Taxpayer Advocate Calls for End to IRS Private Collectors, Again

Advocates for and against the Internal Revenue Service’s collection privatization program used a Congressional committee hearing yesterday to once again argue the merits of the program.

The Tax Fairness Coalition that represents several private debt collection firms, the IRS-appointed National Taxpayer Advocate, along with the National Treasury Employees Union (NTEU) battled over the Private Debt Collection program in testimony before the Oversight subcommittee of the House Ways & Means Committee, and in dueling press releases.

“The private tax collection program of the Internal Revenue Service (IRS) will cost the government more than $81 million in foregone revenue this year—and as much as half-a-billion-dollars in such losses over the next six years," the IRS’s National Taxpayer Advocate Nina Olson told the subcommittee.

“Since the purpose of the (private collection) program was to raise revenue,” said Olson, “the fact that it is costing the government $81 million or more each year destroys whatever thin rationale might remain for its existence. I believe it is time to end the program.”

Olson said that the IRS is spending $7.65 million to run the outsourcing program and that it is expected to bring in $11 million in net revenues this fiscal year. She argued that the money would be better invested in such programs as the Automated Collection System, which could generate $91.8 million in net revenues. Olson’s bottom line: the program is costing the IRS about $81 million per year in lost revenue.

“Given her opposition to the IRS Private Debt Collection program, it’s not surprising that Ms. Olson again chooses to ignore the facts regarding this initiative,” countered the Tax Fairness Coalition in submitted testimony. “She’s already disregarded the program’s exemplary customer service ratings and high marks for taxpayer satisfaction and when it comes to revenue projections, it’s more of the same."

Coalition spokesperson Jeff Trinca said Olson’s numbers offer an apples-to-oranges comparison. “The IRS does not use the outbound calling collection channel at all,” said Trinca. “The Automated Collection System is a decades-old system that sends notices to delinquent taxpayers. The next step is to search and seize assets through liens or direct seizure through banks.”

Trinca, the former chief of staff for the IRS Restructuring Commission, said that the program is on pace to surpass the $23 million in gross collections that the IRS has projected for 2008. This would make net revenue for the program higher than the $11 million Olson cites. 

Meanwhile, NTEU President Colleen M. Kelley submitted testimony that presented the groups opposition to privatization. “There has been no question from the outset that using private companies to collect taxes is far more costly than having trained, accountable IRS employees perform this work and poses a severe and unnecessary risk to taxpayers’ sensitive and personal information,” said Kelley.

Kelley also called for more IRS employees, saying that the number of revenue officers fell by one-third, from 8,139 to 5,468, while the number of revenue agents dropped by 20 percent, from 16,078 to 13,026 between 1995 and 2007. Overall, the IRS workforce has declined from a 1995 level of 114,064 employees to its current level of 86,638.

These cuts occurred, she said, during a time when the IRS’s workload “has increased dramatically,” with the agency reporting that taxpayers filed 134.4 million individual returns in 2007, up from 114.6 million in 1995.

Trinca told insideARM that e-filing was responsible for much of the decline in IRS staffing. “The IRS has closed a number of processing centers, and this has cost the NTEU quite a few members,” he said. Trinca said that as the head of a membership union, it made sense Kelley was calling for additional staffing.

However, the private debt collection efforts have also been hurt by understaffing, according to the coalition. “The fact (is) the program continues to work shorthanded because the IRS decided to only continue using two companies and delay expansion to full implementation this year. Plans originally had the IRS expanding the program by up to 10 private debt collection firms this year. If this full implementation is realized, there is no reason why this program wouldn’t bring in billions in uncollected taxes to the U.S. Treasury to help close the tax gap,” the group said in a press release.

"What Ms. Olson once again fails to see is that the issue here is not whether the IRS or private debt collection agencies can do work more efficiently or better, it’s whether these delinquent taxes are collected at all. Time and time again the answer is the same: without this program, these cases would remain uncollected.”