Private debt collection firms find supporters in Senate

A fight over the Internal Revenue Service's use of private debt-collection firms might be looming next week as the Senate takes up the $410 billion fiscal 2009 omnibus spending bill, which would cut off funds for the program.

An aide to Senate Finance ranking member Charles Grassley on Friday said he is weighing his options regarding the measure, which is amendable. The aide said the IRS debt-collection program is under the jurisdiction of the Finance Committee, not Appropriations, and that it is premature to end it before more thorough study. The Senate will take up the omnibus Monday.

There is bipartisan support for the program in the Senate, including from Agriculture Chairman Tom Harkin and Democratic Conference Vice Chairman Charles Schumer of New York. Joined by Grassley, they wrote Friday to Treasury Secretary Timothy Geithner and IRS Commissioner Douglas Shulman that they believe not enough data is available to make "an informed decision ... about the program's long-term effectiveness."

The IRS said this month it would conduct an independent review, which is due out as early as next week, but the senators wrote that more time was necessary to study the issue. The timing of the report as well as the omnibus provision could impact next week's pending contract renewal for two private collection firms, CBE Group Inc. and Pioneer Credit Recovery Inc. CBE is based in Iowa, the home state of Grassley and Harkin, while Pioneer, a subsidiary of SLM Corp., or Sallie Mae, is based in Arcade, N.Y.

The senators wrote that almost 200 jobs in the two states could be lost if the program is cut. "Given the current economic crisis, such job losses should not be forced to occur before" the program is thoroughly evaluated, they added.

The U.S. Chamber of Commerce and a coalition of private collection firms also oppose the provision and are urging that it be stripped from the omnibus. In a letter to lawmakers this week, the Chamber's chief lobbyist, Bruce Josten, wrote that the IRS and private firms "have been working in partnership to collect back taxes efficiently and cost effectively, while protecting taxpayer rights, privacy, and security."

The program, in place since 2006, has come in for scathing criticism from the National Treasury Employees Union and the IRS' National Taxpayer Advocate. House Democrats have repeatedly tried to kill it. House Ways and Means Oversight Subcommittee Chairman John Lewis, D-Ga., Rep. Chris Van Hollen, D-Md., and others introduced legislation this month to repeal its authority.

Critics argue the IRS has spent about $80 million on the program while only netting $60 million in revenues. Private firms net $13 million in commissions. National Treasury Employees Union President Colleen Kelley referred to private debt collectors as "bounty hunters" who "collect taxes from vulnerable people for profit" in testimony submitted to Lewis' panel this week. "The last thing people need when they are straining under job losses ... are bounty hunters breathing down their necks," she said.