The IRS will start using private companies to collect unpaid taxes from businesses next month.
“In June, the Internal Revenue Service will begin assigning a relatively small number of business accounts to Private Collection Agencies under the private debt collection program that began operation in 2017,” the agency said in an email.
The IRS plans to refer 200 business cases per week initially, according to two people familiar with the discussions who asked to remain anonymous. The private debt collection program allows companies to collect unpaid taxes on behalf of the government.
The agency will monitor how the companies handle the new referrals for several weeks to ensure all protocols are working properly before ramping up with more accounts, the sources said. The IRS took a similar approach when it first started referring individual accounts to the program.
The business cases will largely consist of unpaid employment taxes, said Jeff Trinca, vice president with Van Scoyoc Associates in Washington. These are the taxes employers withhold from their employees’ wages and are legally responsible for collecting and paying to the IRS.
The IRS said the accounts will also include cases involving corporations and excise taxes. The cases being assigned to private collectors have already been shelved by the agency because of a lack of resources or because they are otherwise inactive, the agency said.
The number of IRS revenue officers—the people who actually go out and collect tax from delinquent individuals and businesses—has fallen by 49% since 2010, a decline that has diminished the agency’s ability to get to all of the business tax cases in its queue.
Potential Revenue Boost
The new referrals could help increase the amount of revenue the private collectors bring in, because the dollar amounts associated with business tax debts are likely to be higher than those associated with individual debts.
Some—including National Taxpayer Advocate Nina Olson in a portion of her 2018 annual report to Congress—have criticized the program for falling short of initial revenue estimates provided by the Congressional Budget Office.
The IRS in April 2017 began collecting unpaid taxes from individuals through four private companies—CBE Group Inc., ConServe Inc., Performant Recovery Inc., and Pioneer Credit Recovery Inc.
Through Dec. 13, 2018, the program raised almost $53 million in revenue after accounting for costs, according to a quarterly update the IRS provided to Congress. However, the U.S. Government Accountability Office has warned that these figures, which are already below the CBO’s projections, paint an “incomplete” picture of the program’s true costs and revenue because they leave out certain information.
Olson has also lambasted the program, which is in its third iteration, for getting a large chunk of the revenue it does raise from individuals who are already facing financial hardship.
Olson didn’t respond to a request for comment.
Always the Plan
While the private debt collection program has only affected individual taxpayers up to this point, the 2015 law that created the program suggests a much broader scope.
The law mandates that the agency refer “all outstanding inactive tax receivables,” to the program.
It defines a tax receivable as “any outstanding assessment which the Internal Revenue Service includes in potentially collectible inventory,” which those who spoke to Bloomberg Tax said encompasses business tax debts.
It’s always been the agency’s plan to add business accounts to the program, but the IRS first needed to work out the logistics, Trinca said.
The initial 200-per-week business cases will be split evenly between the four private companies so that each receives 50 per week, the two people who asked to remain anonymous said.
The new cases, however, won’t increase the net volume of referrals the companies get, they said. The private collectors will continue to receive a total of 40,000 cases per week, but some of the individual cases will be replaced with business cases, they said.