September, 2007
The Newspaper of the NYSSCPA
Vol. 10, No.16

House Bill Includes Repeal of IRS Private Debt Collection Program

By Allison Schiff

The Internal Revenue Service’s private debt collection (PDC) program, having met with strenuous resistance in Congress since its inception a little less than a year ago, is currently under direct fire from the House Ways and Means Committee and could face repeal if the Tax Collection Responsibility Act of 2007 (H.R. 3056), introduced in the House in mid-July, is passed.

The bill, sponsored by Ways and Means Committee Chairman Rep. Charles B. Rangel (D–NY), was placed on the Union Calendar, the schedule used in the House for bills involving money issues, and includes, in addition to a repeal of the IRS’s authority to enter into private debt collection contracts, provisions such as a repeal of the suspension on certain penalties and interest, a revision of tax rules on expatriation and an increase in corporate estimated tax payment requirements.

Putting an end to the agency’s controversial private debt collection initiative couldn’t come soon enough, House Ways and Means Oversight Subcommittee Chairman John Lewis (D–GA) said.

“The private debt collection program is an insult to the American taxpayer and our Federal tax system,” stated Lewis, who maintains that the collection of taxes is not only a core government function, but the IRS’s mission.

“We found that, in addition to taxpayer harassment, this program wastes tax dollars by paying a bounty up to 24 percent to the debt collectors [and] we were told by the IRS Commissioner that IRS employees could do the job more efficiently for less money,” stated Lewis. “Enough is enough—we must stand up for taxpayers and we must stand up for IRS employees by ending this program.”

Witnesses at a hearing held by the Committee in May to investigate the use of private agencies to collect federal tax revenues “concluded that the IRS could collect unpaid federal taxes more efficiently than private debt collectors.”

Witnesses at the hearing included IRS National Taxpayer Advocate Nina E. Olson, a vocal critic of the PDC program, and acting IRS Commissioner Kevin M. Brown, who testified that though the “program has garnered controversy since its inception,” it has received few complaints from targeted taxpayers and “proved to be an effective tool in our efforts to address the tax gap, brining in $19.49 million in gross tax revenues to the Treasury that would have otherwise gone uncollected.”

Opponents of the PDC program and privatization, however, contend that it is not cost effective and, despite private collection agency training, runs the risk of compromising the security of taxpayers’ private information.

The program was initially launched in September 2006 in order to help close the tax gap, now estimated at more than $300 billion.

If passed into law, H.R. 3056 would be effective on the date of enactment and would only apply to contracts entered into before July 18 of this year. Contracts entered into before this date cannot be renewed or extended after July 18.

Not Sad to See It Go

Though the PDC program has not been in existence long enough for either NYSSCPA Relations with the IRS Committee Chair Alan J. Straus or his committee members to have had a great deal of firsthand experience with it, they, said Straus, were generally “not in favor of implementing the program to begin with.”

“I think that by employing outside agencies to do your job, it diminishes your stature in the eyes of the public,” said Straus. “Then you become no higher than a meter maid giving out parking tickets, and the IRS deserves more respect from the public than an individual is going to give when dealing with someone from a private company.”

Though Straus sees the collection of tax, as Olson calls it in her midyear Taxpayer Advocate report to Congress, “an inherently governmental function,” he explained the IRS’s reasoning behind implementing the use of private agencies.

“It’s about money and budgetary constraints,” said Straus. “The perception was that these agencies could generate more money at a lower cost per dollar. The only reason you would use one of these agencies is to save money.

“When a company offers to do work on commission, most companies would agree because, what do they have to lose?” he said. “If they don’t collect, they don’t have to pay, and if they do, then the money they get back is better than getting zero.”

But the IRS is not a regular company looking to collect on a few past-due debts, said Straus.

“The IRS and the government already have people who are trained to collect,” said Straus. “Personally, I think that the IRS is going about the issue of uncollected taxes in a completely misguided way.”

Straus has a few suggestions of ways to better deal with past-due accounts.

“The IRS needs to take more of a businessman’s approach rather than a governmental one,” he said. “The IRS ought to do more in terms of offers-in-compromise and take other, more creative approaches, like accepting partial payments and being cooperative with certain individual and personal financial circumstances so that at least they can collect something on the dollar.”

Both individual taxpayers and the IRS itself would benefit if the latter employed a more flexible and compromising attitude when managing collections, he said.

“For example, I’ve run into some really unusual situations,” Straus said. “Say a person can get a better interest rate on a loan if only the IRS would temporarily remove a lien on his house, but unfortunately, the IRS refuses to play ball or take individual circumstances into account.”

All in all, Straus would be pleased to see the sunset of the PDC program.

“We didn’t want to see it get started to begin with, so the fact that it could be ending abruptly now is just fine with me,” said Straus.

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