Senate Bill Gives IRS Power To Use Private Collections Firms

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

13 May 2003

A tax bill currently passing through the US Senate will allow the Internal Revenue Service to employ outside collection agencies to recover unpaid tax.

It is estimated that outstanding tax bills in the US amount to around $13 billion, and the IRS lacks the funds or resources to investigate and pursue so many cases.

The proposal has its critics however, as a pilot scheme undertaken in 1996 produced mediocre results and was ultimately self-defeating. In that instance, the external collection companies managed to recover $3.1 million in unpaid taxes, but this amount was offset by the scheme's $3.1 million costs.

Opponents of the measure fear that the private collection firms will use dubious methods to pressure taxpayers into agreeing to unfair repayment terms. Rep. Earl Pomeroy, a North Dakota Democrat, believes that the lack of accountability these firms have will allow them to "harass, intimidate (and) threaten" to recover debts. "The very notion of unleashing an army of private bill collectors on this country ought to give us pause," Pomeroy told the Associated Press.

Tax experts agree that the new system could be open to abuse by collection agencies. Last month, Timothy McCormally, executive director of the Tax Executives Institute told a House committee that the use of outside firms could "imperil taxpayer rights and erode taxpayer confidence in the fairness of the tax system."

This may especially be the case if private collectors are paid on a commission basis. The IRS was some years ago forced to abandon a scheme whereby employees were given incentives relating to the amount of tax that they recovered, due to frequent use of intimidation towards taxpayers. However, the bill seeks to place restrictions on the collectors, who will be unable to contact the taxpayer's employer or other people in relation to the case. The bill also stipulates that a number of factors will be considered in addition to results when companies are paid, such as "quality of service, taxpayer satisfaction and case resolution."

A House Ways and Means sub committee is planning a hearing on the matter in the near future.

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