Taxpayer advocate renews concerns about private debt collection

The Internal Revenue Service's national taxpayer advocate is once again calling for the end of the agency's private tax debt collection program, citing concerns over its financial viability as well as potential risks to taxpayers.

National Taxpayer Advocate Nina Olson has repeatedly voiced opposition to the privatization of what she considers an inherently governmental function. In a new report to Congress, she takes issue with what she calls the program's "dismal return on investment."

According to the report, the IRS plans to spend $7.5 million on the program in fiscal 2008 and projects that it will bring in approximately $30 million in revenue. Olson said if the IRS instead invested that $7.5 million in its automated collection system, it would collect more than $146 million. "The IRS would come out at least $116 million ahead by applying the actual costs of program maintenance and supervision to [the automated collection system] instead of the [private debt collection] program," she said.

Colleen Kelley, president of the National Treasury Employees Union and a fervent advocate for repeal of private debt collection, said the report was "the most damning evidence yet of the incredible failure of this misguided program."

According to the IRS, while revenue has been less than originally projected, the $32.1 million collected through fiscal 2007 is still a sizable amount that otherwise would not have been collected at all.

"In evaluating the PDC program, it is important to remember why it was created," the IRS wrote in its response to the advocate. "It was never designed to compete with IRS collection activity. . . . the issue is not whether the [private collection agencies] or IRS could do a better job collecting this revenue. The issue is whether the revenue collected by PCAs goes uncollected."

Jeff Trinca, vice president of Van Scoyoc Associates, a Washington law firm representing the collection agencies, said Olson is "using the numbers available as a good advocate should, not as an independent overseer of the program."

In her report, Olson criticized both the collection agencies and the IRS for not providing timely information about how the companies perform debt collection. She said the companies were classifying documents such as call scripts, the text of written communications and certain training materials for employees working on accounts as proprietary when they are necessary for oversight and to ensure that taxpayers' rights are not being violated.

"The IRS has an obligation to make the bulk of its policies and procedures available to the taxpaying public, and it substantially complies with this obligation," Olson wrote. "However, the IRS has failed to ensure that the operations of the PCAs are equally transparent. . . . the PCAs have designated almost all of their operational plans as proprietary information."

Dan Drummond, spokesman for the Tax Fairness Coalition, which represents the private debt collectors, said the companies have made the information available when necessary, including for congressional hearings.

"The companies participating have been very transparent," he said. "We have worked with the IRS to comply with [the] letter and spirit of all the laws and regulations."

Olson said while she has been told that the information could be detrimental to companies' competitive advantage, the agencies' willingness to disclose call scripts at a May 2007 hearing before the House Ways and Means Committee shows that "agencies believe the benefits of obtaining or retaining the IRS contract outweighed any harm caused by disclosure of this information."

She recommended that the IRS include a provision in all renewals or future contracts that prevents private debt-collection agencies from treating information relevant to taxpayers' rights as proprietary.

Proponents insisted the program has been extremely successful. The Treasury Department's inspector general for tax administration said it was being effectively implemented in its most recent audit and, according to the IRS, taxpayer satisfaction with the program is high, averaging 96 percent from April to October 2007. The taxpayer advocate commended the IRS for informing taxpayers of their ability to opt out of the private program, and the IRS says only 0.5 percent of taxpayers placed with private agencies have chosen to have their case returned to the IRS.

"When you get As and A-plusses from the people you're serving, something is going right," Drummond said.

Opponents, including Kelley and Olson, continue to call on Congress to repeal the program. Legislation to that effect (H.R. 3056) passed the House in October and has been referred to the Senate Finance Committee, which many say is likely the end of the road.

"There's not a lot of interest in this in the Senate, and Sen. [Chuck] Grassley is a major supporter of the program," Trinca said. The Iowa Republican is very influential as the ranking member of the Finance Committee.