Spending Tax Dollars to Collect Them

I'm beginning to wonder if some extraterrestrial has removed the common sense of the people we send to represent us in Washington.

Take, for example, the latest nonsensical measure to come out of Congress. The IRS, under a project authorized by the 2004 American Jobs Creation Act to collect delinquent tax bills, has been forced to hire private collection agencies to do a job the agency could do for much less.

Isn't outsourcing supposed to save money?

I guess not, because our government is willing to pay private debt collectors 21 to 24 cents per dollar collected. That's compared with about the 3 cents on the dollar it would cost to have IRS employees do the job, points out Colleen M. Kelley, president the National Treasury Employees Union.

Even IRS officials, including Commissioner Mark W. Everson, have acknowledged that agency employees are better collectors.

"Clearly, if you had new money to put on the table, it could probably be done more effectively," said Linda Stiff, the IRS deputy commissioner of the small business/self-employed division.

The IRS will begin assigning delinquent federal tax accounts to private collection companies beginning today. IRS officials say these accounts aren't being pursued because there are no staff members to handle the cases. Over the course of 10 years, the IRS expects the private firms to help it collect $1.4 billion in outstanding taxes.

For collection cases above $10,000, the IRS will pay the private firms 21 percent of what it collects; between $5,000 and $10,000, 22 percent; $1,500 to $5,000, 23 percent; and 24 percent for collections under $1,500, according to James Dupree, IRS spokesman for Maryland, Virginia and the District.

At least the private debt-collection project is starting small. An initial 12,500 taxpayers who owe back taxes will be contacted first, with the number reaching about 40,000 by year's end.

The three companies participating in this first phase of the collection program are CBE Group Inc., of Waterloo, Iowa; Linebarger Goggan Blair & Sampson LLP, based in Austin; and Pioneer Credit Recovery Inc., of Arcade, N.Y. In the second phase of the project, scheduled for 2008, the IRS intends to contract with as many as 10 firms.

The private firms will be given cases in which the taxpayer has not disputed the liability, Stiff said. The collection companies will then contact taxpayers to make payment arrangements.

If know you owe back taxes, you should take care not to be fooled by fake collectors. Here's some of what the firms are permitted to do and not allowed to do: