Rocky Start Behind It, IRS Program Will Soon Pay Off, say Collectors

Lobbyists for the private collection agencies working for the Internal Revenue Service shared some positive results of the program as they disputed a report this week that called the privatization program a failure. 

The private collectors for the IRS had collected a total of more than $37 million for the agency by the end of fiscal 2007 last September, and expect to have collected a total of $68.7 million by the end of fiscal 2008, according to Rick Castallano, with the Tax Fairness Coalition, and Jeff Trinca, vice president of Van Scoyoc Associates.

Those figures are after commissions are paid to the collection firms, but before the start-up costs of the program are figured in, the two said in a conference call with insideARM. The private collectors are earning an average of 18 cents on the dollar, Castallano and Trinca said.

The program turned net positive last April and will bring in a total net of $27.13 million by the end of fiscal 2008, according to the lobbyists.

National Taxpayer Advocate Nina E. Olson called the program a failure in a 600-page report she delivered to Congress this week ("Taxpayer Advocate Slams IRS Privatization Program," Jan. 10). Olson reported the collectors are “not more successful than the IRS at finding hard-to-locate taxpayers. It is significantly less successful than IRS employees at fully resolving taxpayer past due accounts.”

Olson said that if the IRS had allocated the $71 million it spent to start the program toward the use of its own employees, the agency would have been able to bring in as much as $1.4 billion.

But proponents of the outsourcing program say it is bringing in money the IRS would otherwise not collect and that it is operating efficiently following those start-up investments.  

Trinca acknowledged that start-up costs incurred between fiscal 2004 and fiscal 2007 were significant, but said the costs were necessary investments in privacy and security. Now that those costs are behind it, margins on the program will rise as collections and recoveries increase, said Trinca.

Van Scoyoc represents SLM Corp., parent of Pioneer Credit, one of the collectors hired by the IRS. The Tax Fairness Coalition was created by the collection agencies on the contract including CBE Group, of Waterloo, Iowa. Austin, Texas-based Linebarger, Goggan Blair & Sampson voluntarily left the program in February 2007.