debt, even though I was hired three years after he left! Even after explaining this to them they tried to say “Well, it would be nice of you to pay”…I never even met the bastard! I handed it over to our legal department and it stopped very quickly.

    Same thing with a college job, the guy trained me and graduated…leaving for god knows where. I started getting collections calls, and after a number of “He doesn’t work here anymore, he graduated and left, we don’t have any forwarding information” they started trying to get me to pay his motorcycle off because then “I would be a good friend”! I clearly stated I was a broke ass college student who could barely pay for beer, and he was not my friend.