Personal Tax News

It Takes Money To Collect Money

Interesting report from USA Today. Before that, I didn't know IRS is piloting its private collection activities. However, from a controller's perspective, I cannot make sense of why it takes $61.2 million to build the infrastructure.

The IRS could lose money or break even in the first phase of its program to turn some tax debts over to private collection agencies, newly released agency data show.
Fiscal projections in a Government Accountability Office report show the IRS expects to collect $55.8 million to $92 million in the recently started first phase of the private collection effort.

The report shows the IRS estimates initial program costs at nearly $61.2 million — which raises the possibility the agency could lose money by the scheduled December 2008 conclusion of the program's initial phase.

However, the IRS data also project collection revenue of $1.4 billion, dwarfing federal costs of nearly $77.6 million, during a 10-year span of private collections.

The data offer one of the first fiscal looks at this year's selection of three private firms to collect taxes from taxpayers who owe less than $25,000 and have not contested the debts. The firms began contacting an initial group of 12,500 taxpayers in September. They are eventually scheduled to handle about 158,000 cases, according to the IRS. The IRS cost data does not include the companies' fees; up to 24% of what they collect in overdue taxes.