The Outsourcing of Collection Process

Uncollected or neglected federal taxes are among the most austere and difficult IRS problems. The government estimates that on average $270-$300 (or 3-4%) billion tax dollars go uncollected. This excessive disappearance in funding results in a lack of production of public services or goods.

Individuals or businesses who evade or neglect to pay their federal taxes fail to realize the enormity of the issue. Unpaid taxes may provide a form of financial relief in the short run, but in the long run, they disable the government from appropriately allocating necessary functions. The $300 billion in unpaid taxes is not resolved, but instead, balanced through the exclusion of maximum effectiveness of a public service or good.

The IRS problems extend beyond simple lack of payment. The government agency has a multitude of responsibilities, instead of wasting time seeking out individuals or businesses who owe taxes, the IRS has outsourced the fulfillment process by delegating responsibilities to the nation's debt collectors.

In March of 2004, the IRS problems reached a tipping point. The federal government was funding two wars while operating under a severe national deficit. The precious billions that were uncollected began to weigh on the nation's finances. As oppose to letting the problem go and allowing individuals or businesses to evade their tax responsibilities, the government allowed the IRS to seek mediation for tax collection purposes.

Like all agencies the IRS is forced to operate with limited resources. In order to run efficiently these resources must be allocated appropriately based on necessity. IRS spokeswoman, Nancy Mathis revealed the IRS problems and the need for the inclusion of a debt collection agency in a 2005 interview with FOX news, "The use of collection agencies allows the IRS to focus its resources on more complex cases and will allow the IRS to handle more cases at an earlier stage before they become harder to collect." The inclusion of collection agencies is not a novel practice for federal agencies to retrieve debts, however, the IRS was only given such authority through the adoption of the American Jobs Creation Act in October of 2004.

Despite efforts from both political parties to thwart the inclusion of collection agencies, the new policy was codified in 2005. Supporters claim that collection agencies will streamline the retrieval process of unpaid taxes. Through the help of a mediator, the small delinquency cases can be delegated to the collection agencies, while the complicated or paramount evaders will be exclusively sought after by the IRS.

As a result of increased annual evasions the IRS quickly becomes backlogged with delinquency cases. The inclusion of a debt collection agency will mitigate the strain caused by such excess and allow the IRS to pursuit prominent evaders. IRS problems such as tax evasion do not dissipate annually, but instead, increase to absurd levels. Each year as more cases go uncollected they carry over to the next fiscal year where a new accumulation of unresolved payments actualize.

Although the inclusion of debt collectors is though to alleviate IRS problems, many pundits have raised considerable issues over the invasive practice. As a result of the hefty financial windfall (25-30% of amount owed) awarded to successful collections, debt agencies will take part in harassing practices to ensure payment. Separate to crude tactics, the inclusion of a 3rd party for an unpaid tax return, will invariably lead to the transfer of private information.

Critics commonly gripe over the exchange of such information between the IRS and a collection agency, citing that identity theft and privacy concerns augment through the inclusion of a third party. Lastly, a common complaint over the outsourcing of collection arises due to the limited role of federal employees. Hiring an outside source will cut the need of loyal IRS employees.

Due to the exorbitant rates charged by debt agencies, the IRS has recently chosen to eliminate the outsourcing of collection practice. Instead of utilizing third party collection agencies, the IRS has decided to expand its payroll, and hire more employees to take on the crucial collection process.

NEXT: The Role of a Tax Collector