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House Tax Writers Vote To Repeal Private Tax Debt Collection

by Leroy Baker,, New York

23 July 2007

The US House Ways and Means Committee has voted to approve new legislation repealing the use of private debt collection companies to collect federal income taxes.

The Committee, which has jurisdiction over tax legislation, approved the Tax Collection Responsibility Act of 2007 by a vote of 23 to 18 last Wednesday.

Most Democrats have been strongly opposed to the initiative to outsource the collection of tax debts to private companies. They argue that private debt collectors are violating taxpayer privacy laws, harassing taxpayers, and collecting debt more expensively than IRS agents.

Earlier in the year, the Committee held hearings investigating the use of private debt collectors to collect Federal tax revenues. During the hearing, witnesses - including then Internal Revenue Service Commissioner Mark Everson - concluded that the IRS could collect unpaid federal taxes more efficiently than private debt collectors, the Democrats have claimed.

"The private debt collection program is an insult to the American taxpayer and our Federal tax system," argued Oversight Subcommittee Chairman John Lewis (D-GA). "The collection of taxes is a core government function. It is the Internal Revenue Service’s (IRS) mission. We found that, in addition to taxpayer harassment, this program wastes tax dollars by paying a bounty up to 24% to the debt collectors. We were told by the IRS Commissioner that IRS employees could do the job more efficiently for less money. Enough is enough, we must stand up for taxpayers and we must stand up for IRS employees by ending this program."

The IRS was granted authority to institute a private collection program in 2004 under Internal Revenue Code section 6306. It allows for the IRS to pay a commission of up to 25% of amounts collected. The IRS had three collection firms under contract from September 2006 to March 2007. However, only two of those contracts have been extended, and the cases pending before the third contractor have been recalled. The IRS plans to award three to five additional contracts in October 2007.

Supporters of the scheme, such as Sen. Chuck Grassley (R, Iowa), say that contrary to the images of thuggish collection agents conjured by opponents, the private debt collection program merely consists of having contractors making basic phone calls to taxpayers.

Grassley has said that that opponents of the scheme have put together "an amazing campaign of misinformation" and argues that the "tough cops" of the IRS were better equipped to go after serious cases of tax evasion, while small, newer debts, which make up a large percentage of delinquent taxes, are best obtained by a private companies using modern outbound call systems and empowered only to "find, call and convince".

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