When Treasury Secretary Steven Mnuchin was asked at his confirmation hearing what he thought about using private companies to collect money owed to the government, he replied that it “seems like a very obvious thing to do.”
It may have been obvious, but it certainly was not economical.
Private debt collectors cost the IRS $20 million in the past fiscal year but brought in only $6.7 million in back taxes, the agency’s taxpayer advocate reported this past week. That was less than 1 percent of the amount assigned for collection.
What’s more, private contractors in some cases were paid 25 percent commissions on collections that the IRS made without their help, according to the annual report by Nina Olson, who heads the Taxpayer Advocate Service, an independent office within the IRS.
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In addition, Olson reiterated previously expressed worries that the expedited process of approving organizations’ tax-exempt status was resulting in rubber-stamp approvals of groups that had not established their qualifications. She cited an error rate of 46 percent in a sampling last year.
The streamlined process, for charities with assets under $250,000, was partly a response to a furor over the agency’s intensive scrutiny of certain political groups, including some associated with the tea-party movement. Flaws in the new process, the report said, can undermine public trust in the charitable sector.
Sarah Allen, an IRS spokeswoman, said the agency’s leaders would review the taxpayer advocate’s proposals.
Rep. Kevin Brady, R-Texas, the chairman of the House Ways and Means Committee, who helped organize the tax-revision efforts, has said he plans to focus on reforming the IRS this year. Olson’s office issued a new publication that includes its top 50 legislative recommendations.