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Congress to Give Private Debt Collection Another Try

If at first you don’t succeed, try, try again.

That mindset is on display in Congress right now as both chambers are considering bills that would require the Internal Revenue Service (IRS) to hire private contractors to help collect millions of dollars in delinquent federal taxes. With the IRS forced to cut its in-house collection staff over the last few years due to budget constraints, the delinquent tax total is growing and so is pressure on the IRS to turn to the private sector for help.

But we’ve been down this road before, and the results were less than encouraging. The Project On Government Oversight documented the recent history of private debt collection in our Bad Business report. While tax collection is considered an inherently governmental function (see “Appendix A. Examples of inherently governmental functions….20. The collection, control, and disbursement of fees, royalties, duties, fines, taxes and other public funds….” Emphasis added), staffing shortages in the 1990s compelled the IRS to hire private companies to assist the agency in recovering unpaid taxes in relatively simple collection cases.

The IRS conducted a pilot private debt collection program in 1996 but canceled it after one year due to disappointing recovery totals by the contractors and larger than expected costs (see page 6). Ten years later, a second experiment with private collection of delinquent taxes was also scrapped after a brief run. In addition to cost-ineffectiveness—the cost per delinquent tax dollar collected was more than three times greater for contractor employees than for IRS employees—there were also complaints of threats, misinformation, and other underhanded tactics by the collection companies.

Nonetheless, private debt collection forges ahead in Congress. The Senate Finance Committee recently approved an amendment requiring the IRS to revive the program. The Senate estimates that it will raise $2.4 billion over 10 years. The proposal’s sponsors do not provide an estimate of how much this program will cost. The House introduced similar legislation (see section 6304, “Reform of rules related to qualified tax collection contracts,” on page 176). But it will be an uphill battle. Several Members of Congress, most notably House Minority Whip Steny Hoyer (D-MD), are longstanding opponents of private debt collection.

In our opinion, private debt collection will never work. Government tax collectors have an inherent advantage over private collectors. As government employees, IRS collectors can exercise discretion when working with delinquent taxpayers. They can postpone collection, establish payment schedules, settle debts for less than the full amount owed, and waive penalties. Private collection agencies, on the other hand, are not allowed to exercise discretion (by definition, an inherently governmental function is one that involves discretion). They can only demand payment. If the case develops an unexpected complication, the contractor must refer it to an IRS employee. That one critical difference—discretion—is the reason private debt collection programs have failed in the past.

By: Neil Gordon
Investigator, POGO

Neil Gordon, Investigator Neil Gordon is an investigator for the Project On Government Oversight. Neil investigates and maintains POGO's Federal Contractor Misconduct Database.

Topics: Contract Oversight

Related Content: Government Privatization

Authors: Neil Gordon

Submitted by lindablue at: April 21, 2014
Anything to cost the taxpayers more money while not getting the job done correctly.
Submitted by Inmytime at: April 21, 2014
Another stupid at run at failure. Simple solution is to hire more IRS employees. But the Rethuglicans would hiss " big, bad, government". Since it was proven IRS employees could do it at on third the cost of contractor #2 why in the world does Congress want to waste my tax dollars on a contractor. It has been discovered that these contractors even break the law in their attempts to get the money owed. The only way I wiould agree to this foolishness would be that the contractors be held liable for every violation of law. And be forced to pay the taxes for those they victimize. Take this lucrative contract and turn it into something that could cost any company every red cent they would try to garner from the tax payers.
Submitted by walkerhds at: April 19, 2014
basically, another attempt to privatize profit, publicize risk, and pay off the politically-connected
Submitted by CityguyUSA at: April 19, 2014
Only in he country where the phrase about doing something over and over again and expecting a different result would we do it over and over and expect a different result.
Submitted by proudprogressive at: April 19, 2014
Yet another ploy by the right to privatize more government functions. When will people learn that not all private, for profit companies are not more efficient then our government? That in order for them to be profitable the costs much increase? And, this would be yet another attack on the working poor and not the real tax evaders in this country. I strongly oppose such a move.
Submitted by ButchAZ at: April 19, 2014
Release all drug use prisoners and replace them with major tax cheats!!!
Submitted by norascats at: April 19, 2014
This is an awful idea.

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