• Colin Doyle CFO

Democrats push IRS to protect low-income taxpayers from private debt collectors

A group of Democratic lawmakers from the Senate and the House, led by presidential candidate Sen. Elizabeth Warren, D-Mass., has written a letter to Internal Revenue Service commissioner Chuck Rettig asking him to enforce a recent law that is supposed to prevent private debt collectors from pursuing tax debts of people facing economic hardships, and those who receive money from the government’s Supplemental Security Income or Social Security Disability Insurance programs.

The Taxpayer First Act was passed by Congress last year with the goal of strengthening taxpayer services and protections and overhauling the IRS appeals process. One of its many provisions excludes SSI and SSDI recipients, and taxpayers experiencing economic hardship, from the IRS’s controversial Private Debt Collection program, which gives private contractors the ability to collect long overdue tax debts on behalf of the IRS.

Warren, who is the top Democrat on the Senate Subcommittee on Financial Institutions and Consumer Protections, wrote the letter in conjunction with Sen. Sherrod Brown, D-Ohio, who is the ranking Democrat on the Senate Banking, Housing and Urban Affairs Committee; as well as Sen. Ben Cardin, D-Md., a member of the Senate Finance Committee; and Rep. Jimmy Gomez, D-Calif., a member of the House Ways and Means Committee.

They pointed to the IRS's recent record on protecting SSI and SSDI recipients and low-income taxpayers from being referred to private debt collectors. In the past the IRS has declined to exclude SSDI recipients from having their debt assigned to private debt collectors, and the agency went so far as to rescind a directive from the National Taxpayer Advocate to exclude taxpayers with incomes below 250 percent of the federal poverty level from the PDC program. A new report from the National Taxpayer Advocate warns that the IRS is calculating taxpayers' income for the purposes of determining economic hardship in a way that misses hundreds of thousands of low-income taxpayers.

"Because the IRS has refused to implement National Taxpayer Advocate recommendations dating from 2016 to take these steps, we write to ensure that your agency is preparing to fully implement the new requirements of the Taxpayer First Act," the lawmakers wrote. "The Taxpayer Advocate Service has already developed a more accurate and practical method for determining economic hardship [...] The IRS should adopt the more rigorous method developed and used by the Taxpayer Advocate Service to ensure the agency is not putting vulnerable taxpayers at increased risk — and violating the Taxpayer First Act."

The IRS revived the private debt collection program in 2017 after Congress included a provision in a 2015 highway funding bill requiring the agency to restart it (see IRS revives private debt collection program). The IRS had shut down the program twice before because it failed to collect as much money as anticipated, and taxpayers had complained about the debt collectors’ harassment tactics. The new program was supposed to include more safeguards for taxpayers, especially at a time when so many scammers use threatening robocalls to impersonate IRS agents demanding immediate payment for taxes.

However, there are still problems with the program, even though its proponents say it is doing a better job at collecting overdue tax debts. Last month, the Senate Finance Committee released a report showing that the private contractors had collected $213 million in the fiscal year ending Sept. 30, 2019, far more than the $82 million collected in fiscal year 2018 and $6.5 million in fiscal year 2017.

The lawmakers have requested responses from the IRS no later than Feb. 6.

Earlier this month, Warren and Brown sent a letter to the IRS criticizing the introduction of a risky pre-authorized direct debit payment option to the private debt collector program. In 2018, Warren, Brown and Cardin introduced legislation to repeal the IRS’s authority to contract with private debt collectors to collect unpaid taxes.

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