Congress Targets Firms That Collect Tax Debt

Posted April 14, 2008 at 6:47pm

For some companies, tax day is more than a matter of ponying up to Uncle Sam — it’s a matter of survival.

That’s because firms that have contracts to help the Internal Revenue Service collect outstanding tax debts are on the defensive today, as the tax deadline has given Members an opportunity to consider legislation that would shut down the program.

A tax bill that is planned to hit the House floor today includes, among other issues, a repeal of the IRS’ authority to use private debt collection companies to haul in unpaid tax revenue.

And in the other chamber, Sens. Byron Dorgan (D-N.D.) and Patty Murray (D-Wash.) have set their sights on eliminating the program that got into swing last year.

“The IRS has decided to hire private debt collection agencies, and they’re actually spending more money than they’re collecting,” Dorgan said in an interview. “How does a program to collect taxes lose money?”

The government currently is facing a gap between what it’s due and what it collects of around $300 billion.

Dorgan and Murray recently sent a letter to IRS Commissioner Douglas Shulman asking him to conduct a review of the “ill-advised program” and to ultimately terminate it.

“Not only have private tax collection workers violated federal debt collection laws and disclosed confidential taxpayer information, the program lost $50 million its first year and is expected to lose more in the future,” the Senators wrote in their letter.

The National Treasury Employees Union has made killing the program a top priority. According to the union’s lobby fact sheet, the U.S. Treasury could have collected more than $1.4 billion a year by using IRS Automated Collection System employees “as compared to the $32 million in gross revenue the program brought in through the end of” the 2007 fiscal year.

“We have been working with everyone in the House, trying to get them to have the facts that they need,” said the union’s president, Colleen Kelley. “This is costing America’s taxpayers money and putting taxpayer information at risk.”

But Jeff Trinca, a lobbyist at Van Scoyoc Associates who represents Pioneer, one of the companies doing business with the IRS, said that after some initial startup expenses, the program actually will net the government millions of dollars in uncollected taxes. Pioneer and CBE Group, which also has a contract with the IRS, are working through the Tax Fairness Coalition to make sure Members get their messages and keep the program in place.

“You’ve got dollars that would not be collected otherwise,” Trinca said. He added that most of the debts the private companies have collected on are for bills of $5,000 or less. “That’s key because what the Joint Tax Committee has estimated is that but for this program, these small debts will not be collected, so that’s how it actually raises revenue.”

At the outset, the government made an investment of $38 million in the program, he said, and will spend an additional $7 million per year. He disputed Dorgan’s and Murray’s claims, which are based on IRS figures.

The debt collection companies, he said, do not overlap with what the IRS already does. Companies such as Pioneer find delinquent taxpayers, call them and set up a payment schedules. “If the IRS tried to set up its own outbound call system, the costs would probably be tenfold,” Trinca said.

Last year, the companies collected about $37 million, he said, and the IRS gets to keep 25 percent of that, about $9 million.

One tax lobbyist not working on either side of the issue said the Democrats’ position favors that of the union, which is concerned about jobs.

“The Republican position isn’t that great either,” the lobbyist added. The revenue collected under this program “is smaller than a drop in the bucket. This private sector collection thing is the equivalent of spitting into the wind in terms of solving the problem of unpaid taxes,” he said.

In addition to the Tax Fairness Coalition, the Association of Credit and Collection Professionals has mobilized to support the program. The group’s director of government affairs, Adam Peterman, said with Members speaking out about the tax gap, this program is one of the ways of closing the difference between what is owed and what is collected.

“That’s what our member companies are helping the IRS achieve,” he said. “We think we’re proving the private sector can supplement as opposed to compete with the IRS to help close the tax gap.”

And Trinca said that “whenever a nonpartisan, nonpolitical” entity has reviewed the program, it’s gotten high marks. “The Treasury IG for tax administration has done three reports on the program. They’ve had three positive reports.”

Peterman said he believes the Bush administration will seriously consider a veto of the tax legislation, but Members have a backup plan.

Dorgan said that if the legislation to end the program does not get done, he will support a rider on the IRS’ appropriations bill prohibiting the use of any funds spent for the program.

“This comes from the White House where they are intent on privatizing everything,” Dorgan said. “We wish the IRS would do the right thing here and spend the money with collectors in the IRS, which will actually yield more revenue.”

But lobbyists supporting the program say it makes sense and are clamoring to keep the program afloat.

“There’s never an easy way to collect taxes, but if you’re going to do it, this is a very professional, straightforward and cost-effective way of doing it,” Trinca said.