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Collectors Cost IRS More Than They Raise

In February, the city of Chicago fired the firm after officials learned that it had paid for a vacation for a contract officer.

Since the federal program began, the National Taxpayer Advocate, an ombudsman's office within the IRS, has logged more than 1,500 complaints related to it. Taxpayers have accused private collectors of bombarding them with phone calls, or repeatedly calling the wrong taxpayer or sending notification to the wrong address. Critics say the program has subjected taxpayers -- some of whom owe the IRS nothing -- to harassment.

A common complaint is that contractors do not explain the nature of their calls until they confirm a taxpayer's identity. They try to do that by asking for a Social Security number, something many people are reluctant to disclose.

Jeff Trinca, a lawyer for the Tax Fairness Coalition, which represents Pioneer Credit and the CBE Group, said the phone calls come after taxpayers have been sent written notice of their debt. "That layer of potential confusion is there to protect the taxpayer," he said.

In testimony on Capitol Hill, IRS officials acknowledged that agency employees are able to pull in about eight times as much as the private collectors because they have the authority to place liens, garnish wages and use other enforcement tools not available to private collectors.

But IRS officials also say that if private collection ended, it is unlikely that the IRS would redirect resources to the kinds of cases the private firms handle.

"Our own collection resources wouldn't get down to this level, not that we wouldn't have made an attempt," said David Alito, director of collection at the IRS.

But Dorgan and others say that tax collection is a central responsibility of government and that IRS employees could perform the work at a much lower cost.

"This is a waste of taxpayers' money, and it could be much better spent if it were given to the IRS to hire more employees," said Colleen M. Kelley, president of the National Treasury Employees Union, which represents 85,000 employees at the IRS. The union's PAC has given federal candidates and officeholders more than $2.8 million since 1995.

Rep. Chris Van Hollen (D-Md.), whose district is home to thousands of federal workers, is pushing legislation approved in the House Ways and Means Committee last week that would repeal the program.

Both sides of the debate have been dueling with statistics.

Said Grassley: "The intense effort to game the numbers and kill this program in the cradle is noteworthy even by Washington standards. IRS officials have testified that the private debt-collection program has taught the IRS new, more effective techniques."

Ending the program would send a message to delinquent taxpayers with relatively small debts that the government will not pursue them, Trinca said. "There is a misconception that somehow or another if you just added another body to do exactly what the agency does currently, that you would collect all this debt. That's just not the case."

Staff researcher Madonna Lebling contributed to this report.

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