Tax Collectors for Hire

Some say only IRS employees should be able to pursue overdue debtors.

Members of the National Treasury Employees Union, which has been vigorously battling contracting out, shouted their displeasure during a rally in front of IRS headquarters in Washington in early March. "We collect more. We cost less. We protect your privacy. . . . IRS employees do it better," they chanted.

For the record, the IRS has not said the private sector can collect overdue taxes "better" than IRS employees. The agency has argued that contractors are the only ones able to do the work because the IRS lacks the resources. The private collection agencies will work solely on cases in which the IRS and the taxpayer agree on the amount owed. The agency announced in March that three contractors, CBE Group Inc., Linebarger Goggan Blair & Sampson LLP and Pioneer Credit Recovery Inc., qualified for the first round of the program. It plans to select up to seven more when the tax collection program is fully implemented in fiscal 2008.

"Those cases are just sitting there, in inventory," says IRS spokesman John Lipold of the files to be handed over to contractors. The IRS estimates that about $7.7 billion in tax debt is eligible for collection by private collection agencies, a fraction of the total amount of unpaid taxes owed to the IRS.

Colleen M. Kelley, president of NTEU and a former IRS employee, says the solution is not to sign up contractors, but to hire more IRS employees. A 2004 Government Accountability Office report shows the number of revenue officers working on delinquent accounts fell from 5,500 to 3,500 between 1996 and 2003.

Privacy has been a major concern, according to NTEU, and the IRS has strict requirements for contractors. All work is to be performed in the United States and all employees with access to taxpayer information, including janitorial staff, must be U.S. citizens or permanent resident aliens. Data must be secure at all times, and shredded, burned or otherwise destroyed after it no longer is needed. The IRS says contractors will not be given complete tax returns, but they will have access to Social Security numbers along with names and contact information.

If it seems like the agency is taking a lot of precautions, it has reason to: In 1996, the IRS experimented with private sector debt collection and failed. According to GAO, program costs exceeded the amount collected.

The IRS has faced some bumps this time around as well. The first request for proposals was deemed overly restrictive by the U.S. Court of Federal Claims and had to be reissued. In February, Washington-based Bureau of National Affairs Inc., a publishing company, reported that three of the top contenders for the IRS work have faced complaints about harassing phone calls, privacy violations and potential bribery of state officials.

Despite concerns, federal agencies frequently rely on private companies for financial services, including debt collection. "We probably have some of the best data security in the industry," says Brian H. Callahan, vice president of financial reporting for NCO Group Inc. in Horsham, Pa. The company is bidding on the IRS project and counts the Energy Department and large health care companies among its clients.

Abby Stewart, director at Jefferson Consulting Group, a Washington-based professional services firm, says companies already have access to lots of personal information and face stringent privacy requirements. "These private companies are going to have to follow the rules that government employees follow. . . . The issue is enforcement of standards," she says.

Lipold says the IRS has enforcement under control. He doesn't have to worry about his own return being handled by a private contractor. Any cases involving IRS employees must be referred back to the agency.