IRS or private debt collectors? What's the answer?

Collecting overdue taxes is definitely not an easy feat. To help the IRS gather these delinquent monies; Congress decided to legalize the use of private collection agencies in 2004. This program was finally implemented in September 2006 with much scrutiny abound.

A recommendation by IRS’s independent taxpayer advocate Nina Olson’s 2006 annual report to Congress is to have the IRS’s authority to utilize private debt collectors repealed “once and for all”. Olson lists the use of private debt collectors by the IRS as one of the five most serious taxpayer problems.

Here are a few of the reasons why it made the top five:

Is it cost effective? These private collection companies receive 25 percent of the money they gather from unpaid taxes and at the same time, the IRS has recognized the fact that these companies cannot collect as efficiently as their own organization. In-house, the IRS’s return on investment is $32.00 per dollar, whereas the private agency return is that of $4.00 per dollar the government invests, according to the Olson report. The report went on to state the IRS admission that it could do the job with the thousands of collection employees as well as the almost $2 billion collection budget. Olson states, “In contrast, (private collection agencies) PCAs at this stage of the initiative are using 75 employees to collect on these accounts, and the IRS is using 65 employees to monitor them.” Rep. Steve Rothman, D-N.J. is on Olson’s side saying "This outsourcing program is estimated to cost tens of millions of dollars a year, and has already allowed the most complained-about industry in America to get hold of tax returns, which include taxpayers' Social Security numbers."

The last statement brings us to the questions:

Is it safe? The IRS is well aware of whom we are and the 9 digit number attached to our name; however, new questions arise when a private company has access to our tax returns as well as our social security numbers. Identity theft? It does bring about that risk.

Is it in the best interest of the taxpayer? The Taxpayer Advocate Service has taken notice of "poor customer service to multilingual taxpayers, (private collection agencies') operational plans being withheld from public disclosure, and PCA collection scripts through which PCA employees attempt to manipulate taxpayers."

The IRS has acknowledged this observance and stated that two of the three private collection companies assigned to collect delinquent taxes have a bilingual staff and apparently, the third company is in the process of handling non-English speaking callers.

As for concern of deceit or trickery used by these private companies to persuade the taxpayer into paying, the IRS stated, "Given the backlog of IRS receivables and our limited collection resources, [this] initiative allows the IRS to ensure that more delinquent taxpayers are personally assisted in meeting their obligations, and we will continue to make program decisions to protect the privacy and security of taxpayers while collecting outstanding government debt."

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There are reasons why many believe Congress took a step in the right direction back in 2004 when it authorized the Internal Revenue Service to utilize private debt collectors to collect unpaid taxes.

The first reason deals with the tax gap which totals 290 billion and is expected to grow even larger in the near future. There are 7.4 million Americans who do not pay their taxes and who are also never contacted by the IRS regarding this delinquency due to low budgetary funds. To close the gap between the amount of taxes assessed and what is actually paid in to the IRS; outsourcing tax collection has been initiated and has already brought in some of those unpaid taxes.

Secondly, the use of private debt collectors over the next ten years could possibly bring in an estimated 1.4 billion in unpaid taxes. The resources collected by these third party agencies could be used for fundamental societal needs such as health care and education.

Reps. Chris Van Hollen, D-Md., and Steve Rothman, D-N.J. are in the midst of trying to eliminate the use of private agencies and are advocating hiring more IRS employees to do the tax collecting at a lower cost than the agencies. Rothman also stated that there are tight budgetary constrictions and hopes that Congress can find the money to do this. However since the program was instituted in September of 2006, 8.4 million dollars was collected within the first ten weeks of the program which exceeds the six percent collection goal.

Furthermore, according to the Government Accountability Office report, the IRS has stated that if more agents were hired, their concentration would be on the more difficult and/or criminal cases; whereas the private agencies would take the weight off of the IRS’s shoulders and help collect funds due from the smaller, less complex cases.

The taxpayer privacy issue has been mentioned regarding an appeal of outsourcing tax collection; however, the IRS as well as the treasury inspector general for tax administration keeps a close watch on the program for this very reason and only the specific information needed to collect unpaid taxes is given to these agencies.

Some have said that these particular agencies may practice unethical ways of collecting unpaid debts; however, the three agencies that were chosen are not only kept under close scrutiny but had to undergo and pass a strict evaluation process to even be considered. Out of thirty highly regarded firms throughout the U.S., these three agencies were tested and elected to this position based on a small number of consumer complaints, high level of experience, and wholly moral business undertakings.

By using these private debt collection firms, there is not only a benefit to honest tax paying citizens but also a chance to narrow in on the enormous tax gap that affects these honest tax paying citizens.

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The national Taxpayer Advocate Nina E. Olson who works independently within the Internal Revenue Service has submitted the annual report to Congress sighting nonpayment of taxes as one of the top five biggest issues facing taxpayers. To help ease the pain of delinquent taxes, Congress gave the thumbs up for the program that utilizes private sector debt collection agencies, and since the introduction of the pilot program this past September…the debate escalates as to whether or not it is a good idea.

It seems to always boil down to a numbers game. Delinquent taxes should be collected, and the IRS has outsourced three qualified, reputable agencies and 75 contract workers to take care of this serious collection issue. However, the IRS has 65 employees supervising the 75 individuals. Should those 65 employees be collecting the taxes themselves, therefore saving the IRS money by keeping the collecting in-house? Is this the efficient way to go? Not according to Ms. Olson. She states in the report, "It is difficult to fathom how 75 employees can achieve what the IRS cannot with its thousands of collection employees." The IRS defends the outsourcing by saying the 65 employees work as needed and “the time they are putting in is only equivalent to 31 full-time workers.”

Still, the National Treasury Employees Union that represents IRS employees as well as members of Congress are petitioning to do away with the IRS’s use of these private debt collecting agencies. The efficiency as well as the effectiveness of the program is being questioned.

Ms. Olson stated, "the hidden costs of using private collectors, notably potential erosion of customer service, lack of transparency of private collection operations, potential failure to provide consistent treatment for all taxpayers, and potential erosion of tax compliance."

A commission of up to $0.25 of every dollar collected by these private sector agencies will be paid; however, on the other side of the coin, the IRS estimated that $1.4 billion will be collected over a ten year span because of this outsourcing program. Because these private agencies will be focusing on the smaller, less complex cases, IRS revenue agents will now have the time to concentrate on the more difficult criminally charged cases of tax delinquency. Money needs to be paid out to these agencies in order for this to happen.

Ms. Olson stated that the IRS budget process “makes little sense”, because in essence, collecting unpaid taxes in-house remains to be less expensive than outsourcing. She reported that Congress should weigh the options and think about making a change in the IRS budgetary rules. It was recommended that the IRS receive funds that are intended to maximize the tax fulfillment as well as raise the IRS’s workforce support two to three percent. This could improve the efficiency of the delinquent tax collection, since more money for more IRS employees would keep the tax collecting in-house. This could save money in the long run by not resorting to outsourcing, placate the debate as to whether or not the use of private debt collection is a good idea, and once and for all close the tax gap.

The USA: Leading by Example?

How are United States citizens supposed to take personal fiscal conservatism seriously when we live in the entire world's largest debtor nation? Our national debt is ballooning by 2 Billion dollars daily according to the U.S. NATIONAL DEBT CLOCK. All this with a self proclaimed Republican in office (Ronald Reagan is turning over in his grave.)

Americans should be afraid...Very afraid.

This is only one reason of many why we should consider voting for Dr. Ron Paul who's running as a Republican in the 2008 presidential elections. George W. Bush has given not only the Republican Party a bad name, he's given America a bad name in the public eye. Like Obi Wan Kenobi, he's our only hope.

Holiday Debt - Oh Noooooooo! (like Mr. Bill)

With the holidays being over a few months now, many of us are beginning to worry about, not only our extra pounds from stuffing our faces, but the over-spening that we indulge in around the holiday season; ESPECIALLY if the gifts we decided to splurge on showed up on our credit cards statements. That queasy feeling in your tummy isn't from toughts of that nasty eggnog your aunt Betsy made you drink, but from knowing that that credit card bill STILL has multiple charges from later November and December.

In a recent survey by Consumer Reports, 23 percent of all Americans will not pay off their holiday debt until March (right around now!) or even later. This debt interest is estimated to equal roughly 14 billion! Over 25% of Americans rely on credit cards most often when holiday shopping, which contributes to roughly 63 billion charged on credit cards throughout the holiday shopping season.

The average American household has racked up at least 9K in debt already, and the over-use of plastic during the holiday season can be catastrophic to the average family's financial well being.

Isn't it time to come through on that resolution to get, not only physically, but fiscally fit as well? Here are a few good suggestions to get that credit back on track and out from under that looming debt:

1) Stop using your f-ing credit card so much! We all know credit cards can be very tempting, so consider just cutting those dirty mother-funkers up. Close your newer credit card accounts altogether, but make sure to keep those older credit card accounts active, since they may offer you a better interest rate for being such a loyal sucker over the years. Also, if your credit card balance is higher than your checking account...you're screwed! :) Just kidding... But seriously, it may be time to completely abandon the plastic until the amount can be paid in full.

2) One word. Budget. If your current income doesn't cover the old CC payments, then it’s time for a little sacrifice. Track your spending and make sure you count all those little extras like that $4.00 Venti Chai or that $3.00 Combo Meal. Those little buggers can really add up. You’ll be surprised how your cash flow will dramatically increase by skipping the Starbucks fix or packing your lunch like mom used to do for you.

3) eBay baby! Simply put, sell your junk and make some money! There are many companies out there that will actually photograph & list your crap online, and once sold, ship your item for a small percentage. It doesn’t get any easier than that folks. Take that extra dough and make a nice big payment on one of your credit cards. Killing two birds with one stone, priceless.

4) Roll up your sleeves and negotiate a lower rate. Just think: one call to your CC company can often times lower your interest rate substantially, which will help you to brake the shackles of your credit card debt at a much faster rate. The credit card industry is ultra-competitive and they'll more than likely haggle with you, especially if you've been paying your minimum payments on time habitually.

5) Save! Save! Save! Consider opening up a high interest savings account and put away as much as possible. Start by taking $10 to $20 from your normal paycheck, stash it in a high yield savings account, and by year’s end, you'll have saved $500 to $1,000! That extra cash can be used for credit card payments or even for holiday gift buying (now that's thinkin' ahead!). Using these funds for holiday spending, you won’t be so weighted down when January rolls around again next year.

Debt Consolidation? Yay or Nay? ... YAY!

There are many reasons why debt consolidation is an extremely helpful way to reduce your debt, take control of your financial situation, and help you lead a life of financial stability.

Oftentimes, individuals incur too many separate bills and loan payments, which lead to many different payments during a given month. The individual may be able to afford the monthly payments; however, remembering to pay all of the payments on a consistent basis can be a difficult task in today’s busy world. A missed or late payment may result in an increased interest rate or monthly payment, late fees, and can even damage one’s credit report. A debt consolidation loan could be your answer; since it takes all debt acquired by different creditors and combines them into one consolidation loan resulting in a single reduced monthly payment. Another option is to hire a third party service provider or a consolidation agency to negotiate with your creditors and handle your payments on your behalf. By allowing an agency to manage this, you get the benefits of only having to make a single payment to the agency once a month, a reduced loan, a lower interest rate, as well as late fees and other charges waived. This fundamentally leads to the individual saving their money, thus increasing future financial freedom.

Another reason why debt consolidation may help you gain the financial prowess you have always dreamed of is extremely high monthly payments for either loans or credit cards that are too difficult to maintain. A high interest rate increases the borrower’s monthly payment, as well as an abridged repayment plan, or even a high loan amount that makes the monthly payment unattainable. By choosing a debt consolidation loan or program, debt negotiators may be able to help you achieve a fixed interest rate, a flexible loan, or a revolving credit plan at a better interest rate. All of these possible results can aid in the reduction of your monthly installments as well as extend your repayment schedule, leaving you with more money at the end of each month.

A debt consolidation loan or a debt consolidation agency can also be helpful if an individual possesses a high number of outstanding loans with differing due dates as well as contrasting end dates. Getting approved for a consolidation loan, once again, will aid in repaying multiple loans that now share one due date and one end date as well as enabling the borrower to deal with just one lender. By hiring the services of a debt consolidation agency, you get the benefit of the agency negotiating new repayment programs with corresponding due dates and end dates on your behalf. These options will help you gain control of your finances by providing one loan due date and end date or a more collective group of due and end dates, which will enable you to budget accordingly and give you the exact timeframe for when your debts will be completely paid off.

Debt consolidation offers many advantages to help you reach financial freedom and it is far less damaging than declaring bankruptcy. You will be able to manage your finances with better accuracy, which will lead you to a more secure financial future.