House Rejects IRS Program

By Stephen Barr
Thursday, October 11, 2007

The House voted yesterday to kill an Internal Revenue Service program that uses private companies to track down delinquent taxpayers and lets the companies keep a percentage of the taxes they collect. The vote, generally on party lines, was 232 to 173.

House Democrats portrayed the program as a contracting failure by the Bush administration, with start-up costs of $71 million, five times higher than initially projected. "It is high time we repeal an abusive and misguided debt collection program," Rep. Chris Van Hollen (D-Md.), one of the bill's chief sponsors, said.

Republicans said the private collectors had come up with $32 million in gross revenue and predicted that junking the program would cost the government $1.1 billion over the next decade. The program "is making money for the government," Rep. Kevin Brady (R-Tex.) said, noting that it provides the IRS with funds that can be used to beef up tax enforcement in other areas.

The controversial issue has an uncertain future in the Senate. An aide to Max Baucus (D-Mont.), chairman of the Finance Committee, said Baucus is skeptical of private tax collectors and "has not ruled out action." But Charles E. Grassley (R-Iowa), the committee's ranking minority member, called the bill "dead on arrival."

Meanwhile, the White House yesterday threatened a veto, saying that the private collectors bring in taxes "that are otherwise not likely to be collected by the IRS."

Congress authorized the program three years ago, with an initial goal to pull in about $1.4 billion over 10 years. The IRS projected that about $132 billion in unpaid taxes might be collected if taxpayers were given a nudge.

The program began with three vendors, and the IRS has renewed contracts for two -- Pioneer Credit Recovery of New York and the CBE Group of Iowa. They are part of the Tax Fairness Coalition, a group of private collection companies that says a public-private partnership can help raise revenue and ease the federal deficit.

Under the program, the IRS lets the companies retain up to 25 percent of what they collect. About $5 million has been paid out in commissions to date, according to an IRS paper provided to Congress.

During yesterday's floor debate, House Majority Leader Steny H. Hoyer (D-Md.) said "the collection of taxes is a core governmental function that should not be contracted out." Rep. Charles B. Rangel (D-N.Y.), chairman of the Ways and Means Committee, suggested that taxpayers would rather share their income and tax data with public servants. "Let it be someone you can trust. Let it be a civil servant," he said.

Republicans pointed out that 41 states use private debt collection companies, and that 25 of those states use them to collect income taxes. The companies, Rep. Jim McCrery (R-La.), said, are "successfully collecting millions of dollars that the IRS won't get around to."

Members from both parties agreed that IRS employees "are hard-working public servants," as McCrery put it.

The National Treasury Employees Union, which represents IRS employees, has lobbied for an end to the program, which the union's president, Colleen M. Kelley, called "misguided" and "costly." NTEU organized a group of public interest groups, including the Consumer Federation of America and the National Consumer Law Center, to write members of Congress suggesting that funds spent on the program be used instead to hire additional IRS employees.

The union contends the program has fallen short of IRS goals. The revenue that the companies actually collected -- not including what taxpayers paid in response to letters indicating their cases were being turned over to the companies -- is about $25 million, far less than the $43.5 million to $61.8 million projected for 2007, the union said.

The union also said that the IRS has received more than five dozen complaints about the debt-collection program, mostly involving taxpayer privacy. The private-sector coalition stressed that the two companies in the IRS program scored a 100 percent rating for professionalism and a 98 percent rating for regulatory and procedural accuracy in IRS-sponsored surveys.

Despite the measure's doubtful future in the Senate, Jeff Trinca, an attorney representing Pioneer, one of the contractors, said the House vote could be a blow to the program, which is still in the implementation phase. Supporters of the program are concerned that the IRS, which is operating with an acting commissioner, might decide to keep it going as a pilot and not expand it in hopes of avoiding "storm clouds" on Capitol Hill.

"There's concern that the agency will read it [yesterday's vote] as a repeal, but it is only one house speaking," Trinca said.

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