IRS announces first contracts for debt collection work

The Internal Revenue Service awarded three, two-year contracts Thursday in the first phase of an effort to outsource some of its debt collection work, and published a list of safeguards designed to prevent unauthorized use of taxpayer data.

Thirty-three private collection agencies competed for the awards, and the three successful bidders now will be assigned uncollected liabilities starting this summer, according to an IRS statement.

Agency spokesman John Lipold said the companies will be paid solely as a percentage of the amount they collect, using a sliding scale ranging from 21 percent for debts exceeding $10,000 to 24 percent for debts of less than $1,500.

The companies selected were: Waterloo, Iowa-based CBE Group Inc.; Austin, Texas-based Linebarger Goggan Blair & Sampson LLP; and Arcade, N.Y.-based Pioneer Credit Recovery Inc., according to the announcement.

"The vast majority of states use private firms to help collect delinquent taxes," IRS Commissioner Mark Everson said. "The new authority that Congress gave to the federal government allows us to use private firms as well," he continued, adding that shifting simple cases to contractors will free IRS employees to focus on "more complex tax issues."

Congress authorized the agency to hire private firms to assist with debt collection in the 2004 American Jobs Creation Act, and since then the union representing Treasury Department employees has been vocal in its opposition, arguing that private handling of sensitive taxpayer information poses security risks and claiming that agency employees can perform the work far more cost-effectively.

"American taxpayers can no longer have the confidence that federal tax collections are not based on personal gain," said Colleen Kelley, president of the National Treasury Employees Union, in response to the IRS announcement. "Americans believe certain governmental functions should not be farmed out to for-profit companies and this is clearly one."

Along with its announcement of the contract awards, the IRS issued a press release outlining training and procedural safeguards designed to protect taxpayers' confidential information.

The contractors may not subcontract work under the awards, and will be required to perform tasks in secure domestic facilities where relevant papers and data will be subject to security protections, according to the release. Personnel will undergo extensive background checks and training, will be informed of civil and criminal penalties for misuse of information, and will be expressly prohibited from secondary use of IRS data, according to the agency.

"We have carefully considered all of the concerns expressed about this project," Everson said, noting that contractors will not be authorized to use enforcement tools available to the federal government such as liens, levies and seizures. "We will be closely monitoring contractor performance to make sure they're following the law as well as our own internal standards."

The IRS intends to enter the second phase of its outsourcing effort in 2008, making 10 contracts available. By 2016 it expects collections of outstanding taxes to be $1.4 billion higher than without the privatization initiative, the release stated.