Private IRS Collectors Waste Taxpayer Money While Squeezing Low-Income Families

Program costs three times the amount collected from financially-strapped taxpayers

Boston – New data from the National Taxpayer Advocate for the Internal Revenue Service (IRS) shows that a congressionally-mandated program requiring the IRS to use private debt collectors, like past efforts, targets financially vulnerable families while costing taxpayers three times more than it recovers.

IRS data show that 44% of taxpayers who made payments to the IRS after being subjected to private debt collectors had incomes below 250% of the poverty level ($24,200 for a family of four), and 28% made less than $20,000 per year. Meanwhile, the IRS private debt collection program cost $20 million to operate while only generating $6.7 million in revenue.

“The IRS private debt collector program is the epitome of waste and abuse in government programs,” stated Chi Chi Wu, a staff attorney at National Consumer Law Center. “Forcing the IRS to use private debt collectors to put the squeeze on vulnerable low-income families simply lines the pockets of these private collectors while jeopardizing the economic well-being of families.”

In her annual report to Congress, the National Taxpayer Advocate conducted an analysis of 4,141 taxpayers who made payments to IRS after being subjected to private debt collection. The analysis revealed that:

  • 19% of these taxpayers had incomes below the federal poverty level, with a median income of $6,386;
  • 25% had incomes above the federal poverty level but below 250% of that threshold, with a median income of $23,096; and
  • 28% had annual income of less than $20,000.

The data also show that the private collectors – including one previously terminated from federal student loan collections for providing inaccurate information to borrowers – are pressuring families into making payments they cannot afford while meeting basic living expenses.

The National Taxpayer Advocate reported that 45% of taxpayers who agreed to payment plans with private collectors had incomes that were less than their “allowable living expenses.” This is a measure used by the IRS to estimate the amount of income needed to pay for essential living expenses, such as housing, utilities, transportation, food, and out-of-pocket healthcare costs. IRS payment plans are usually calculated to leave the taxpayer enough funds to pay for these living expenses; if taxpayers’ income is below this amount, collection attempts are suspended. But it appears that private debt collectors may have squeezed taxpayers into agreeing to payment plans despite being too poor to pay. This means that financially strapped families could be left with insufficient funds to pay for life necessities, putting their health, shelter, or well-being at risk.

The IRS has tried using private collectors twice before and both attempts were big money-losers. The first attempt in the mid-1990s was scrapped a year after the program was launched, after losing $17 million. The second experiment began in 2006 and ended three years later after a net loss of almost $4.5 million to the government. This third attempt has resulted in a $13.3 million loss, and private collectors have only managed to collect less than 1% of the $920 million in tax debts assigned to them.

For this go-around, the IRS was forced by a 2015 law to place certain tax debts with private collectors. “Congress should repeal this wasteful use of taxpayer money and instead make a more responsible investment in funding for the IRS to do its job properly,” Wu urged.

Wu also noted that one of the four private collectors hired by the IRS includes Pioneer Credit Recovery (owned by Navient), whose contract to collect student loans was terminated in 2015 by the U.S. Department of Education because it provided inaccurate information to borrowers. Unfortunately, the Department, under Secretary DeVos, recently reversed the firing of Pioneer, which is also now seeking a new contract to collect federal student loan debts. Pioneer was also sued by the Consumer Financial Protection Bureau for providing bad information, processing payments incorrectly, and illegally cheating struggling borrowers out of their rights to lower repayments.

FOR IMMEDIATE RELEASE: JANUARY 11, 2018

National Consumer Law Center contacts: Chi Chi Wu ([email protected]) or Jan Kruse ([email protected]); (617) 542-8010

No Author Biography has been linked to this Article.

Related Articles

January 31, 2021
By Nathan E. Curtis and Peter Francis Geraci, Geraci Law L.L.C. Debtors who are not current on mortgage or vehicle payments may file for Chapter 13 relief and propose to cure arrears, and force creditors to accept future payments. Mortgage creditors must give multiple notices before taking real estate away from a debtor, but vehicle creditors are allowed to repossess...
Members
October 3, 2021
By Michael J. McCormick, Esq., McCalla Raymer Leibert Pierce, LLC (Roswell, GA) Escrow 101 - Part 1 Escrow 101 - Part 2 Escrow 101 - Part 3 Escrow 102 - Part 1
Members
February 28, 2021
By Joseph A. Bledsoe, III (“Jody”), Chapter 13 Standing Trustee for the Eastern District of North Carolina (New Bern) In the aftermath of City of Chicago v. Fulton, discussions abound as to whether it is sufficient for a chapter 13 debtor to seek return of his vehicle, repossessed prepetition, via a motion for turnover. Most seem to believe a motion...
Members
Ashley Curry Headshot
December 12, 2021
In a recent case out of South Carolina, rather than a debtor seeking sanctions against a creditor, it was the creditor’s counsel who sought sanctions against counsel for a Chapter 13 debtor in an adversary proceeding. Ruling on a Motion for Sanctions in James Defoe v. Winyah Surgical Specialists, P.A. doing business as Winyah Surgical Specialists (In re Defoe), 632...
Members
April 26, 2020
(Items in italics have been added by Academy staff) . . . will be held virtually by ZOOM . . . Please visit our website at ch13pitt.com (this site has very detailed directions) for all of the details and instructions. A computer is not a necessity since ZOOM also allows participation by telephone (iphone, Android). Please visit the website before...
November 15, 2020
By David Cox,1 Cox Law Group, PLLC (Lynchburg, VA) Click here for Part 1 II. Dealing With Balloon, Short Term and Related Mortgage Secured Claims Under §§ 1322(c)(2) And 1325(a)(5). § 1322(c)(2) provides that: “Notwithstanding subsection (b)(2) and applicable nonbankruptcy law . . . It looks like you are not signed in or registered! This content is only available to...
Members
Copy of Hildebrand-2016
A month-to-month residential lease can be assumed and defaults cured in a Chapter 13 plan. (Rucker) In re Mattoon, 2022 WL 2080184 (Bankr. E.D. Tenn. June 9, 2022) Case Summary Sarah Mattoon executed a lease with Open Doors in September of 2019. Several of Ms. Mattoon’s family members lived with her in the rented apartment including her “companion” and her...
Members
Academy Circle Logo Final
In these times of fewer case filings, it may be helpful to look at ways that debtor attorneys may build and strengthen their chapter 13 bankruptcy practice. The following are some recommendations and ideas from the Emeritus Trustee Committee:
January 27, 2019
By Kathryne M. Shaw1 Boleman Law Firm, P.C. (Virginia Beach, VA) Click here for Part 1 In Part I of this article, we reviewed In re Holman, in which the debtors violated their confirmation order and exhibited bad faith . . . It looks like you are not signed in or registered! This content is only available to members. Join...
Members
Copy of Hildebrand-2016
December 18, 2022
Where a debtor fails to disclose to the Court or the trustee a forbearance on his mortgage that he was to pay directly, the Court would grant the trustee’s motion to modify to recapture as much as possible of the surplus funds the forbearance generated. (Kenney) In re Ilyev, 2022 WL 2965029 (Bankr. E.D. Va. July 26, 2022) Case Summary...
Members

Looking to Become a Member?

ConsiderChapter13.org offers a forum to advance continuing education of consumer bankruptcy via access to insightful articles, informative webinars, and the latest industry news. Join now to benefit from expert resources and stay informed.

Webinars

These informative sessions are led by industry experts and cover a range of consumer bankruptcy topics.

Member Articles

Written by industry experts, these articles provide in-depth analysis and practical guidance on consumer bankruptcy topics.

Industry News

The Academy is the go-to source for the latest news and analysis in the Chapter 13 bankruptcy industry.

To get started, please let us know which of these best fits your current position: