Obama administration orders review of IRS private debt collection program

Obama administration officials have asked for an independent review of the Internal Revenue Service's controversial private debt collection program, contracting officers told collection agencies on Wednesday.

Two companies with ongoing contracts to recoup delinquent taxes on behalf of the IRS were informed that a decision to exercise the first option year on their contract, which would begin March 8, would not be made until an independent third-party review of the program's effectiveness was conducted and the results were analyzed. The review is expected to take 30 days.

House lawmakers lauded the decision to examine the program, which they have long opposed and repeatedly voted to ban. Support for the program was greater in the Senate.

"Despite evidence that the private collection program has led to undue confusion among taxpayers and did not produce government savings, this program continued without review for years," said House Majority Leader Steny Hoyer, D-Md. "I have spoken to [Treasury] Secretary [Timothy] Geithner about this matter and applaud him for reviewing this program on its merits instead of continuing it based on ideology as the previous administration did."

Hoyer also praised his colleague Rep. John Lewis, D-Ga., for reintroducing a bill on Tuesday to strip the Treasury secretary of the authority to enter into private debt collection contracts. In unveiling the legislation, Lewis said during a recession "taxpayers must be able to deal with the IRS directly to work through any difficulties they may encounter."

Colleen Kelley, president of the National Treasury Employees Union, said Wednesday that when cases are turned over to private agencies, taxpayers are denied the options often provided to them by the IRS, such as postponing or suspending collection for a limited time or implementing flexible payment schedules.

"In the context of the nation's current economic turmoil, it is more critical than ever to end this program," Kelley said. "The last thing people need when they already are straining under job losses and other severe economic conditions are bounty hunters breathing down their necks."

The national taxpayer advocate has repeatedly called for the repeal of the program, labeling it ineffective and accusing the IRS of overstating the debt recovered by private collection agencies.

Kelley said the program should be shut down immediately instead of waiting for a review, but expressed confidence that an objective analysis would lead to the "inescapable conclusion" that the program is a costly failure and should be ended promptly.