| Overdue tax bill? A collection agency may call |
| By Jay MacDonald • Bankrate.com |
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Collection agencies have recently begun contacting
tax dodgers about their unpaid tax bills. Meanwhile, a group of
U.S. Senators have introduced a bill to stop the practice just as
it's getting started.
The Internal Revenue Service is outsourcing the task
of collection to three private firms in the limited implementation
phase of a congressionally approved private-debt-collection initiative.
The records of some 12,500 taxpayers have been released to these
firms.
A bill co-sponsored by Senators Byron Dorgan (D-North
Dakota) and Patty Murray (D-Washington) calls for the IRS "to
cease and desist from having private companies harass taxpayers,"
Murray said in a press release. The bill was introduced in mid-September,
less than a week after collection efforts had begun.
IRS officials have publicly conceded that the collection
would be less costly if handled internally, but Congress prevented
the agency from hiring more revenue officers; hence the private
firms are picking up the slack by handling the easier cases.
The agency expects its private contractors to collect
$1.4 billion in outstanding taxes during the next 10 years. If all
goes well, the IRS expects to contract with up to 10 additional
private collection agencies to expand the program beginning in 2008.
But a lot can happen between now and then.
Outsourcing debt collection might be a relatively
new phenomenon to the IRS, but the three firms chosen from a total
of 33 applicants have already collected millions for a variety of
federal agencies as approved contractors with the General
Services Administration.
"They were all on the GSA's debt collection schedule, so they've already been prescreened to do debt collection work with the U.S. government," says IRS spokesman John Lipold.
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The three chosen firms include: |
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Approximately 140 federal agencies refer their delinquent
debt to the Department of Treasury, which then contracts with approved
private collection agencies. Among those departments that routinely
outsource collections are Labor, Defense, Agriculture, Health and
Human Services, the Veterans Administration, the Immigration and
Naturalization Service and the Environmental Protection Agency.
Why has the IRS been late to outsource its debt collection?
For starters, it was prohibited by law from doing so for years,
due in part to fears that taxpayers' personal financial information
might fall into the wrong hands. Then came an outsourcing pilot
program in 1996-1997 that fared so poorly that Congress pulled the
plug on it.
In 2004, after turning down IRS Commissioner Mark Everson's request for a funding increase, Congress approved, with President Bush's endorsement, the American Jobs Creation Act that opened the door to IRS debt outsourcing.
Limited authority
The act imposes strict taxpayer protection and privacy rules on
the private debt collectors. For instance, private collection agencies
are prohibited from using subcontractors. The IRS also developed
its own strict guidelines: All private firm personnel must pass
a government background check, submit to fingerprint screening and
complete an IRS training program. The private collection agencies
must also provide a separate secure facility dedicated to IRS collections
and cannot compensate its employees based on dollars collected.
"Our people are going to be trained as well as most of the IRS people who handle this kind of stuff, and more because we're looking at the Fair Debt Collections Act and everything else that we have to comply with," says Tom Penaluna, CBE Group president, CEO and owner. "Our people are going to be experts by the time they get on the phone and start talking to taxpayers."
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