Private collectors cost IRS, group says
The IRS' use of private collection firms to dun delinquent taxpayers is generating $81 million less annually than if the tax agency handled the job itself, the IRS National Taxpayer Advocate said.
Escalating a political battle over the program, Nina Olson told a House oversight subcommittee her estimate of lost revenue "destroys whatever thin rationale might remain" for continuing the privatization effort.
Olson's criticism, the latest in a series, focused on a program launched in 2006 with the aim of improving collections from taxpayers who owe less than $25,000 and haven't disputed the debt. Two private firms, keeping up to 24 percent of what they recover, have collected roughly $43 million overall so far, according to the IRS.
Olson said the cost of administering the program, combined with the amount the private firms keep, leave the IRS with $11 million in net annual revenue.
If the work were instead handled by IRS employees through the tax agency's Automated Collection System, annual net revenue would total approximately $91.8 million, Olson estimated.
Acting IRS Commissioner Linda Stiff questioned the projections. She told the panel IRS employees would continue working on more complex tax cases - not pick up the work handled by private firms - even if Congress revoked the program's authorization.
As a result, said Stiff, the IRS would lose the amounts now being collected each year by the private firms.
Subcommittee reaction broke down along partisan lines, reflecting the Washington standoff that has blocked any changes in the collection program.
Endorsing Olson's arguments, Rep. Bill Pascrell, D-N.J., said the privatization effort was an "ideologically driven" program and "a waste of taxpayers' money."
The IRS employee union agreed, arguing the program also poses a security risk to taxpayer data.
But Rep. Jim Ramstad, R-Minn., said analyses by non-partisan groups have been more supportive of the program. The Tax Fairness Coalition, a group representing the private collection firms, said the program is on pace to surpass the IRS' projection of $23 million in gross revenue for this federal fiscal year.
"All the objective evidence points to the fact that it's working," said Ramstad.
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