NTA Releases 2019 Objectives Report Highlights Challenges With Private Debt Collection Program

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Last week the National Taxpayer Advocate released her FY 2019 Objectives Report to Congress. This is the second report the NTA releases annually; the first is issued in January. In Volume 1 of the Objectives Report the NTA highlights key aspects of the past filing season, and in Volume 2 she presents the IRS responses to prior recommendations regarding most serious problems she identified in the end of year annual report.

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Volume 1 presents lots of statistics and data on how IRS performed on some of its key tasks. This year Volume 1 also details 12 priority issues the NTA will be focusing on in the upcoming year, a fascinating window into TAS research projects (including a look at the impact of behavioral messaging and educational letters on tax compliance), and five appendices providing history on TAS and some internal measures of its performance.

As usual, the report has lots to offer, but here in the words of TAS is the snapshot summary of the review of the past filing season:

During the 2018 filing season, the IRS processed most returns successfully, but taxpayers needing help from the IRS faced a more challenging experience. The IRS could not answer the majority of the calls it received, especially on its compliance telephone lines. It served fewer taxpayers who sought help at Taxpayer Assistance Centers (TACs) and continued to answer only a limited scope of tax law questions.  Its identity theft and pre-refund wage verification filters and certain processing glitches significantly delayed refunds for hundreds of thousands of taxpayers who filed legitimate returns, harming some taxpayers and creating additional work for the IRS.

The select areas of focus in the report include discussions on the following:

  • Private debt collection (highlighting the program’s challenges, including its net loss and taxpayer burdens; more on this in Volume 2 of the report);
  • The need for guidance following the 2017 tax legislation;
  • The false detection rate associated with IRS fraud and identity theft detection measures;
  • The due process rights jeopardized by the newly implemented passport denial and revocation program;
  • The need for IRS to emphasize what the NTA calls an omnichannel approach to taxpayer service (essentially an understanding that many taxpayers are ill-equipped to use online self-help tools and may need a more personal touch); and
  • A plea for a well-funded and implemented IRS IT function.

Volume 2: Tax Administration Transparency and Private Debt Collection

I am in the middle of reading Volume 2 of the report. In this volume, IRS offers written responses to past NTA recommendations and NTA replies to those responses. This to me is one of the most interesting and important parts of the report. It has its origins in the statutory mandate of the NTA, which is required to submit reports directly to Congress “without any prior review or comment from the Commissioner, the Secretary of the Treasury, the Oversight Board, any other officer or employee of the Department of the Treasury, or the Office of Management and Budget.”

The statute also provides that the Commissioner “establish procedures requiring a formal response to all recommendations submitted to the Commissioner by the National Taxpayer Advocate within three months after submission to the Commissioner.”

The IRS written responses in the Objectives Report are part of the procedures for the Commissioner’s response to the Annual Report.  This inside view of the back and forth between TAS and IRS on some of the key tax administration issues of the day is a fascinating window into the challenges associated with administering differing parts of the tax law.

For example, the first part of Volume 2 includes very different perspectives that TAS and IRS have on the private debt collection program (a topic Keith has discussed). The report includes copies of the NTA Taxpayer Advocate Directive ordering IRS not to assign to private debt collectors taxpayers with incomes under 250% of federal poverty guidelines and, in response, an IRS appeal of the TAD, all almost in real time with the latest IRS correspondence on the issue issued in late June. In addition, Volume 2 reveals that IRS is not allowing TAS employees to monitor phone interactions between private debt collection agency employees and taxpayers, leading the NTA to conclude that she is prevented from doing her job of ensuring that the IRS treats taxpayers fairly and respects their rights.

Going deeper on the private debt collection issue, Volume 2 details how IRS has no systemic method of screening out vulnerable taxpayers for assignment to debt collectors (including those getting SSDI and SSI), and how those taxpayers are essentially on their own to make the case with the private debt collectors that they should not be assigned to the debt collection agency or enter into an installment agreement.

More on this from the NTA:

[W]here there are methods to systemically identify recipients of SSDI or SSI benefits, it is profoundly negligent on the part of the IRS to allow the determination of whether a case is returned to the IRS to turn on whether a taxpayer, in talking with a PCA [Private Collection Agency] employee, happens to mention that he or she receives SSDI or SSI benefits. SSDI and SSI recipients are among the most vulnerable taxpayers the IRS deals with. They may be fearful that challenging a PCA may result in levies on or loss of their benefits, and thus agree to amounts they cannot afford to pay. This, in fact, is what the data discussed in the 2017 Annual Report to Congress show. Moreover, it is an abdication of the IRS’s oversight responsibilities to rely on PCAs to return these taxpayers’ debts, which would require the PCA to forego a potential commission on a payment. The IRS can and should systemically prevent the debts of SSDI taxpayers from being assigned to PCAs and should work with SSA to identify the debts of taxpayers who receive SSI.

This issue typifies the trade offs that tax administrators make when dealing with the most vulnerable taxpayers and illustrates the challenges of giving life to taxpayer rights. The statute authorizing transfer of cases to debt collectors allows IRS to assign cases with “potentially collectible inventory.” This requires a deeper consideration of the meaning of “potentially collectible.” In a post from 2017 Keith recounted his meeting with the Commissioner that covered some of this ground in this report, including the importance of programming to effectuate policy decisions not to assign certain cases to debt collectors. The Objectives Report makes a compelling case for a fuller consideration of systemically excluding from the category of “potentially collectible” all taxpayers who are likely vulnerable and who are unlikely to either fully pay or be able to comply with the terms of a payment plan.

The IRS response on this issue states that to build into its IT capability a way to systemically screen out vulnerable taxpayers (like SSDI recipients) would require resources and it is not required to do so by law.

It is not easy to quantify the costs of unfair collection procedures (though no doubt those costs are very real and tangible for those affected) whereas there are scarce dollars at issue in building out an IT system that would limit the assignment of vulnerable taxpayers to private debt collectors. Forcing the IRS to justify its approach and explain is a key way to expose trade offs when an agency, as IRS does here, declines to apply the resources as the NTA suggests. As the report reveals, the risks to taxpayers are still present. The real value of this part of the report is that absent a process such as this it is almost certain that the taxpayers whose rights are impacted would be mostly invisible. Visibility is a necessary but not sufficient means of protecting taxpayers. Absent a change in policy by the IRS itself, it will be left to Congress and perhaps the courts to ensure that the rights the NTA flags are protected.

Leslie Book About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

Comments

  1. Bob Kamman says:

    I am trying to read between the lines of the section in Volume 2 that deals with what everyone else calls the gig economy, but IRS and NTA call the “sharing” economy. (See George Carlin on “soft language.”) NTA takes for granted that those finding work through an app are self-employed; IRS says, maybe not. In its answer to NTA’s request for more online resources for these taxpayers, IRS writes (Volume 2, Page 131):

    “Not all workers participating in the sharing economy are independent contractors, engaged in a trade or business, who should be receiving Forms 1099, and filing Form Schedule C with their Form 1040. In fact, many participants in the sharing economy are employees of a service coordinator who should be reporting the amounts paid as wages subject to Federal Insurance Contributions Act (FICA) tax, regardless of whether their employees receive a Form W-2.

    “Furthermore, many service coordinators, by definition, are employers who should be withholding and paying the applicable employment taxes. Accordingly, the determination of the proper employment status of the service provider must be made before understanding the tax ramifications for the service provider and service coordinator. Employment status determinations are factually intensive and the results of such an analysis will vary based upon the type of sharing economy services provided.

    “Proper employment status classification drives whether: (1) the service provider files a Schedule C; (2) employment taxes should be withheld from wages and deposited with the IRS (or for the service provider, self-employment tax is due); (3) work-related expenses are 100% deductible or subject to a 2% floor for the service provider; and (4) quarterly estimated income tax payments are due from the service provider.”

    Perhaps the problem that the NTA should identify is that gig workers should find out first whether their 1099 income should really be reported on a W-2.

    Although the NTA describes the “sharing” economy as a “growing segment of the taxpaying population,” there are recent reports to the contrary. See, for example, this item last month from a Washington Post blog:

    “Companies like Uber and Lyft — which offer workers flexible work without being employed by a traditional company — have been held up as transformational forces in the American economy. Many predicted more firms would follow Uber’s lead, turning America into a nation of freelancers who have a distant and tenuous relationship with employers.

    “But the gig-economy, which has drawn billions of dollars in venture capital and praise but deep criticism from policymakers, appears not to have caused the massive disruption to the economy that many originally thought.

    “A new report from the Bureau of Labor Statistics, the first in 13 years on the topic, says the share of U.S. workers in these types of jobs has shrunk from 7.4 percent in 2005, before Uber and its like existed, to 6.9 percent in 2017.”

    https://www.washingtonpost.com/news/wonk/wp/2018/06/07/there-are-fewer-workers-in-the-gig-economy-today-than-before-uber-existed-official-data-show/?utm_term=.52a60e760ff3

  2. Ms. Olson needs to do a stint as Commissioner so she can see how “easily” her ideas are implemented.

  3. Thank you, Professor Book! This blog is a gift from the procedural tax-law heavens. Thank you.

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