IRS to beef up in-house debt collection capabilities

The head of the Internal Revenue Service on Friday said he is confident he will be able to hire enough employees to fill the gaps left by canceling the agency's private debt-collection program.

"I believe we have strong support from the administration and the Congress for increased IRS enforcement resources going forward," IRS Commissioner Doug Shulman said.

The agency anticipates hiring more than 1,000 collection employees in fiscal 2009, which ends on Sept. 30. "These new employees would give the IRS the flexibility to make assignments based on the areas of greatest need rather than filtering which cases can be worked using contractor resources," Shulman said.

Shulman and Treasury Secretary Timothy Geithner on Thursday announced that they would not renew debt-collection contracts. The decision followed an extensive IRS review of the program, which showed that private collection agencies recouped less money per case than federal employees, closed fewer cases and were more expensive than in-house collectors.

The study, conducted by the IRS and reviewed by MITRE Corp., found that the cost of the IRS' in-house program averaged $0.07 per dollar collected, while that of private debt-collection agencies was $0.24 per dollar recovered. The IRS program recouped 11 percent of debts assigned for collection and moved 28 percent of taxpayers into payment status, compared to 4 percent and 11 percent for private collection agencies.

"I believe that [this] report is the definitive study with a definitive prognosis," said Rep. José E. Serrano, D-N.Y., chairman of the House appropriations subcommittee that oversees the IRS' budget. "The program is not a good deal. We can do it in-house more cheaply, more efficiently and with a greater return per case."

But the Tax Fairness Coalition, a group representing private collection agencies, including the two companies working on the IRS contract, said Monday that the contractors have returned more than $80 million to the Treasury Department -- money that otherwise would never have been recovered, regardless of funding or number of employees.

"The issue here has never been whether the IRS or private debt collection agencies can do this work more efficiently or better," the association stated. "It's whether these delinquent taxes are collected at all. Plain and simple, without this program, the IRS will not collect these taxes. Billions of dollars will simply roll off the books, adding to our nation's ever-growing tax gap, and leaving the American taxpayer footing the bill."

Shulman said the decision to end the program was in no way based on concerns over the performance of the contractors and vowed to reach out to displaced contractors willing to apply for positions at the IRS. A contributing factor in terminating the program, he said, was ensuring that struggling taxpayers have a range of options for paying the Treasury.

IRS employees can provide delinquent taxpayers with offer-in compromises where some debt is forgiven if some is paid; they can extend installment agreements and waive or delay payments. Contractors, by law, are unable to give taxpayers these options.

"In these challenging economic times, I have asked all IRS employees to go the extra mile to help financially distressed taxpayers," Shulman said. "By investing in IRS employees to perform this collection work, we can be assured that we have all the tools available for helping taxpayers confronting complex situations."

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