Privatized IRS Debt Collection Appears Dead
Opponents of IRS’s privatized debt collection program failed to pass a spending bill last year that would have killed the program. The Bush administration and other supporters argued — successfully — that it was needed to collect unpaid taxes.
This year, opponents are trying a new tack: inserting a provision into the IRS spending bill that would cut off appropriated funds for the program. That allows them to argue that the program can conceivably continue, paid for by a percentage of the money it collects in tax debt.
But opponents know the program likely can’t survive that way.
The program is entitled to use up to 25 percent of the recovered taxes for its own operations. Those proceeds are estimated to be no more than $7.4 million — short of the program’s $7.65 million operating cost.
So if Congress cuts off funding for the program, it will likely end next year; but exactly when — earlier or later in the fiscal year — would be up to the IRS.
“It depends on what moment in time you’re going to measure at,” said an official with the National Taxpayer Advocate’s office — an office within IRS that acts as an advocate for citizens, and which is a frequent critic of the program. The official requested anonymity because he was not authorized to speak to the media. “The program is getting closer to self-funding … but right now, the program falls slightly short of funding itself.”
If IRS is forced to operate under a continuing resolution in fiscal 2009, as many expect, that would allow the program to continue for a limited time. A continuing resolution would keep the program at current-year funding levels until an appropriations bill becomes law. Fifty-four IRS employees administer the program, selecting cases to send to the private collectors and overseeing their work.
An IRS spokesman declined to comment for this story.
The debt-collection program was authorized by Congress in 2004; the agency officially launched it in 2006, hiring three firms. The agency renewed two of those contracts last year, with CBE Group, based in Waterloo, Iowa, and Pioneer Credit, in Arcade, N.Y.
The program has staunch defenders on the Hill, particularly Sen. Charles Grassley, R-Iowa, and in the White House. Supporters say it recovers millions in taxes that would otherwise go uncollected.
“Forty states already have private debt collection programs, and 25 use them for unpaid taxes,” said Dan Drummond, a spokesman for the Tax Fairness Coalition, which represents the two participants in the program. “And there’s a 10-year statute on collecting unpaid taxes. … Every year is another year that billions more vanish.”
Financial consequences
If the program is terminated, it could have financial consequences for the Treasury. The National Taxpayer Advocate’s office projects that ending the program could result in the loss of $1.1 billion in revenues over the next decade.
“It’s unfathomable that,for political reasons, this program is being targeted for extinction,” Drummond said. “[There’s] $3.5 billion in debts that the IRS shelved. … That means they never intended to collect on that debt. If this program was expanded, we could get some of that money back.”
Those “shelved” debts were the subject of a Government Accountability Office report released late last month, which criticized the IRS for poor management of its in-house tax collection programs. It found the IRS didn’t pursue collection of $3.5 billion in unpaid taxes because of a lack of resources.
Many of those debts are smaller ones, for $5,000 or less in unpaid taxes; the IRS doesn’t consider those a priority, focusing instead on a lesser number of big-ticket debts.
“Knowing that the IRS isn’t going to collect the debt also gives tax cheats additional incentives not to pay,” Grassley said in a statement. “This report is another piece of evidence that the private debt collection program should have a chance to work.”
The program has drawn intense opposition from labor unions, particularly the National Treasury Employees Union, which calls tax collection an “inherently governmental function” that should not be outsourced.
The union also argues it is cheaper to do the job with IRS employees instead of contractors.
IRS acknowledges that it would be cheaper to use in-house employees. The private debt-collection program has about a 4-to-1 return on investment; IRS officials say their in-house debt collectors have a ratio of at least 13-to-1.
But supporters of the program say labor unions should see it as a benefit: Since the private firms don’t have collection powers, it could create the need for more jobs at the IRS.
“The intent of that 25 percent [which the IRS keeps] was to enhance collections at the agency,” said Jeff Trinca, who has done lobbying work in favor of the contracted debt-collection program. “If the program was fully operational, and had 12 firms as originally intended, you’d probably need 1,000 new IRS employees to deal with the collections.”
There are a few ways the program could survive. One is if Congress fails to pass an appropriations bill this session, which sources on the House and Senate appropriations committees say is increasingly likely. If that happens, the program would be funded under a continuing resolution, keeping it at this year’s level.
And there is also the lingering threat of a presidential veto. Last year, President Bush threatened to veto legislation that shielded millions of taxpayers from the alternative minimum tax, partly because the bill included a provision ending the contracted debt-collection program.
Article by Gregg Carlstrom, FederalTimes.com
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