Coalition Calls for End to Private Tax Collection by the IRS

Washington, D.C. — A coalition of 16 federal unions, consumer rights organizations and public interest groups, led by the National Treasury Employees Union (NTEU), today called on the Senate to retain in the House-passed fiscal 2009 Omnibus Appropriations bill a provision to prevent the Internal Revenue Service (IRS) from spending any appropriated funds this fiscal year to pay for its much-maligned use of private companies to collect taxes. Separate pending legislation would revoke the agency’s authority for the program.

In a letter to senators, who are taking up the appropriations measure this week, the coalition cited several of the multiple reasons there is so much congressional bipartisan support for ending the program.

“I am pleased to see this broad-based statement of support for ending this misguided and costly program,” said NTEU President Colleen M. Kelley, who has been leading the fight against not only the privatization of tax collection but the entire range of runaway federal contracting activities.

The first matter cited by the coalition is the critical issue of fairness. Taxpayers contracted by the private companies, known as PCAs, “are subject to an unacceptable double standard,” since the IRS is able to offer struggling taxpayers an array of options to help them with their tax debt.

Moreover, the coalition wrote, is the issue of cost. It noted that despite assurances the use of private tax collectors would be self-funded, the IRS has thus far spent more than $80 million in setting up and administering the two-year-old program—which has yet to break-even, much less return net revenue to the Treasury. Up through 2008, the IRS received only $60 million in net revenue from the program after paying private companies $13 million in commissions.

These include an offer-in-compromise, under which some of the tax debt can be forgiven; extended installment agreements; and agreements that permit some installments to be skipped or delayed. The private collection companies, they wrote, have no authority to do anything other than demand immediate payment or enter into an installment agreement of less than five years.

“Most taxpayers contacted by PCAs are low income, and are completely unaware that they could receive more favorable terms from the IRS,” the coalition letter said. “In these extremely challenging economic times, it is wrong to have two sets of standards for taxpayers, especially when the outcome is that low-income taxpayers face harsher treatment than others.”

Finally, the coalition wrote, “there in unanimity in the view that IRS employees can do the core mission of the agency, tax collection, more cost-effectively than PCAs,” a matter than has been attested to in congressional testimony by the independent National Taxpayer Advocate, as well as several former IRS commissioners.

The return on investment of IRS employees performing the same work is between 13 and 20 to 1, according figures provided to Congress by the IRS and the National Taxpayer Advocate respectively, compared to the return on investment of the PCAs of only three to one.

And, the letter noted, PCAs under the IRS program continue to receive commissions of up to 24 percent, even though Congress last year capped commissions at 16 percent under the federal student loan program.

President Kelley noted that under the House version of the Appropriations bill, the IRS would receive additional funding, and would be in a position to hire new employees to perform this work. “This IRS can and should do this work,” she said. “Taxpayers deserve a system in which the person collecting their taxes does not stand to gain personally from this payment.”

In addition to NTEU, the signers of the letter include the American Federation of State, County and Municipal Employees, American Federation of Government Employees, OMB Watch, Citizens for Tax Justice, Consumer Federation of America, Federal Managers Association, International Federation of Professional and Technical Engineers, National Association of Postmasters of the U.S., National Active and Retired Federal Employees, National Consumer Law Center, Professional Aviation Safety Specialists, Public Citizen, National Federation of Federal Employees, United for a Fair Economy, and National Association of Government Employees.

NTEU is the largest independent federal union, representing 150,000 employees in 31 agencies and departments.