IRS Debt Collecting Outsourcing Program Fails Miserably

There’s probably not anyone in the world that would enjoy owing debt to the Internal Revenue Service. Most people would rather owe money to just about anywhere else. Because of special provisions in Federal Law, the IRS can seize your property and even send you to jail if you don’t pay them the money that they say that you owe.

Fortunately, those who owe the IRS money have one thing going for them. The IRS is somewhat slow and inefficient, so it’s fairly easy to avoid them for several years on an unpaid debt. Eventually they will get around to finding the people that they are owed money to and it’s usually not a pleasant situation. When an individual owing back taxes approaches the IRS through a CPA, they are usually pretty lenient in setting up payment plans and waving some fees. When they find an individual that’s owed back taxes for some time, no mercy is given in the fees that are owed and jail time is sometimes discussed.

A couple of years ago, the IRS decided that they wanted to find a more efficient way to collect the debts that they were owed. The organization came up with a program that would allow them to outsource the collection of certain types of debts to private companies based on the notion that private industry would naturally be more efficient at collecting debt than the IRS would. Most financial advisors recommended to consumers who owed back taxes to opt out of the program because the private collectors were likely to be much more aggressive than their federal counterparts.

It turns out that collecting tax debt is one situation that didn’t quite work out so well to outsource to private industry. The National Taxpayer Advocate recently reported that the amount of money that third party bill collectors are paid is actually more than the total amount of money that they were able to collect. Because of this failure, the IRS has decided to cancel the program and hire more federal collectors to go after individuals who have not paid their back taxes.

If you are self-employed, are an independent contractor or own a small business, it’s very tempting not to file federal income taxes when you don’t think you can pay the total amount paid. Even if you can’t pay the full amount of your tax bill, you should still file. Individuals that do file and fail to pay for financial or economic reasons are treated much more favorable in fees and interest than those who fail to file a tax return.