Senate Now Going After IRS Private Debt Collectors

The IRS private debt collection initiative is facing another threat in an Appropriations committee, this time in the Senate, as Congress seeks to choke off funds required to operate the program.

Sen. Richard Durbin, Chairman of the Senate Appropriation Committee’s Financial Services and General Government Subcommittee, added a clause to the Treasury Department’s budget bill that would reduce funding for the program to $1 million from the $8 million requested by the Internal Revenue Service.

Durbin’s language is similar to a proposal in the U.S. House that opponents brushed aside last month with a procedural challenge.

But Durbin believes he may have finessed the procedural entanglements, one of his aides told Dow Jones Newswire late yesterday. Durbin, a Democrat from Illinois, would allow the IRS to continue to fund the outsourcing program using money that the private debt collectors bring in.

The IRS is allowed to keep for enforcement purposes 25 percent of the money the private collectors generate. Durbin’s aide said that the senator’s proposal would allow the IRS to use that revenue to fund the collection program.  In the House’s previous proposal, the $1 million was a hard cap that could not be exceeded regardless of the source.  The program has already brought in $20 million.

Two collection agencies, CBE Group and Pioneer Credit Recovery, currently provide collection services for the IRS. The program calls to expand that number to at least 10 in the 2008 fiscal year. If funding is drastically cut, the program may not be allowed to expand as planned.