President Obama's detailed fiscal 2010 budget proposal, released on Thursday, officially zeroed out funding for the two private collection agencies that had worked on the program. The companies' contracts expired in March.
Instead, the budget includes an increase of nearly $400 million for IRS enforcement measures, including $332.2 million "to target and reduce the tax gap by investing in a strong compliance program."
The enforcement program "is aimed at deterring taxpayers inclined to evade their responsibilities while vigorously pursuing those who violate tax laws," the budget document said.
Although the administration did not specify how the additional funding would be used, IRS officials previously have said they anticipated hiring more than 1,000 collection employees by the end of fiscal 2009.
"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," Commissioner Doug Shulman said in March, when the debt collection program officially was terminated.
The National Treasury Employees Union, which fought the contractor program fiercely, has said the IRS reduced the size of its key enforcement staff, including revenue officers and revenue agents, by as much as 30 percent during the past 12 years.
The administration estimated this week that the new enforcement personnel will generate $2 billion in additional annual revenue.
In 2008, direct revenue from enforcement activities totaled $56.4 billion, the budget said.
"Increased resources for the IRS compliance programs yield direct measurable results through high return-on-investment activities," the budget proposal said. "However, this estimate does not include the revenue impact from the deterrence value of these investment and other IRS enforcement programs, which are conservatively estimated to be at least three times the direct revenue impact."
The IRS began using contractors for debt collection in 2006. NTEU and its allies in Congress argued that the firms denied low-income taxpayers a range of payment options often provided to them by the IRS, such as postponing or suspending collection for a limited time or implementing flexible payment schedules.
The national taxpayer advocate, meanwhile, had repeatedly called for the repeal of the program, arguing that it was ineffective and accusing IRS management of overstating the debt recovered by private collection agencies.
An IRS review of the program, which the agency relied on as justification for canceling the program, indicated that private collection agencies recouped less money per case than federal employees, closed fewer cases and were more expensive than in-house collectors.
In total, the administration is seeking $12.1 billion for the IRS in fiscal 2010, up from the $11.5 billion appropriated for the current fiscal year, which ends on Sept. 30.