IRS Gives the Boot to Private Tax Collectors

By Joe Davidson
Friday, March 6, 2009

Nothing is certain but death and taxes.

What's not certain is who is collecting your taxes.

If there's one thing you'd expect Uncle Sam to do for himself, it's collecting the money needed to run the government.

That's not always the case. The Internal Revenue Service hires private tax collectors to dun some of the folks who fall behind.

But no longer.

Last night, IRS Commissioner Douglas Shulman announced he is killing the program.

"I believe this work is best done by IRS employees," he said.

And there will be more of them to do the work. The IRS plans to hire 1,000 new collection personnel this year.

That's good news for Sam's tax collectors and his taxpayers.

In the parlance of Washington, collecting taxes would seem to be an "inherently governmental" function. As much as the IRS is the butt of jokes, it also has a reputation for being staffed by professionals who keep taxpayer information confidential, even from other government agencies.

When the IRS started using private collection agencies in 2006, that put them deep in the pockets and personal affairs of taxpayers.

"We're held to a different standard when it comes to protecting taxpayer information," Carla Thomas, an IRS employee, said between sessions at the National Treasury Employees Union legislative conference this week. "We could get written up, it could go in our evaluation. So, it's always in our best interests to protect taxpayer information."

Employees like Thomas also have greater authority than outside contractors to work with taxpayers, notes a coalition of federal employee, consumer rights and public interest organizations. The IRS can forgive some debts, offer extended installment plans and allow installment payments to be delayed. The coalition is led by the NTEU, which represents IRS employees.

Beyond that, the contractors don't do the job as efficiently as federal workers. The IRS said its study of the program and an independent review showed "IRS collection is more cost effective than the contractors."

The National Taxpayer Advocate's office, which is part of the IRS, also had previously dumped on the program:

"The National Taxpayer Advocate remains concerned that there is an inherently greater risk to taxpayer rights and taxpayer privacy when tax collection is outsourced to private, for-profit businesses. Further, data shows that the IRS is far superior to the PCAs (private collection agencies) in resolving taxpayer cases. Not only does the IRS outperform the PCAs in collecting revenue, but it also resolves more cases earlier, which benefits taxpayers by preventing interest and penalties from growing. Given the risk to taxpayer rights and the failure of the PDC (private debt collection) initiative to produce revenue that exceeds expenses to date, the National Taxpayer Advocate continues to believe that the program should be discontinued."

The advocate's office also said the private debt collection program "is probably causing a net reduction in federal revenue, which obviously defeats the purpose of the program."

Sen. Charles E. Grassley (R-Iowa) supports the private collection program and he doesn't buy the advocate's analysis. It's "non-scientific, unobjective, flawed," he said in a letter this week to the IRS and the Treasury Department.

Furthermore, Grassley argues, the delinquent taxes the private companies collect are those the IRS ignores. "The issue we are talking about is an IRS policy that they will not go after any amount of money under $25,000, even though those are amounts that individuals agreed they owe," he said in a Senate floor debate Wednesday.

(I didn't know the IRS wouldn't go after delinquent taxes under $25,000. Did you?)

So, Grassley continued, "any comparisons of what the IRS can do versus what private debt collection agencies can do is not legitimate."

Perhaps one reason Grassley so vigorously defends the private debt collection program is his desire to defend the interest of his constituents -- not Iowa taxpayers, in this case, but the private tax collection firm based in Waterloo, Iowa.

"This would be Senator Grassley's private stimulus package for this company in Iowa," said Sen. Richard J. Durbin (D-Ill.) during the debate.

Another tax collection business is based in New York. Not coincidentally, Sen. Charles E. Schumer, a New York Democrat, and Sen. Tom Harkin, an Iowa Democrat, joined Grassley in defending the program in a letter last month to Treasury Secretary Timothy F. Geithner and Shulman.

That defense, however, wasn't exactly a ringing endorsement of private tax collections. They focused on what they don't know about the program. The first paragraph of the letter set the tone: "We do not believe that the necessary data has been collected and disseminated that would allow an informed decision to be made about the program's long-term effectiveness."

But one thing they did make clear: "There are almost 200 jobs in both Iowa and New York that will be lost" if the program dies.

Yet, sadly, those bill collectors probably could find lots of other work, given the number of people with private debts.

The individuals working for the private companies might still be able to collect taxes, however. Shulman encouraged them to apply to the IRS.

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