IRS Selects Three Firms to Take Part in Delinquent Tax Collection Effort

The Internal Revenue Service yesterday awarded contracts to three firms to participate in the first phase of its private debt collection initiative.

The firms are:

• The CBE Group Inc., Waterloo, Iowa.
• Linebarger Goggan Blair & Sampson, LLP, Austin, Texas.
• Pioneer Credit Recovery, Inc., Arcade, N.Y.

A total of 33 firms took part in the competitive bidding process that resulted in yesterday’s contract awards.

“The vast majority of states use private firms to help collect delinquent taxes. The new authority that Congress gave to the federal government allows us to use private firms as well,” said IRS Commissioner Mark W. Everson. “We have carefully considered all of the concerns expressed about this project, which involves work traditionally done by the government. As a result, we are putting tough safeguards in place to protect taxpayer rights and privacy. We will be closely monitoring contractor performance to make sure they?re following the law as well as our own internal standards.”

To assist the IRS in its collection of back taxes, the 2004 American Jobs Creation Act authorizes the IRS to hire private firms to collect federal tax debts. This particular portion of the law was carefully crafted and includes several limitations to ensure the private firms will be subject to the same stringent taxpayer protection and privacy rules that IRS employees work under. In addition, private firms cannot subcontract the work. The IRS expects to assign uncollected liabilities to the firms beginning this summer.

The IRS has also developed its own guidelines for the private firms, including background checks on all private firm personnel associated with the project as well as a mandatory, IRS-directed training program for company personnel.

Private firms will not be authorized to take enforcement actions such as liens, levies or seizures. In addition, private firms will not be authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation. Rather, the IRS will assign to the private firms cases in which the taxpayer has not disputed the liability. The private firms will contact taxpayers to make payment arrangements.

“Redirecting relatively simple cases to private firms will permit the IRS to focus its existing collection and enforcement personnel on more complex tax issues,” Everson said.

In the second phase of the private debt collection project, scheduled for 2008, the IRS intends to contract with up to 10 firms. Over the course of 10 years, the IRS expects the private firms to help it collect an additional $1.4 billion in outstanding taxes.

Safeguards Included in Private Debt Collection Initiative

The IRS has a variety of safeguards in place to protect taxpayers as the private debt collection initiative moves forward:

• Before beginning work, all contractor personnel working on this contract or who will have access to confidential tax information will be the subject of a background investigation appropriate to the risk designation of their positions. High-risk positions subject to a full background investigation include, for example, system administrator, shift supervisor or security operator. Contractor employees must also be in full compliance with federal tax laws and are subject to FBI fingerprint screening annually and a reinvestigation every five years.
• Contractors will conduct preliminary reviews of each employee?s job application for complete entries regarding employment history, education and address history. Contractors will also review each person for criminal activity history, poor credit history, etc. before submitting the employee for the background investigation required.
• Contractors will secure photo identification issued by a government entity to properly identify all employees performing activities associated with the IRS contract, with photocopies to be maintained until six months after the employee has separated.
• All work will be performed within the United States; no data transmission outside the U.S. for any reason.
• All work by contactors or subcontractors must be performed by U.S. citizens or permanent resident aliens.

Taxpayer Disclosure and Safeguards

• Before any access to confidential tax information is granted, employees and officers will complete all IRS required training including the Privacy Act of 1974.
• Contractors are required to certify the initial training and annual update training for the life of the contract. Each officer and employee must sign certifications about the training as well.
• If a contractor or officer or employee makes any unauthorized disclosure of confidential tax information, the contractor will be considered in breach of the contract. Ten days before beginning work, the contractor will provide IRS copies of the executed non-disclosure agreement.
• Each officer or employee will be notified in writing that any unauthorized disclosure constitutes a felony punishable by up to $5,000 fine and/or five years in prison. Also, they will be notified in writing that any unauthorized inspection of confidential tax data is punishable by up to $1,000 and/or one year in prison as well as civil damages.
• Unauthorized secondary use of confidential tax information is specifically prohibited and may result in the imposition of civil or criminal penalties against the responsible officers.
• Confidential tax information supplied to the contractor and contractor materials generated from it (such as copies, spreadsheets, etc.) are subject to specific guidelines for destruction, which will be witnessed by an IRS employee to ensure that data is safeguarded.
• With IRS involvement, contractors are required to conduct quarterly safeguard reviews.
• Contractors are required to provide secured facilities and equipment restricted to authorized IRS and private debt collection personnel. Facilities must be physically separated from other activities with walls and secure access per IRS security requirements.

Additional Safeguards

• IRS will monitor contractor’s collection activity with all applicable federal and state laws. Failure to comply with applicable laws and regulations will be considered a breach of contract.
• The Fair Debt Collection Practices Act applies to contractor’s activity including provisions specifically applicable to IRS employees.
• Contractors are not authorized to communicate with third parties other than the taxpayer’s representative.
• Contractors are prohibited from soliciting direct receipt of funds from taxpayers.
• Contractors shall not base compensation on dollars collected. IRS compliance reviews will include review of employee compensation methodologies.