Rent-a-taxman said to be a waste of money

The IRS National Taxpayer Advocate (the person who heads the group that's supposed to look out for taxpayers), Nina Olson, has said that the use of outside debt collectors to recover money owed to the IRS is a waste of money. She says that doing so brings in $81 million less than if the IRS handled its own collections.

The use of outside collection agencies began in 2006, and was done to help increase collections from taxpayers who owe less than $25,000. But the agencies keep up to 24% of what they recover, and when added to the administrative costs of the program, Olson says it's inefficient. Although the outside debt collectors have gotten about $43 million from taxpayers so far, the IRS keeps only about $11 million of that after all costs of the program are paid. Olson says that if the collections were handled internally, the net collections would be $91.8 million annually.

The gap of $81 million sounds alarming, but I'm left to wonder why the IRS isn't doing its own collections if it can do so well. Olson appears to be saying that the IRS could collect far more from taxpayers than the debt collectors can. If that's so, why isn't it doing so?

The IRS has been handling the more complex cases internally, and outsourcing the simple cases to make more time for those complex (and more lucrative) cases. I don't really care if the IRS outsources the collections or not. I just want someone to follow up on these debts. I pay my taxes and feel that others should pay theirs too. The program was started to give the IRS a hand in the area of collections. Either continue with the program or hire more employees. Just collect the taxes.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.