House Votes an End to IRS Use of Private Tax Collectors

In a move that serves the nation’s taxpayers, the House of Representatives approved a tax bill containing a provision that would end Internal Revenue Service (IRS) use of private collection agencies to collect federal taxes.

The House approved H.R. 5719, the Taxpayer Assistance and Simplification Act, after a broad coalition of unions and public interest groups—led by NTEU—wrote to every House member in support of the measure. NTEU has been in the forefront of the fight against privatization of tax collection.

“The House vote shows clearly the growing depth and breadth of opposition to the IRS using private tax collectors,” said NTEU President Colleen M. Kelley. The bill was approved despite a White House veto threat contained in a Statement of Administration Policy.

The letter to House members from 13 unions and public interest groups argued that the “sky-high commissions” of up to 25 percent paid to the private companies “for work on the easiest to collect cases is unjustified and unnecessary.” More

Earlier, the IRS program came in for renewed criticism from Rep. Jose Serrano (D-N.Y.), chairman of the House Appropriations Subcommittee on Financial Services and General Government. At a hearing on the IRS’s proposal fiscal 2009 budget, he said “this program continues to lose money, and there is no evidence that these debt collection companies can do the job just as effectively as the IRS.” The IRS return on investment is put at 13 to 1, compared to a mere 4 to 1 for the private collection agencies.

The agency recently extended the contracts of two of the three private companies it had hired—it previously terminated the contract of the third company, but refuses to say why—despite the program having incurred a loss of $50 million in its first year of operation. It is now not expected to break even until 2010, at the earliest, despite IRS projections that the break-even point would be reached this year.

What’s more, the IRS National Taxpayer Advocate has warned Congress that continued use of private tax collectors could result in as much as half-a-billion dollars in foregone Treasury revenue over the next six years.

“The collection of taxes is an inherently governmental function that should be restricted to properly trained and proficient IRS personnel,” said Kelley.

The House-passed tax measure, introduced by Ways and Means Committee Chairman Rep. Charles Rangel (D-N.Y.) and with the privatization provision modeled after language advanced by committee member Rep. Chris Van Hollen (D-Md.), now moves to the Senate, where opposition to private tax collection also is growing.

Most recently, Sens. Byron Dorgan (D-N.D.) and Patty Murray (D-Wash.) wrote to IRS Commissioner Douglas Shulman seeking a prompt review of the program that they believe would lead to the agency dropping the program. The senators are co-sponsors of S. 335, a bill that would effectively end the IRS’s use of private tax collectors. More