IRS drops private tax collectors

The Internal Revenue Service said today it has dropped a controversial program that outsourced the collection of some overdue taxes to private debt collectors and is bringing the work back in house. The IRS did not renew its contracts that expired today with two private debt collection agencies based on the results of a cost-effectiveness review, IRS Commissioner Doug Shulman said.

“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,” he said in a statement.

IRS employees have more options in resolving tax collection cases than do private contractors, Shulman said. The IRS anticipates hiring more than 1,000 new collection employees during this fiscal year, which 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, he said.

The IRS’ National Taxpayer Advocate, Nina Olson, has testified before Congress against the use of private debt collectors, a program that the IRS started in 2006, because of the potential for violations of taxpayers' privacy rights and a lack of transparency of private collection agencies’ procedures. The service pays too much to private debt collection services for the amount of taxes that they bring in, she has said.

The IRS in 2006 had reduced the number of customer service representatives and hired contractors to collect simple cases of outstanding taxes so it could hire more skilled workers for tougher enforcement cases.

The IRS used an early version of its Filing and Payment Compliance System to support the private collectors. The inventory management system scored non-filer and overdue cases, separating complex cases that required direct IRS employees to be involved from those the contractors could handle.

The National Treasury Employees Union (NTEU), which represents IRS employees, praised the decision. NTEU had led a campaign since the program was proposed six years ago to call attention to its flaws.

“It reaffirms what NTEU has said repeatedly — that given the tools and resources, no one can perform the work of the federal government better than federal employees,” said Colleen Kelley, the union's president.

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