House Lawmakers Block Private Tax Debt Collection

by Leroy Baker, Tax-News.com, New York

16 June 2006

The US House of Representatives has approved legislation that will result in a cut to the Internal Revenue Service's funding request and block a controversial measure to allow private collection companies to collect outstanding taxes.

In a 406-22 vote on Wednesday, the House approved a $10.5 billion 2007 fiscal year budget for the IRS budget which fell $104.5 million short of the funding request in President George W. Bush's budget.

The IRS budget is part of a $139.6 billion spending bill for the Treasury, Transportation and other agencies. The Senate has yet to draft its own version of the bill.

The outcome of the vote attracted criticism from IRS Commissioner Mark Everson, who has warned that the budget cut will lead to job losses within the agency. He also condemned the move to block plans to introduce private companies to collect delinquent taxes which, he argued, would improve tax collection while saving the IRS money.

However, this was an argument rejected by Rep. Steve Rothman (D - NJ), sponsor of the amendment to the 2007 Transportation, Treasury, Housing and Urban Development (T-THUD) Appropriations bill blocking the use of private collection agencies.

The Rothman Amendment survived a major hurdle in the House when a Republican attempt to strike the amendment on a technicality failed and a counter-amendment threatened by Rep. Bill Thomas (R-CA) was not offered at the last minute.

Rothman says that not only does the private collection scheme have a large start-up cost of $56 million, but also lets private debt collection agencies charge 25 cents for every dollar collected while additional IRS employees will only cost the government 3 cents for every dollar collected.

He also stated that the acceptance of his amendment was a victory for taxpayer privacy.

“After this Administration has created a national debt of over $8 trillion dollars and lost 26.5 million veterans’ private information, why on earth would it push for this costly, dangerous privatization scheme?" he asked.

The IRS announced in March that it had awarded contracts to three firms to participate in the first phase of its private debt collection initiative, which aims to collect $1.4 billion in outstanding taxes over 10 years. However, the project has been placed on hold pending the outcome of a contractual challenge.

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