Lawmakers renew attempt to block private tax debt collection

Efforts to prevent the Internal Revenue Service from using private debt collectors are gaining momentum in the new Congress, with the introduction of legislation Wednesday in the House and last week in the Senate.

The House bill (H.R. 695), offered by Reps. Chris Van Hollen, D-Md., and Steve Rothman, D-N.J., would repeal the authority Congress granted the IRS in 2004 to outsource some tax debt collections. The Senate measure, from Byron Dorgan, D-N.D., and Patty Murray, D-Wash., orders the suspension of an IRS program to use private collectors, and would block funds for the initiative.

The leader of the National Treasury Employees Union, which represents 94,000 IRS workers, said Thursday that with Democrats in control of Congress, the bills will have a good chance of advancement. NTEU President Colleen Kelley noted that Van Hollen has a seat on the House Ways and Means Committee, which handles tax issues, and Rothman is on the committee that oversees agency appropriations.

Even with Republicans in the majority, the House passed a measure last year that would have blocked funding for outsourcing collections, Kelley said. That language stalled in the Senate. The House passed a similar amendment to the fiscal 2005 Transportation-Treasury appropriations bill, but that language was never enacted either.

As lawmakers have worked to eliminate the outsourcing authority, the IRS has moved forward with a program to contract out some collections. The IRS began assigning certain taxpayer accounts to three private collection firms in September. As of the end of December, 24,500 cases had been assigned to the private collectors and $11 million had been collected, according to an IRS spokesman.

Van Hollen and Rothman said the initiative must be blocked because it is inefficient and raises privacy concerns. They noted that Taxpayer Advocate Nina Olson's 2006 annual report to Congress said the program is flawed and should be terminated. They also pointed to a failed 1996 pilot project to use private debt collectors.

Under the current initiative, the private collectors retain 21 cents to 25 cents for every dollar they take in, Van Hollen said. In contrast, overhead and other costs for IRS agents to collect tax debt detract about 3 cents for every dollar brought in, Rothman said. The rest of the money gained by IRS collectors goes to the Treasury Department, where it can be used to fund other programs, the lawmakers said.

Van Hollen and Rothman advocated hiring more IRS employees to do the work at a lower cost. Asked if this is likely in the tight budget environment, Rothman said this year's spending levels in the continuing resolution are still under discussion, and it is too early to predict what will happen for fiscal 2008. But he said he hopes Congress will be able to find the money.

The other major concern is that private collection agents will mistreat taxpayers and put personal information at risk, Van Hollen and Rothman said.

"They have no business being here," Rothman said. "This is a very sensitive matter between the taxpayer and the government."

But the IRS spokesman said the agency has received few complaints about the work the private firms have completed so far. An agency review found that more than 98 percent of taxpayers contacted by the firms rated their work as accurate, timely and professional. Ninety-four percent said they were satisfied overall, the spokesman said. He also noted that taxpayers can opt out of the program by contacting the IRS.

The spokesman declined to comment on the legislative attempt to block the program, noting that agency officials do not talk about pending bills.

The Tax Fairness Coalition, which represents private collection firms, said in a statement that the lawmakers are using "fear and innuendo designed to kill a successful program." The group argued that the program will make a significant contribution to closing the gap between taxes collected and owed, and already has exceeded expectations for the amounts collected.