Originally published on Forbes.com.
It would be interesting to know what the split is when a private collection company convinces a delinquent taxpayer to pay up. There is a belief common in some circles, that private businesses do everything better than government does. Well, when it comes to collecting delinquent taxes, it seems like Congress wants to reinforce that belief. Back in the nineties, Congress made it illegal for the IRS to evaluate people whose job it is to collect delinquent taxes based on how much they collect. More recently the IRS has been required by Congress to hire private collection companies to contact delinquent taxpayers. The companies get a percentage of what they collect. Scott Hodes wanted to know what percentage the companies get. The IRS won’t tell him.
Why Is This A Secret?
The percentages vary depending on the size of the account. What are the percentages paid to the four companies – CBE, ConServe, Performant and Pioneer? That’s a secret and it will stay a secret. That was the holding of the United States District Court for the District of Columbia in Scott A. Hodes v Internal Revenue Service and United States Department of Treasury. The IRS responded to Mr. Hodes’s FOIA request for copies of the contracts with the four collection companies with contracts that had the percentages redacted. There are four categories with different percentages:
Category One: Individual accounts with balance due $10,000 or less • Category Two: Individual accounts with balance due $10,001 — $50,000 • Category Three: Individual accounts with balance due $50,001 and above • Category Four: Additional account types
ConServe, one of the four companies intervened in the case. The information is being withheld under FOIA Exemption 4.
Exemption 4 of the FOIA protects “trade secrets and commercial or financial information obtained from a person privileged or confidential.
So the information is being withheld not for the benefit of taxpayers or even the IRS. What taxpayers are paying ConServe to encourage some of their number to pay up is being kept confidential for ConServe’s benefit.
First, disclosing the commission percentages would cause substantial harm to the debt collection companies’ competitive positions should the IRS decide not to renew the task order contract for future option years and re-bid the contract. As the declarations of the IRS and three of the four task order awardees—ConServe, CBE Group, Inc., and Performant Recover Inc.—make clear, disclosure of the commission percentages would enable competitors to (1) gain insight into the awardees’ pricing strategy and (2) underbid the awardees in future competitive bidding processes for IRS debt collection or other similar contracts. Because the D.C. Circuit has held that releasing line-item pricing in contracts that contain option years substantially harms a contractor “by informing the bids of its rivals in the event the contract is rebid,” the Court reaches the same conclusion here.
Second, disclosing the commission percentages also would impair the IRS’s ability to get necessary information in the future. As Gregory explains, should the IRS decide to expand its debt-collection program, new bidders might draw misleading inferences about their competitors’ pricing approach that could cause bidders to include unrealistically low commission percentages. Gregory predicts that this could compromise a new bidder’s performance and lead to increased contract administration costs. (Citations omitted.)
Mr. Hodes noted that the supposed benefit to the IRS is pretty weak, since they would have to evaluate the competitor’s competence regardless.
Judge Dabney Friedrich went with the IRS and ConServe. Judge Dabney has been at the District Court since December 1, 2017. She was appointed by President Trump and confirmed by the Senate 97-3.
Anyway to a layman to the mysteries of FOIA, I don’t find the argument for non-disclosure very compelling. ConServe is worried that if other companies knew what they were charging to contact delinquent taxpayers, those companies might offer to do it for less. Like that would be a bad thing. I think it would be a good thing and I thought it might just be me and Mr. Hodes, but as it turns out that is not the case.
Who Wants To Know?
I called the plaintiff in the action, Scott A. Hodes to find out what he was up to in bringing this action. It turned out that he is a FOIA attorney. He filed the FOIA request and brought the action for an undisclosed client. I asked him to pass a request to his client to talk to me. I heard from Nick Bernardo of MyGovWatch.com, That might sound like some sort of watchdog group like Judicial Watch or CREW. That’s not it. MyGovWatch.com is building a business around transparency in government contracts.
You might say that it is looking for the information on the pricing of the ConServe contract with the IRS, for precisely the reason that ConServe does not want the information shared. That is so that competitors will be able to use that information to hone their pitches to the IRS if they ever get a chance. Registration on the site is free and for that you get access to information on RFPs for all sorts of services from all levels of government. Mr. Bernardo encouraged me to check out the website.
For free you learn about RFPs. You can get more information by spending “credits” which cost from $1.40 to $2.00 each (depending on how many you buy). The deluxe package, on the RFP I checked out, for 120 credits, will fill you in on what happens with the contract:
When you apply credits for this information, you’ll receive access through MyGovWatch to the full results of a procurement – not just the name of the winner(s) – in the form of insider documents about how the award transpires: contracts, evaluation documents, and even the winning proposal, where available and permitted by law. What are you waiting for? Order now to have MyGovWatch find out what happens with this bid.
I asked Mr. Berndardo if the service would also be available to journalists (I was hoping for free). Although journalists can use it, the orientation now is toward service providers looking to bid on business. I was not able to get a good sense of how good a tool it would be for prospecting for audit and accounting work, but given my impending retirement I did not try that hard,
ConServe
I reached out to ConServe, but have not had any calls returned. I will put in an update, if they get back to me.
Other Coverage
The FOIA project will give you access to the complaint. Kay Bell covered reports by TIGTA on abuse by private debt collection companies working for IRS. Apparently there is not a lot. John Fazzio reports on another TIGTA report that indicates that the collection companies have not really been netting much for the government.
The IRS deployed the PDC program on time and met many key program milestones. IRS personnel developed policies and procedures for the PCAs, as well as program metrics to gauge performance of the PCAs.
As of May 31, 2018, total program revenue ($56.62 million) was approximately $1.3 million more than costs ($55.33 million). However, as of June 2018, the four PCAs collected just 1 percent of the $4.1 billion assigned. A study commissioned by the collection industry trade association showed the national collection average for Calendar Year 2016 was 9.9 percent
Personal Note – The Final Return
I have the impression that many of my readers are tax professionals. So I just want to let you know that there is light at the end of the tunnel. Today, I reviewed the last return that I feel responsible for. This January for the first time since 1980, I will not be starting another tax season. One of the things that dawned on me at some point is that CPAs actually like tax season. It provides drama to work that is otherwise somewhat on the tedious side. Writing about taxes is more fun and interesting, although, so far, less lucrative.
Particularly in the earlier years, the beginning of tax season was a lot like the beginning of the school year. We would be all excited as we got our new Master Tax Guides and Moody Dividend Guides. We would start getting free bagels on Saturday. And we would have an update meeting talking about what was new. Herb Cohan would try to tell us what he had learned at NYU and would always finish up by telling us that we were the best crew that he had ever had. The continual improvement at Joseph B Cohan and Associates was a marvel. I really wish I could call Herb up and let him know that I am retired now too, but sadly he passed away in August.
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