Déjà Vû: Private Tax Collection Leads to Corruption - The American Spectator | USA News and Politics
Déjà Vû: Private Tax Collection Leads to Corruption

The end of January was the beginning of tax season in America. After employers mailed out W-2s, workers started the long trudge towards April 18th.

The Internal Revenue Service is notorious for its abysmal service. In 2015, the agency reported that criminals had “potentially accessed” more than 700,000 total accounts between 2014 and 2015. In 2016, IRS Commissioner John Koskinen told the Washington Post that they expect to answer 47 percent of calls — significant growth from the previous year’s 37 percent.

As if privacy issues and poor customer service weren’t evidence enough of the IRS’s irresponsibility, the agency has recently re-adopted the use of private companies to help collect taxes. In 1996 and 2006, the IRS employed private companies to help collect delinquent tax debt. The program failed miserably both times. Nevertheless, in a stunning feat of legislation blind to history, Congress again permitted the use of private tax collection by slipping it into the unrelated “Fixing America’s Surface Transportation Act” in 2015.

Outsourcing collection to private companies might sound like an excellent way for the IRS to surrender some of its excess bureaucratic power and streamline its processes. But it actually creates substantial problems. A recent National Taxpayer Advocate report outlines several reasons why this is the case.

First, these programs fail because they leave the door wide open for privacy violations and tax scammers. The IRS has already sustained multiple security breaches, and handing over accounts to an outside source makes taxpayer information even more vulnerable. And scammers, already rampant, no longer even need to pretend to be from the IRS. When it becomes known that the government is handing over enforcement duties to non-government entities, it will be much easier to defraud anxious Americans out of the hard-earned income on which they already pay taxes.

Second, the IRS plan as it now stands is incredibly wasteful, allowing payment to the private company even when the payment is in response to an IRS notification letter.

Third, private companies lack the ability to help taxpayers in difficult circumstances. The IRS can make offers in compromise or label an account ‘currently not collectible’ (CNC) when a taxpayer is struggling, but private companies do not have the power to do this.

Finally, the IRS often fails to ensure that private companies adhere to standard procedures. Some private companies initially refused to provide their telephone scripts, and when they finally did, the IRS discovered that the language of scripts violated IRS standards. The IRS has taken no decisive steps to remedy this, and merely reiterated the unenforced requirement that companies submit their scripts.

And if the testimony of the Taxpayer Advocate Service — an internal organization of the IRS itself, and not an external non-profit or interest group — were not enough, the witness of history, both ancient and modern, also stands against this practice.

In ancient Rome, tax collectors spread across the empire had little accountability and were known for overcharging and pocketing as much as they pleased. Such corruption explains why, when Jesus confronted Zacchaeus, Zacchaeus promised to pay back anyone from whom he stole four times over. Centuries later, similar practices led to the French revolution: the king’s private tax collectors not only pocketed tax money, but would loan the money to the state at an exorbitant interest rate.

Even closer to home and even more recently, the use of private companies led to the downfall of President Ulysses S. Grant’s Treasury Secretary and added another blemish to Grant’s already-marred administration. Secretary William A. Richardson hired several private collectors in accordance with 1872 legislation that permitted it. One of them, John Sanborn, kept half of his collection and placed people and businesses on his list without the requisite proof justifying suspicion, targeting a large majority of railroad companies so he could collect his pay if they were ever found to have evaded taxes.

When the news got out in 1874, the House Ways and Means Committee debated the legality of the contracts on the floor. A Democratic congressman from Kentucky slammed the practice and declared, “If there is anything on earth that seems to me apparent, it is that these contracts, from their inception to the present time, are reeking and buoyant with corruption.” The 1872 law was repealed, and Richardson, although formally acquitted, ultimately resigned in disgrace.

Holding the IRS accountable has already proven a tough challenge. Outsourcing an inherently contentious activity with citizens to private companies is a disaster in the making, as recent history has proven. It is dangerous to add another level to congressional oversight and even IRS oversight with companies who are incentivized to break people’s thumbs to collect their debt, without regard to their privacy.

As attorney general of Virginia, I helped spearhead the Virginia Financial and Securities Fraud Task Force, a unique partnership between both federal and state agencies to combat taxpayer fraud. I know what fraud looks like, how it begins and the harm it does — and I know that the federal government now has an excellent opportunity to stop it.

It is almost impossible to imagine an IRS that truly works for Americans. After targeting conservatives, failing to follow lawful preservation orders and subpoenas from Congress and destroying evidence, the IRS has wrecked its own reputation with the American people.

But if incoming Treasury Secretary Steven Mnuchin takes the key step of eliminating private collection companies, one step in repairing that reputation might be possible.

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