Congress Reins In Private Tax Collectors

The infamous TurboTax bill -- which no longer benefits the tax prep industry -- has another important provision.

The Internal Revenue Service will stop sending private debt collectors after poor people with old tax debts thanks to a bill Congress passed this week.

The provision is part of a broader IRS reform that previously benefited tax preparation companies that trick people into paying for online tax filing when it’s supposed to be free.

Lawmakers scrapped the tax prep provision after a series of ProPublica stories exposed the industry’s dirty tricks. The new version of the bill passed both the House and Senate unanimously this week and is on its way to President Donald Trump’s desk. 

Tax collection is one of the most basic functions of government, but since the 1990s lawmakers have dabbled in outsourcing this fundamental IRS task to private companies that are notorious for abusing consumers

The Taxpayer First Act says that the IRS can’t refer old tax debts to private tax collectors if the taxpayer’s income is within 200 percent of the federal poverty line, meaning a four-person household with an annual income of less than $50,000 should be protected.

Nearly half of the taxpayers who have agreed to pay after being contacted by private collectors had incomes beneath 250 percent of the poverty line, according to the National Taxpayer Advocate, an IRS in-agency watchdog. Democrats originally wanted to set the threshold at that level but compromised at 200 percent. 

The legislation is not a total victory for consumer advocates since the private debt collection program still exists. Mandi Matlock, a tax attorney who is of counsel to the National Consumer Law Center, said Congress should scrap it entirely. 

“This whole program is a rank waste of taxpayer money,” Matlock said. 

Past iterations of the private tax collection initiative cost the government more than the companies collected, and the current version, launched in 2017, is bringing in more revenue but has still proven to be less effective than the IRS itself at recovering unpaid taxes, the Taxpayer Advocate has said

Republicans and Democrats alike hailed the bill for its provisions improving IRS customer service, while Democrats also emphasized the debt collector provision. Sen. Ron Wyden (D-Ore.), who co-sponsored the bill, said it would “shield low-income taxpayers from abusive private debt collectors.”

Debt collectors aren’t crying much about their treatment by the government during the Trump era, however, as a recent administration proposal would allow them to send debtors unlimited texts and emails.