Taxpayer Advocate Slams IRS Privatization Program

National Taxpayer Advocate Nina E. Olson lambasted the Internal Revenue Service’s use of private debt collectors, calling it a failing program that has come up far short in bringing in the payments it has promised, and called for repeal of the agency’s authority to hire private debt collectors.

In her 600-plus page annual report on the IRS that is delivered to Congress, Olson writes, “The collection of federal tax debt is a core governmental function. ... The private debt collection (PDC) initiative is failing in most respects. It is not meeting revenue projections. It is 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. Most significantly, the IRS has placed the interests of the (private debt collectors) above the interests of taxpayers and tax administration.”

According to the report, the IRS projected that the initial stages of the program would cost $71 million and generate approximately $134 million in payments. But between October 2006 and September 2007, the private companies collected only $20 million. The private companies are paid up to 24 percent of the money they collect.

If the IRS had allocated that $71 million in start-up costs toward the use of its own employees, the agency would have been able to bring in as much as $1.4 billion, according to Olson.

Unexpected changes in the program by the IRS may have impacted the performance of the private collectors, a lobbyist working for Sallie Mae, parent company of one of the IRS collection contractors, Pioneer Credit, told Dow Jones Newswires. Jeffrey Trinca, a lobbyist with Van Scoyoc Associates, noted that the IRS removed one of the three contractors from the program last year and that the tax agency delayed an expanded second phase of the program amid Congressional criticism of the project.

The union that represents many IRS workers used Olson’s report to slam the privatization program. President Colleen M. Kelley of the National Treasury Employees Union (NTEU) said in prepared remarks: “The Taxpayer Advocate’s report is the most damning evidence yet of the incredible failure of this misguided program."

The National Taxpayer Advocate was established in 1996 by the National Taxpayer Bill of Rights 2.