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

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.