A plan to restart a controversial program allowing the Internal Revenue Service to contract with private collection agencies to pursue millions of unpaid tax bills is now on the Senate floor.
The provision was tucked into a larger bill, aimed at renewing several expired tax breaks, at the request of Sen. Charles E. Schumer (D-N.Y.). Schumer's measure has bipartisan support but would be unlikely to reach President Obamas desk quickly because of an ongoing dispute with the House over reviving expired tax breaks.
Nina E. Olson, the nations taxpayer advocate, this week wrote a long letter to lawmakers, urging them to withdraw the private collections proposal. Olson heads the Office of the Taxpayer Advocate, a government office dedicated to helping taxpayers solve their problems with the IRS.
"Outsourcing the collection of federal tax debts is a bad idea," she wrote. "It disproportionately impacts low-income and other vulnerable taxpayers, and despite two attempts [in the past] at making it work, the program has lost money both times, undermining the sole rationale for its existence."
Moreover, "if debt collectors come to be seen as the public face" of President Obamas health-care program, Olson wrote, "I am concerned that could make the IRSs job" of administering the new health-insurance program more difficult.
The IRS phased out a similar program in 2009. Congress had authorized the Treasury Department to contract the task of recouping unpaid tax bills in 2006 and three collection agencies won initial contracts: CBE Group Inc., in Waterloo, Iowa; Pioneer Credit Recovery Inc., in Arcade, N.Y.; and Linebarger Goggan Blair & Sampson LLP in Austin, Texas.
The National Treasury Employees Union opposed that effort, stating it believes the government missed out on millions of dollars in potential revenue while paying $102 million to fund administrative and commission costs. The NTEU championed shutting down the program and opposes the revived measure.
A study by the nonpartisan Taxpayer Advocate Service revealed that the IRS collected about $139 million, $53 million (62%) more than private agencies in the first two years of the earlier program. The IRS collected a larger percentage of available dollars than private agencies, 9.2% to 5.4%.
At the outset, the collectors produced significantly better numbers but that effectiveness dropped dramatically after collecting on "easy cases," according to the study.
After the first program ended in 2009, the IRS recalled cases from the private agencies with a total assessed balance of $848.5 million. The Treasury Inspector General for Tax Administration (TIGTA) later reviewed the effectiveness of collection actions taken by the IRS for the returned accounts and said the IRS had not taken collection actions on 29 of a sample of 62 cases.
TIGTA estimated that potentially $30.7 million in collections would remain as outstanding liabilities and at the time reported that the IRS might not collect up to $103.2 million per year from cases in its inventory that would have otherwise been assigned to private agencies.
In a statement, Schumer defended his new proposal. He said it would correct problems that arose when the IRS employed private debt collectors for about a year in the late 1990s and again during the more recent program. Schumer's office noted that congressional tax analysts predict the new program would haul in $4.8 billion in delinquent taxes over the next decade, of which half would be used to cover the cost of expanding a popular tax break for research and development for startup businesses.
Advocates in Congress and in the collection industry argue that the IRS is now too distracted with other tasks, including new responsibilities created by the 2010 Affordable Care Act. Private agencies bring the collections expertise and save the government the cost of training.
Further, the Government Accountability Office reports that the IRS has absorbed an estimated $900 million in budget cuts since fiscal 2010, through reductions in personnel, less employee training and some efficiencies.