Private Tax Debt Collection Gets Green Light From GAO

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

21 June 2006

The Internal Revenue Service has been given the go-ahead to proceed with its controversial project to outsource tax debt collection to private firms, after a number of objections to the bidding procedures were rejected.

A Government Accountability Office (GAO) official confirmed to the Tax Analysts news service earlier this week that it has issued its decision to deny the bid protests. An official announcement from the GAO is expected later this week.

The IRS confirmed in the report that it has since rescinded its stop work order.

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. The project, authorized by the 2004 American Jobs Creation Act, aims to collect an estimated $1.4 billion in additional taxes over the next ten years.

A total of 33 firms took part in the competitive bidding process, and the contracts were 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. However, the project stalled after two unsuccessful firms, G.C. Services Limited Partnership of Houston and Diversified Collection Services Inc. of San Leandro, California, filed three protests.

The first cases of delinquent taxes are expected to be handed to the company in September.

The project has provoked criticism from privacy advocates and lawmakers who fear that sensitive taxpayer data could be compromised by allowing private third parties to do a job normally done by the IRS.

Others have also criticised the cost of the project. The collection firms will be allowed to keep 25% of the outstanding tax that they collect, but according to Rep. Steven Rothman (D - NJ), IRS employees can do the same job at a cost of only three cents for every dollar collected.

Rothman has succeeded in getting an amendment added to the IRS fiscal budget 2007, part of a transportation funding bill, that will effectively cut off funding to the private companies, although at this early stage (the Senate has yet to draft its proposals) it is unclear whether the amendment will gather enough support to make the final version of the bill.

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