IRS renews contracts with tax debt collection firms

The Internal Revenue Service announced on Monday that it awarded additional one-year contracts to two companies participating in its controversial private debt collection program.

CBE Group, based in Waterloo, Iowa, and Pioneer Credit, based in Arcade, N.Y., signed one-year agreements with an additional one-year extension option. They were first awarded contracts in March 2006. The program has been criticized by unions, lawmakers and the IRS' national taxpayer advocate, both for its financial performance and its risk for taxpayer abuse. The National Treasury Employees Union and the taxpayer advocate reported that the program has been a bust financially. According to NTEU, private collection agencies brought in $31 million in gross revenue for the IRS in 2007, far below its projection of up to $65 million, and could bring in even less in 2008. The union said that after deducting commission payments to debt collection firms and startup expenditures, the program cost the IRS $50 million. "This wrong-headed decision flies in the face of a mountain of evidence that this program is a financial flop," said NTEU President Colleen Kelley The union has called the program a "clear waste of taxpayer dollars," insisting it would be much cheaper to use IRS employees to collect debts. National Taxpayer Advocate Nina Olson reported in January that if the IRS had allocated the $71 million it spent on start-up costs to using its own employees, the agency could have brought in as much as $1.4 billion a year. The IRS has insisted that it is turning over only the simplest collection cases to private companies. But Kelley said extending the program would mean that more cases that "require the exercise of discretion and judgment in collection matters that is appropriately the sole province of the IRS" would be turned over to private collection firms. Proponents say the program has been extremely successful. The most recent audit by the Treasury Department's inspector general for tax administration said it has been effective, and the IRS said taxpayer satisfaction with the program is high, averaging 96 percent from April to October 2007. Even the taxpayer advocate commended the IRS for telling taxpayers they could opt out of the private program. Only 0.5 percent of taxpayers placed with private agencies have chosen to have their cases returned in-house, the IRS said. Congress has held hearings and introduced legislation to end the program, including a bill introduced by Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee. Rangel's bill H.R.3056 passed the House by a 232-173 vote in October and has been referred to the Senate Finance Committee. Senate Democrats also introduced legislation that would prohibit the use of private companies for tax collection, but observers say there is significantly less support for it in the Senate.
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