IRS Decision To Outsource Debt Collection Raises Privacy Concerns

by Mike Godfrey, Tax-News.com, Washington

13 March 2006

The Internal Revenue Service announced last week that it has awarded contracts to three firms to participate in the first phase of its private debt collection initiative - a controversial decision opposed by privacy advocates.

The contracts have been awarded to the CBE Group Inc. of Waterloo, Iowa; Linebarger Goggan Blair & Sampson, LLP of Austin, Texas; and Pioneer Credit Recovery, Inc. of Arcade, New York.

A total of 33 firms took part in the competitive bidding process that resulted in the contract awards.

The IRS has been authorized to hire private firms to collect federal tax debts to assist the agency in its collection of back taxes by the 2004 American Jobs Creation Act.

Under the rules governing the new contracts, private firms will not be authorized to take enforcement actions such as liens, levies or seizures. In addition, private firms will not be authorized to work on technical issues such as offers in compromise, bankruptcies, hardship issues or litigation.

The IRS also says that it will assign to the private firms cases in which the taxpayer has not disputed the liability. The private firms will contact taxpayers to make payment arrangements.

However, despite the IRS insisting that private firms will be subject to "stringent" taxpayer protection and privacy rules, the decision to outsource tax debt collection to private companies was described President Colleen M. Kelley of the National Treasury Employees Union (NTEU) as "a sad day for America's taxpayers."

“American taxpayers can no longer have the confidence that federal tax collections are not based on personal gain," Kelley commented.

“Taxpayers deserve much better than this program,” Kelley continued. “Their personal, sensitive and private information should not be divulged by our government.”

Kelley went on to warn that unless the "unwise" decision was reversed by the IRS, “the floodgates will be open, and taxpayer information will be up for grabs.”

However, IRS Commissioner Mark W. Everson disputed these claims, noting that the majority of state governments already use private firms to help collect delinquent taxes.

“We have carefully considered all of the concerns expressed about this project, which involves work traditionally done by the government. As a result, we are putting tough safeguards in place to protect taxpayer rights and privacy," Everson stated.

"We will be closely monitoring contractor performance to make sure they’re following the law as well as our own internal standards," he added.

The IRS says that it has also developed its own guidelines for the private firms, including background checks on all private firm personnel associated with the project as well as a mandatory, IRS-directed training program for company personnel.

“Redirecting relatively simple cases to private firms will permit the IRS to focus its existing collection and enforcement personnel on more complex tax issues,” Everson explained.

Over the course of 10 years, the IRS expects the private firms to help it collect an additional $1.4 billion in outstanding taxes.

The IRS expects to assign uncollected liabilities to the firms beginning this summer. In the second phase of the private debt collection project, scheduled for 2008, the IRS intends to contract with up to 10 firms.

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