IRS Moves Forward On Privatized Tax Collection

by Mike Godfrey, Tax-News.com, Washington

02 May 2005

After last year's American Jobs Creation Act gave the IRS authority to use private debt collectors to pursue $120 bn of accumulated unpaid tax, the agency has now issued tender documents for the first phase of the process, to take place in 2006.

Three firms will be given contracts to collect on an initial tranche of $7.7 bn; they will keep 20% of the tax they collect, but will be bound by tight restrictions and will not be allowed to take enforcement action as such. "In no event shall a contractor take, imply, or suggest enforcement activity against a taxpayer or third party," says the tender document.

The programme will eventually involve up to 10 firms, but will not be fully operational until 2007. The IRS told Congress that as of September 2001 (the latest date for which precise information was available) an estimated 76,686 taxpayers had outstanding tax bills in excess of $100,000.

IRS Commissioner Mark Everson told a House Ways and Means subcommittee in February that he meant to be very careful with implementation of the project. "We will get one shot at this; we can't blow this," he said.

Mr Everson is no doubt mindful of the intense resistance the project has created among unionized IRS staffers, as well as consumer groups and libertarian lawmakers concerned about privacy issues.

Last February, the Treasury unveiled a proposed regulation designed to clarify the restrictions that apply to confidential tax return information that the IRS releases to contractors and, in turn, subcontractors, performing tax administration services. Under the Revenue Code, an IRS contractor may see return information if access to the information is necessary to process returns, program equipment, or perform other contractual services. The February regulation clarifies that subcontractors must comply with the same strict protocols as contractors in handling return information, and states that subcontractors, like contractors, are subject to civil and criminal penalties for improper disclosure.

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