IRS Hires First Private Collectors

July 1996
EXECUTIVE MEMO

IRS Hires First Private Collectors

The IRS is moving forward with its controversial plan to use private firms to collect unpaid income taxes from businesses and individuals. Early this summer the IRS plans to award three to five contracts to private debt collectors. Each contractor will pursue 25,000 to 40,000 cases a year-a total of about 125,000 taxpayers in 13 states. The pilot program will be the first time the IRS has ever employed private debt collectors.

The IRS isn't breaking precedent willingly: Congress required the tax agency to launch the pilot program. IRS officials refused to discuss the program. However, top IRS and Treasury Department officials have expressed concerns about using private contractors to collect federal tax debts. In testimony before the House Ways and Means Committee's oversight subcommittee in April, Deputy Assistant Secretary for Tax Policy Cynthia G. Beerbower urged the committee "to approach the topic of outsourcing tax debt collection especially cautiously" and voiced concerns "that the protection of the taxpayer rights not be sacrificed in the enthusiasm to increase tax collections."

Private contractors' activities will be limited to locating and contacting delinquent taxpayers by phone or by mail, reminding them of their debts and attempting to arrange a payment schedule. Contractors will have no enforcement or seizure powers and will be required to adhere to an array of federal laws and elaborate operating protocols.

That annoys some contractors. "We don't believe as it's currently structured the pilot is likely to produce useful information," says Saul L. Moskowitz, of the Washington-based law firm of Dean Blakey & Moskowitz and a counsel to the Fair Share Coalition, a group of private debt collectors. Moskowitz says he nevertheless expects a strong industry response. "The general feeling is even though it's very likely to lose money, it's good business to get your foot in the door."

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