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New report says IRS paid $20 million to private debt collectors to recoup $6.7 million

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By outsourcing tax debt collection, the Internal Revenue Service is paying about $3 for every $1 recouped, according to a new report by federal watchdog group, the Taxpayer Advocate Service.

What are the details of the report?

The New York Times on Wednesday reported that Nina Olson, head of the Taxpayer Advocate Service, told Congress in her annual report that the IRS spent $20 million on private debt collection during the last fiscal year, collecting only $6.7 million in back taxes after spending more than triple what was brought in.

According to the report, the $20 million payout includes administrative and commission costs. The report noted that some private contractors collected 25 percent commissions on collections that they hadn't actually made, and that approximately $1 million in commissions were paid.

The report added that "inactive" debt of $920 million was assigned to private debt collectors for collection.

Olson, in her report, warned that the IRS "implemented the program in a manner that causes excessive financial harm to taxpayers and constitutes an end run around taxpayer rights protections." USA Today noted on Wednesday that low-income Americans were among those subjected to the collection activity.

The report noted that the average median income of some of those subjected to the collection activity was $6,386.

What if the IRS had handled the cases?

According to the report, 19 percent of those who paid tax debts were under the federal poverty level, and would, perhaps have qualified for a hardship if the IRS themselves had handled their cases.

"No one is making the IRS make these bad decisions," Olson wrote. "The harm to these taxpayers is something IRS leadership consciously decided to do despite my personal efforts, and those of my organization, to stop it."

Olson noted that "it does not appear that the [private collection agencies] are particularly effective in collecting the debts assigned to them."

"The program as implemented has not generated net revenues and results in the IRS improperly paying commissions to [private collection agencies] for work the did not perform," the report read. "In the meantime, the most vulnerable taxpayers are making payments and entering into installment agreements they cannot afford, according to the IRS’s own measures."

You can read the full report here.

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