Should the IRS use private collection agencies to pursue tax debts?

A federal-worker union is fighting bipartisan plans that would require the Treasury Department to contract with private collection agencies to pursue tax debts that the Internal Revenue Service is not addressing.

The National Treasury Employees Union said in a statement on Monday that a similar effort between 2006 and 2009 caused the government to miss out on millions of dollars in potential revenue while paying $102 million to cover administrative and commission costs.


(Daniel Acker/Bloomberg)

“I can say in very clear terms that private tax collection does not save or generate any money for the federal government,”  said NTEU president Colleen M. Kelley. “It costs a lot of money and risks the privacy of taxpayer information.”

A report last year from the nonpartisan Taxpayer Advocate Service said the IRS collected about 62 percent more than corporate firms during the first two years of the previous program. Private collectors brought in $86 million, compared to $139 million for the IRS.

The private firms actually produced significantly better numbers than the IRS at the outset, but their effectiveness dropped dramatically after collecting on “easy cases,” according to the study.

The report noted that private collectors lack the authority to negotiate tax liabilities, thus limiting their ability to work cases in the same manner as the government. Firms can only resolve bills for which taxpayers do not dispute the owed amount.

The new proposals come from House Ways and Means Committee Chairman Dave Camp (R-Mich.), who pitched the plan as part of his tax-reform bill, and Sens. Charles Schumer (D-N.Y.) and Pat Roberts (R-Kan.), who called for similar changes in an amendment to a bill that would extend dozens of tax breaks that expired this year.

“The beauty of this program is it would reduce the deficit and bring in more federal dollars while at the same time adding federal jobs,” said Schumer spokesman Matt House, adding that the IRS could use the extra revenue from private collections to hire more employees. “We are confident this program will be successful because it builds on lessons learned from the past, and it has the infrastructure and resources within Treasury that it needs.”

Sen. Charles Grassley (R-Iowa), a member of the Joint Committee on Taxation, criticized the union’s opposition, noting that the nonpartisan Congressional Budget Office determined that the use of private collectors would raise more revenue than it costs.

“The Treasury union always objects to using any private contractors to collect taxes, yet the IRS career employees consider the debts in question ‘low yield’ and not worth their time,” Grassley said in a statement.

The last private tax-collection effort came about as a result of the 2004 American Jobs Creation Act, which allowed the Treasury Department to contract with firms to help address a backlog of past-due tax cases that were inactive.

The IRS ended up placing $1.8 billion worth of outstanding tax liabilities with private collection agencies as part of the program, according to the Taxpayer Advocate Service.

Follow Josh Hicks on TwitterFacebook or Google+. Connect by e-mail at  josh.hicks(at)washpost.comVisit The Federal Eye, and The Fed Page for more federal news. Submit news tips and suggestions to federalworker@washpost.com.

Josh Hicks covers the federal government and anchors the Federal Eye blog. He reported for newspapers in the Detroit and Seattle suburbs before joining the Post as a contributor to Glenn Kessler’s Fact Checker blog in 2011.
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