IRS Should Consider Using Private Debt Collection Agencies, Says GAO

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

01 June 2004

The General Accounting Office has recommended that the IRS should consider using private collection agencies in a bid to increase revenues from debt collections and help clear the billions of dollars in uncollected taxes.

“The growth in the backlog of unpaid taxes poses a risk to our voluntary tax system,” explained Michael Brostek, director of GAO Tax Issues, adding that: “Doing nothing more than has been done recently is not preferable.”

The GAO's report went on to state that: “When the majority of taxpayers receiving phone calls from IRS are those who respond to written IRS notices, taxpayers and practitioners may conclude that failing to respond to IRS is an effective tactic for avoiding tax responsibilities.”

Whilst an IRS analysis found that private collectors would be marginally more efficient at recouping simple tax debts, it failed to uncover whether this would be the cheaper option overall.

According to the Revenue's findings, private agencies would on average collect $4.60 in revenue for every $1 spent, whereas IRS employees would generate $4.10 for every dollar spent.

Legislation is currently pending that would authorise the IRS to utilise private agencies in its debt collection activities, and Commissioner Mark Everson indicated recently that a study will be launched into the costs of hiring private firms, provided Congress approves the proposal.

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