IRS Urged to Abandon Private Debt Collection

By Kathleen Day
Washington Post Staff Writer
Wednesday, January 10, 2007

The Internal Revenue Service should abandon its four-month-old program of sending unpaid, uncomplicated tax debts of $25,000 or less to private bill collectors, national taxpayer advocate Nina E. Olson told Congress yesterday.

Olson, the federal official appointed by the Treasury secretary to champion taxpayer rights, said the plan already has proved unfair to consumers because private debt collectors will not make public the policies and procedures they use to extract repayments, as government tax collectors are required to do.

Olson, who heads the Taxpayer Advocate Service, an independent organization within the IRS, a unit of the Treasury Department, said she thinks the IRS could do a better job and for less money. She included the recommendation in a report to Congress that the national taxpayer advocate is required to make each year about issues the officeholder considers the gravest facing the IRS.

In addition to advocating that lawmakers revoke the IRS's authority to use private collection agencies, the report says the alternative minimum tax and the multibillion-dollar tax gap are both fundamentally unfair and are among the top issues facing the nation's tax collector.

Olson's recommendations were greeted warmly by the Democrats who will chair the two congressional committees that oversee the IRS, Max Baucus of Montana of the Senate Finance Committee and Charles B. Rangel of New York of the House Ways and Means Committee. Baucus and Rangel have strongly criticized the use of private debt collectors and have said the job should stay within the government, a position both reiterated yesterday.

Both also repeated their vow to tackle the alternative minimum tax, or AMT, and the tax gap -- the $290 billion to $350 billion in uncollected taxes -- in legislation this year.

The AMT is a parallel tax system Congress created in 1969 to ensure that even the richest people pay some federal tax. But because it hasn't been adjusted for inflation, and the regular tax system has, more and more people could find themselves having to pay higher taxes under the AMT.

The Tax Policy Center, a nonprofit joint research project of the Brookings Institution and the Urban Institute, estimates that if Congress had not frozen the AMT in 2005 at a level where it now affects nearly 4 million filers, it would have applied to more than 12.7 million out of more than 130 million individual tax filings, up from 1 million in 1999. By 2010, if Congress doesn't abolish it or freeze it at current levels, about 30 million taxpayers will be subject to the AMT, or about 92 percent of households with incomes between $100,000 and $500,000.

Financial planners say the tax cuts President Bush has touted pushed more Americans than ever into the AMT. Rangel said jettisoning the AMT will require "a look at the whole tax code" to make it fairer -- and to make up what the AMT brings in each year, estimated to be $70 billion for 2007.

The IRS has said the use of private debt collectors is necessary unless Congress provides the agency with more resources, and Charles E. Grassley (R-Iowa), outgoing chairman of the Senate Finance Committee, said it's too soon to judge the program.

Olson said the IRS is doing a better job of telling taxpayers when the they're suspected of filing bogus requests for refunds. Last year, Olson criticized the IRS's criminal investigation arm for stalling thousands of refunds, sometimes for months and even years, without telling the taxpayers why or allowing them to respond.

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