Don't Mess With Taxes

The controversial private tax debt collection program ends today.

But its demise didn't come from Capitol Hill lawmakers, many of whom have, since the program's inception, opposed the outsourcing of some unpaid tax bills to private debt collection agencies. Not that they weren't still trying. The most recent effort was via the comprehensive federal funding bill now awaiting approval and which includes a provision to end the program.

Rather the decision came from the IRS.

IRS Commissioner Doug Shulman announced yesterday afternoon that he would not renew collection agency contracts.

The collection work had been conducted by CBE Group Inc. of Waterloo, Iowa, and Pioneer Credit Recovery, Inc. of Arcade, N.Y. Their contracts expire today. A third collection company from Austin originally was part of the program, but its contract was dropped a year ago.

In-house more effective:  "I believe this work is best done by IRS employees, and I believe we have strong support from the Administration and the Congress for increased IRS enforcement resources going forward," said Shulman.

One of the key factors in the decision to return all collection actions to IRS employees is the recent move by the agency to give its staff more flexibility in handling cases, especially those that are in part cased by the current economic downturn.

This is the latest effort by the IRS to accommodate financially struggling taxpayers. First it announced expedited release of cleared tax liens. A few weeks later, the Commissioner detailed ways IRS personnel would work with folks who, because of financial difficulties, are having a hard time paying their tax bills.

In conjunction with the end of the private collection contracts, Shulman noted that the IRS anticipates hiring over 1,000 new collection personnel in fiscal year  2009. The Commissioner said 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 also cited the results of a cost-effectiveness study of the private debt collection program. The study, supported by an independent review, showed that it is reasonable to conclude that when working similar inventory, IRS collection is more cost effective than the contractors.

One unhappy Senator: One lawmaker who is not pleased (despite that official portrait below) with Shulman's decision is Senate Finance Committee ranking minority member Charles Grassley (R-Iowa).

Grassley has been been a big supporter of the the private collection of tax debt, part of which is contracted to a company based in his state. The IRS Oversight Board also had weighed in on the benefits of the private collections.

Grassley continued his effort this week as the Senate took up the omnibus spending bill that contained a provision to end the outsourced collections. He wrote to Treasury Secretary Timothy Geithner and Shulman seeking more information on the program.

He didn't get the response that he wanted.

Grassley blamed the demise of the collection program largely on efforts by the National Treasury Employees Union, which has been a vocal opponent of the program.

However, the union was not alone in calling for the end of the contract collections. In addition to many (and mostly Democratic) Representatives and Senators and consumer groups, the National Taxpayer Advocate also had called for an end to the program, saying it was an inefficient attempt to privatize the IRS responsibility to collect taxes.

Speaking of funding ...: The Omnibus Appropriations Act needed to keep the government running beyond today is having trouble clearing the Senate.

Those lawmakers have postponed consideration of the massive bill until next week. 

Stopgap funding that will keep government offices operational through Tuesday, March 10, is expected to be passed today.

Related posts:

• Another effort to ax private tax collectors
• Private tax collection party is over ... maybe
• Taxpayer bill of rights approved ... again
• House to IRS: Do your job!.
• Grassley gung-ho on private tax debt collectors