Private tax collectors under fire by House appropriators

Legislation aimed at halting IRS debt-collecting program is pending now and has failed in the past.

The IRS program of using private debt companies to collect unpaid taxes, which has cost more than the collectors have brought in, drew fire Tuesday from the House Financial Services Appropriations Subcommittee.

"The program allows private companies to collect unpaid taxes and to pocket up to 24 percent of the tax revenue they help to collect," said House Financial Services Appropriations Subcommittee Chairman Jose Serrano, D-N.Y. "This program should not be continued."

Despite that appeal by Serrano and Financial Services Subcommittee ranking member Ralph Regula, R-Ohio, new IRS Commissioner Douglas Shulman deferred giving his opinion on the private collection program.

Explaining he has been on the job for only three weeks, Shulman said he understood the congressional concerns but needs more time to understand the program.

Regula wondered why the IRS could not conduct the same collections, saying there is "no magic" to it.

National Treasury Employees Union President Colleen Kelley called for beefing up the IRS workforce, noting there has been a steady decline for a decade even though more tax returns are being filed.

At the end of fiscal 2007, staffing was down to 86,638 from 90,115 from a year earlier. Even though the Bush fiscal 2009 budget calls for $11.4 billion, up from $11 billion Congress appropriated this year, she called it "insufficient and unrealistic" to meet customer service and enforcement.

The private collectors brought in $32 million in gross revenue in fiscal 2007, as compared to projections of $65 million. After commissions, the net revenue of the private collections was $20 million, Kelley said.

"After spending $71 million in start-up and ongoing maintenance costs through the end of fiscal 2007, the IRS private tax collection program lost more than $50 million," she said, citing Nina Olson, IRS national taxpayers advocate. Although Congress voiced opposition to the private program previously, it has failed so far to stop the practice, which involves only three collection agencies. Legislation to halt the program is pending now and has failed in the past.

On another matter, Shulman promised a "nonpolitical, nonpartisan agency" and said he would take a look at any improper electioneering by nonprofit groups. Overall, based on tax returns already filed, Shulman said it "looks like we're having a successful tax filing season."