The Internal Revenue Service said Thursday that it has decided against renewing the contracts of two debt collection agencies that had been recovering back taxes for the government for three years.

“After a thorough review of this program, I have decided not to renew the contracts,” IRS Commissioner Doug Shulman said in a statement. “I believe this work is best done by IRS employees, and I believe we have strong support from the Administration and the Congress for increased IRS enforcement resources going forward.”

Shulman said that the decision was in no way based on concerns over the performance of the two contractors affected, who performed according to the terms of the contract throughout. “I have asked IRS officials to ensure that the ramp down is orderly, and that the IRS perform targeted outreach to any displaced contractor employees that would consider applying for positions at the IRS,” Shulman said.

CBE Group, based in Waterloo, Iowa, and Pioneer Credit Recovery of Arcade, N.Y. were the two collection agencies that were working on the contract. The current contract expires Friday.

The IRS anticipates hiring over 1,000 new collection personnel in the current fiscal year to fill the void. These new employees would give the IRS the flexibility to make assignments based on the areas of greatest need rather than filtering which cases can be worked using contractor resources.

The announcement marks the end of a battle that has raged ever since the program was announced in 2003.

Both critics and proponents of the program have been very vocal over the past several years. Several high-ranking Senators from both sides of the aisle, business groups, and even the IRS at one point championed the private debt collection initiative as a program that helped to reduce the tax gap – the difference in what Americans owe and what they pay – and provide jobs. Opponents, including the National Treasury Employees Union and the National Taxpayer Advocate, have argued that the IRS can do the work themselves and protect Americans’ sensitive personal information more effectively.

And the war of words did not end after the announcement.

“After spending nearly a trillion dollars in the stimulus bill to keep people working across the country, they are going to cut a program that provides jobs to hundreds of people during the middle of a recession, including 60 in Iowa,” Sen. Chuck Grassley (R-Iowa) said in a statement. “It’s hard to believe that after worrying so much about keeping people employed, the administration has chosen this route.”

Sen. Richard Durbin (D-Ill.), praised the announcement, saying tax collection was a core goverment function. “Until private debt collectors can prove they can do the job better, do it more efficiently and do it at a lower cost than the IRS, there is no reason we should continue this program,” he said.

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