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US House To Hold Hearing On Tax Collection Agencies

by Leroy Baker,, New York

21 May 2007

House Ways and Means Committee Chairman Charles B. Rangel has announced that the Committee will hold a hearing this week on the Internal Revenue Service’s use of private debt collection companies to collect federal income taxes.

Witnesses at the hearing, scheduled for May 23, will include representatives of the Internal Revenue Service (IRS), National Taxpayer Advocate, US Government Accounting Office, National Treasury Employees Union, and contractors involved in the collection of federal income taxes.

On March 22, 2007, Committee Chairman Rangel, a long-standing and vocal opponent of the scheme which began last year, launched an investigation into the IRS’s use of private debt collection companies citing complaints from taxpayers, instances of harassment and violations of law, and the inability of taxpayers to hold the Federal government liable for the actions of a collection contractor. Further, Rangel urged the Commissioner not to proceed with awarding additional contracts.

The Committee will focus on a number of issues including whether: federal income tax collection is a fundamental governmental function and, as such, should not be contracted to the private sector as a profit-making venture; the IRS can collect federal income taxes more efficiently and effectively than private debt collection companies; taxpayers are subject to confusion, questionable private debt collection company tactics, harassment, and abuse due to the use of private debt collectors; adequate options are available to the IRS to address uncollected taxes in the accounts receivable inventory; the program is ready for expansion and new private debt collection contracts should be awarded in the coming months; and Internal Revenue Code section 6306, authorizing the IRS to enter into contracts with debt collection companies for the purpose of collecting federal income taxes, should be repealed.

“The IRS use of private companies to collect federal income taxes is an affront to the integrity our tax system," remarked Rangel in announcing the hearing.

"The collection of federal taxes is a basic governmental function and one that should not be assigned to profit-making businesses. The outsourcing of IRS tax collection to the private sector carries an unacceptably large risk that taxpayer rights will be trampled and their personal identities stolen. It is unacceptable that taxpayers are footing the bill for a program that pays private companies up to a 25% bounty when the IRS can do the same job for pennies on the dollar," he added.

Section 6306 allows for the IRS to pay a commission of up to 25% of amounts collected. Last year, the IRS awarded contracts to three debt collection companies: Pioneer Credit Recovery, Inc., The CBE Group, Inc. and Linebarger Goggin Blair and Sampson, LLP. In September 2006, the three companies began contacting taxpayers and collecting federal income taxes. After six months, the IRS renewed contracts for two of the companies. The IRS intends to award additional contracts in late 2007.

The use of private debt collectors for federal income tax purposes continues to be controversial. The IRS Taxpayer Advocate, various consumer interest groups, IRS employees, and others have expressed concern that the use of private companies to collect federal taxes is inappropriate and that the tax law provision should be repealed. Others, including private debt collection companies and members of Congress, have argued that the private debt collectors collect money that would go uncollected.

Writing in a 'Dear Colleague' letter to his fellow Senators last month, Sen. Chuck Grassley, ranking member of the Senate Finance Committee, argued 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.

Contrary to the images of thuggish collection agents conjured by opponents, Grassley said that the private debt collection program consists of having contractors making basic phone calls to taxpayers and claimed that opponents of the scheme have put together "an amazing campaign of misinformation."

While Grassley acknowledged that the "tough cops" of the IRS were better equipped to go after serious cases of tax evasion, he said that the 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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