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Report: IRS Debt Collection Program Cost Taxpayers Millions

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In its first year in operation, a new IRS program that was meant to outsource federal tax debt collection efforts ultimately cost U.S. taxpayers three times more than it actually recovered.

The findings were published in a Jan. 10 report by the National Taxpayer Advocate (NTA), an independent consumer advocacy arm of the IRS.

In 2015, federal lawmakers enacted legislation that required the IRS to outsource its tax debt collection efforts to private collection agencies. The agency hired four agencies to do the job and spent a total of $20 million to cover program operations. The agencies were charged with collecting $920 million in unpaid debt but, ultimately, they managed to recoup a mere fraction of that amount — $6.7 million in recovered tax debts, according to the report.

Read more: Tax Reform 2018 Explained

After its first year, the current attempt has resulted in a net loss of $13.3 million with less than 1 percent of unpaid tax debt collected.

Consumer advocacy groups like the National Consumer Law Center (NCLC) were quick to cry foul, saying the report’s findings show that the program needlessly wasted money and abused taxpayer rights.

“The IRS private debt collector program is the epitome of waste and abuse in government programs,” said Chi Chi Wu, a staff attorney at the NCLC in a statement.

It’s not the first time the U.S. government has outsourced debt collection efforts to private firms. The NCLC notes that an effort in the mid-1990s lost $17 million and was cut after a year. Another attempt to outsource debt collection in 2006 lasted three years and lost $4.5 million.

Among the taxpayers who were most impacted by this latest private collection program are families hovering just above the poverty line, those beneath it, and retirees who are on Social Security or receive disability benefits.

The report found:

  • 4,905 taxpayers were assigned to private collection firms, and of those, 4,141 filed recent returns by Sept. 28, 2017.
  • 44 percent of those taxpayers had incomes below 250 percent of the federal poverty line ($24,600 for a family of four).
  • 28 percent had an annual income of less than $20,000
  • 19 percent had a median annual income of $6,386
  • 5 percent received Social Security or disability and had a median income of $14,365
report finds IRS private tax debt collection cost more than recouped
Source: Taxpayer Advocate Service

When you owe a tax debt to the IRS, the IRS typically calculates payment plans so that a family can keep up necessary living expenses like housing, transportation, utilities, food, and out-of-pocket health care after making their tax debt payment. However, NTA states that the data shows that these taxpayers were still pressured by the private collection firms hired by the IRS to enter into payment plans they couldn’t afford.

“Forcing the IRS to use private debt collectors to put the squeeze on vulnerable low-income families simply lines the pockets of these private collectors while jeopardizing the economic well-being of families,” said Wu.

Further insight into the problem is difficult to obtain, the NTA says, because the IRS refuses to let representatives of the organization listen to calls between private debt collectors and taxpayers.

Where do the recovered tax debts go?

Under this program, the IRS would send a 10-day notice to taxpayers letting them know a private debt collector will be assigned to them. Of the $6.7 million collected by PCA’s in 2017, $1.2 million, or 18 percent, was recovered as a result of those letters.

Private firms are not supposed to receive a commission off of collected debts. But the NTA study states that the private debt collectors are receiving commission for work done by the IRS and the agency “has no plans to change its procedures to attempt to identify payments that were clearly not attributable to PCA action.”

The IRS is authorized to keep 25 percent of the amount collected by the private agencies and the agencies themselves receive 20 percent in commission. Of the unpaid taxes collected by PCAs, $3 million is the minimum amount left that goes to the Treasury.

What do I do if debt collectors call?

If you’re called by a debt collector, there are several things to know. First, that you have rights, and second, that you need to know more.

The Consumer Financial Protection Bureau (CFPB) states certain laws related to debt collection are put in place to protect taxpayers’ privacy and security. For example, they can’t call before 8 a.m. or after 9 p.m. and they can’t harass or threaten you. In addition, if you have an attorney,  the debt collector will need to contact them instead of you.

You also should check with your state attorney general’s office to see if it offers any additional protection or help for dealing with debt collectors.

Keeping track of your documents is also important. Any communication between you and the debt collector, including letters you may have sent, should be kept in a file that starts when the collector calls, the CFPB suggests.

Identifying the debt collector can save you from taking on a debt that isn’t yours or entering into a less-than ideal payment plan. The CFPB suggests that you don’t give any information, personal or financial, until you’ve verified the collector’s name, address, phone number, and all information about the debt, such as whether it’s yours or not, any dates associated with it, and the total amount including any fees.

What happens if I owe a tax debt?

If you owe a tax debt, you should act sooner rather than later. Unpaid tax debts can not only result in extensive penalties and fees but it could result in:

Reduced Social Security benefits

  • Garnished wages
  • Seized property
  • Passport revocation

Interest is compounded daily on past due taxes (the rate fluctuates, but is 3% more than the federal short-term rate) and late payment penalties are charged separately and can go as high as 25% of the owed amount.

If you owe a tax debt, you still have to file your taxes on time.

If you can’t pay, the worst thing to do is ignore the bill. Contact the IRS and ask them to set up some kind of payment plan that you can afford.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Khoury
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Kat Khoury is a writer at MagnifyMoney. You can email Kat here

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How to Save on Summer Superfoods

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Summer is right around the corner, and there’s no shortage of delicious, nutrient-packed superfoods to indulge in. There’s just one catch: We tend to associate clean eating with high price tags.

While this is indeed the case for some foods (fresh raspberries go for about $2.29 per cup), eating healthy doesn’t always have to break the bank. It’s more than possible to weave nutritious, wholesome foods into your diet without destroying your budget.

Here’s an insider look at some of summer’s best and brightest superfoods — and how to save money stocking up on them.

Avocados

Avocados top the list, boasting a ton of health benefits.

“The reason they’re so healthy is that you’re getting a good combination of mono and saturated fatty acids, which are the ones that are good for the heart,” said dietitian Jessica Cording, M.S., R.D., C.D.N. “They’re also a very good source of fiber. In about a half of a medium-sized avocado, you’re going to get about 4 grams of fiber.”

That goes far, since the Academy of Nutrition and Dietetics recommends getting 25 to 38 grams of fiber per day. Another kicker: Avocados are a great source of vitamin E, which has been linked to improved cognitive functioning. To cut costs, Cording suggested keeping an eye out for store sales, then storing your avocados in the refrigerator to preserve their freshness.

Berries

Berries are a standout superfood. Blackberries, raspberries and blueberries are especially healthy, thanks to their strong antioxidant properties. Antioxidants help tame dangerous free radicals that can wreak havoc on our cells and potentially leave cancer in their wake.

Cording adds that blueberries have also been shown to promote heart health and cognitive functioning: “A lot of the pigments that give berries those beautiful colors are due to the anthocyanins that are also doing a lot of that awesome work taking care of us and fighting cell damage.”

Just be mindful when purchasing strawberries: while super healthy, they also top the Environmental Working Group’s “dirty dozen” list, meaning they have a higher risk of pesticide contamination. Going organic is your best defense, but it can get pricey. You may be able to curb your costs by opting for frozen berries over the fresh stuff, which also reduces food spoilage.

“For the most part, when you freeze fruits you’re not going to use, it actually preserves the nutrients as they are,” said registered dietitian and nutritionist Emily Dunn, M.S., R.D.L.D. “Freezing is almost like taking a snapshot of the nutrients as they are the day that they’re frozen. They do degrade a tiny bit over time, but nowhere near as fast as fresh.”

Use sales on frozen berries as an opportunity to stock up your freezer. Dunn added that your local big box store, like Sam’s Club or Costco, may also be cheaper than the regular supermarket.

Nuts

Different nuts tout different health benefits, but the bottom line is that nuts are indeed a superfood.

“Brazil nuts have a lot of selenium, which is good for your thyroid,” Dunn said. “Walnuts have some omega-3s in them, which are really good for brain and heart health, and almonds have a lot of vitamin E and some fiber in them, and fiber is good for digestion.”

So which ones should you buy? Dunn said to find ones you like, then go wherever your wallet takes you. Peanuts, for example, may be way more affordable than Brazil nuts, depending on where you live. You can also think about your own individual health needs — for example, if you’re trying to up your antioxidant intake, almonds might be a great choice since vitamin E is an antioxidant.

Bulk shopping is another option. Buying an 10-ounce bag of Mauna Loa dry roasted macadamia nuts will cost you $19.99, plus shipping, if you purchase it through the manufacturer. Meanwhile, BJ’s Wholesale Club is currently selling 10-ounce bags for just $10.99.

Chia seeds

Chia seeds are an often overlooked superfood that pack a big health punch.

“They’re a really good source of the plant form of omega-3 fatty acids,” Cording said. “The main reason I recommend chia seeds, honestly, is that they’re a really good source of fiber. In a tablespoon, you’re going to get 4 grams of fiber.”

Chia seeds are also extremely versatile. Toss them into a smoothie or sprinkle them on your yogurt for an automatic fiber boost. In terms of affordability, Cording says they’re pretty inexpensive at most markets — you can snag a 2-pound bag at Walmart for under $9.

Fatty fish

Fatty fish is brimming with the good stuff — protein, omega-3s and vitamins galore. It’s little wonder the American Heart Association recommends getting at least two servings per week. The downside is that larger, predatory fish, like swordfish and king mackerel, have higher mercury levels; not so for smaller fish.

“I know they’re not everyone’s cup of tea, but I’m a really big fan of sardines,” Cording said. “My favorite way to enjoy them is to take the boneless, skinless ones packed in olive oil, and mash those up and throw them in a salad with some leafy greens, some other veggies and some balsamic vinegar.”

The main reason she recommends sardines, though, is that they’re very budget-friendly, making it a great way to incorporate some seafood into your diet at a more accessible price point than, say, wild salmon.

Extra virgin olive oil

“There are a lot of popular oils out there, from avocado oil to coconut oil to grapeseed oil; and honestly, in my experience, olive oil trumps them all,” said Dunn, adding that it has the most antioxidants of any oil.

What’s more, one 2011 study published by the American Academy of Neurology found that those who regularly used olive oil for cooking and as a dressing had a 41 percent lower stroke risk than those who had no olive oil in their diet.

You can likely save by buying in bulk, but Dunn warned that olive oil usually goes bad after six months. (Translation: only buy what you’ll reasonably consume within that time frame.) Your local big box store isn’t your only option, though. At the time of this writing, organic extra virgin olive oil was cheaper at Walmart than at Costco.

The bottom line

Eating well this summer doesn’t have to be costly. Buying in bulk, looking for sales and opting for frozen fruits and veggies can go a long way. Dunn also suggested being mindful of the cheapest option within a specific category. Take dark, leafy greens, for example.

“Kale is typically more expensive than spinach, but the nutrient profile is pretty similar,” she said.

Meal planning can also help stretch your budget and prevent food waste, which is no small thing when you’re investing in clean eating.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
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Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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Federal Student Loan Rates to Ease Back Down for 2019-2020

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

After back-to-back increases in the previous two summers, interest rates for federal student loans are headed lower for the coming year.

Congress sets federal student loan rates each spring, based on the yield of the benchmark 10-year Treasury note, and the new interest rates go into effect on loans disbursed from July 1 onward.

While the Department of Education had yet to post the new rates on its site, news reports put the decreases for July 2019 to June 2020 as:

  • Undergraduate Direct Subsidized and Unsubsidized Loans: 4.53% (down from 5.05%)
  • Graduate Direct Unsubsidized Loans: 6.08% (down from 6.6%)
  • Graduate PLUS and Parent PLUS Loans: 7.08% (down from 7.6%)

Federal loan interest rates last declined in July 2016, with the undergraduate direct loans falling by about half a percentage point to 3.76%, for example.

Federal student loans also come with loan origination fees, but those generally change in October. For the 2018-19 period they were:

  • Undergraduate Direct Subsidized and Unsubsidized Loans: 1.062%
  • Graduate Direct Unsubsidized Loans: 1.062%
  • Graduate PLUS and Parent PLUS Loans: 4.248%

For more on the true costs of federal student loans, check out our complete guide, including all the various types of loans and strategies for repayment.

This report originally appeared on Student Loan Hero, which like MagnifyMoney, is part of LendingTree.

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MagnifyMoney
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