House committee votes again to prohibit private tax debt collection

The House Ways and Means Committee this week passed legislation that would ban the Internal Revenue Service's private debt collection program.

It is not the first time the committee has approved such a provision. This most recent one was included in the 2008 Taxpayer Assistance and Simplification Act (H.R. 5719), which passed the committee with a 23-17 vote. No similar provisions so far have advanced in the Senate.

The vote "reflects this committee's determination to end the IRS' private tax collection program that has proved to be a fiscal failure," said Colleen M. Kelley, president of the National Treasury Employees Union, which has vehemently opposed the private debt collection program.

The program has long been a controversial one, with unions, lawmakers and the IRS' national taxpayer advocate voicing similar concerns about financial performance and the risk for taxpayer abuse. The NTEU and the taxpayer advocate reported that the program has been a bust financially. According to NTEU, private collection agencies brought in $31 million in gross revenue for the IRS in 2007, far below its projection of up to $65 million, and could bring in even less in 2008. The union said that after deducting commission payments to debt collection firms and startup expenditures, the program cost the IRS $50 million.

The IRS, however, said taxpayer satisfaction with the program was high, averaging 96 percent from April to October 2007, according to the Treasury Department inspector general's most recent audit in December 2007. The agency renewed the contracts of two collection agencies in March.

The Ways and Means Committee has held hearings and introduced legislation to end the program in the past, including a bill introduced by Chairman Charles Rangel, D-N.Y. Rangel's bill (H.R. 3056) passed the House by a 232-173 vote in October 2007 and has been stuck in the Senate Finance Committee since.

Congressional observers have been skeptical that any such provision would move past the Senate Finance Committee given Iowa Republican Charles Grassley's strong support for private debt collection and his influence as ranking member. Jeff Trinca, vice president of Van Scoyoc Associates, a Washington law firm representing the collection agencies, said in January that Grassley's backing of the program meant "there's not a lot of interest in this [provision] in the Senate."

The tide may be turning, however, as Senate Democrats take aim at the controversial practice. Sens. Byron Dorgan, D-N.D., and Patty Murray, D-Wash., sent a letter this week to new IRS Commissioner Douglas Shulman, seeking a review of the private debt collection program. "There is compelling evidence that the …private tax collector initiative is a dismal failure," the senators wrote. "We feel confident that once you take a close look at the program, you will determine it is a waste of taxpayer dollars and use your authority to terminate it."

The senators said continuing the program was unjustifiable since IRS officials acknowledged that "professional IRS workers can do a far better job collecting tax debts than private collection firms … at a far lower cost."

Some see the appointment of Shulman, sworn in March 24, as an opportunity to promote a fresh look at the program. A spokesman for Rangel said supporters of the provision are also "optimistic" that the climate has changed in the Senate.