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Grassley Urges Reality Check On IRS Private Debt Collection

by Mike Godfrey, Tax-News.com, Washington

26 April 2007


Senator Chuck Grassley, ranking member of the Committee on Finance, is urging his fellow senators to reject what he says are inaccurate claims about the Internal Revenue Service’s program to collect taxes using private contractors.

In a 'Dear Colleague' letter, Grassley argues that the IRS’s own collection infrastructure is better set up for placing liens and garnishing wages than making initial phone calls to delinquent taxpayers to set up a payment plan.

Grassley wrote that the private debt collection program consists of having contractors making basic phone calls to taxpayers, contrary to the images of thuggish collection agents conjured by opponents.

"The opponents of the IRS program to collect uncontested taxes owed to the US Treasury have put forth an amazing campaign of misinformation," his letter began.

According to Grassley, every year, over $20 billion of unpaid taxes are lost due to the tolling of the 10-year statute of limitations, while there are currently over 7 million cases, representing over $90 billion, languishing at the agency that could be collected.

"Some of this money is best collected by the tough cops of the IRS, fully empowered to seize property, garnish wages, freeze bank accounts and sell the family home or business," said Grassley. "But, a large percentage – typically the smaller, newer debts – is best obtained by a modern outbound call system, empowered only to find, call and convince."

"The IRS does not have such a system and building the infrastructure and training IRS employees on how to work such a program would take years if not decades," Grassley continued. "Calls by opponents to simply retrain service center personnel and hand them a telephone demonstrates a complete misunderstanding of how a sophisticated, modern outbound calling program works, and what it takes to build one."

Grassley also rubbished claims that the private tax debt collection program is unpopular with taxpayers, pointing to customer satisfaction surveys that showed employees of the program recieved a 94% customer service rating from taxpayers in the first 3 months of its implementation. This compares to 63% for IRS collection personnel, he said.

"The opponents of the program paint a dire picture of psychological harassment and abuse. In reality, as few as 36 inquiries have been registered out of more than 24,000 cases. And, it is unclear how many of these were real complaints and how many were merely questions about the program. The numbers just do not merit the silly and offensive images of gangsters bandied about by opponents of the program," Grassley wrote.

Arguments that IRS personal can collect tax debts more cheaply than their counterparts in the private sector are also wrong, Grassley argued. In 2005, the Treasury Inspector General for Tax Administration found that IRS agents collected on average $577,000 each. These officers cost the government approximately $154,000 a year in salary, bonus, benefits, taxes and other costs.

"That is an excellent return on investment, but simple math shows that for every dollar collected by these important IRS collection personnel, it cost the government conservatively 26 cents," Grassley noted. Oppenents of the private scheme have claimed that the IRS can collect delinquent debts for as little as 3 cents on the dollar.

"Some argue that the IRS can do it cheaper by hiring more personnel, but it is important to remember that the IRS Restructuring Commission found that the IRS does not perform, nor do they particularly understand, cost analysis as required and used by the private sector," Grassley wrote. "Last year the agency collected over $43 billion total enforcement dollars. In their budget justification for OMB, they listed their costs for enforcement at $1.8 billion - thus, the existence of the almost magical 3 cents on the dollar number used by the opponents of the program."

"Don’t be fooled, however, by a number which includes computer matching notices, drug seizure and refund offset programs. In fact, the actual number brought in by collection personnel last year was only $5.8 billion," he told collegues.

"In short, the private debt collection program is working. Killing it now would mean billions of dollars of uncontested taxes would not be available for the war on terrorism, education, and caring for the elderly – to name just a few," he concluded.


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