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Washington—Using Internal Revenue Service (IRS) data comparing private collection firms with IRS employees, the National Taxpayer Advocate Nina Olson concluded that the IRS is “far superior” in collecting revenue and resolving cases sooner, preventing growing interest and penalties to taxpayers. In her 2008 report to Congress released today, she repeated her call for an end to the IRS private tax collection program.

“IRS data now show that the IRS’s collection function outperforms the PCAs [private collection agencies] in almost every way,” Olson wrote in her 2008 report to Congress. “The PDC [private debt collection] program is probably causing a net reduction in federal revenue, which obviously defeats the purpose of the program.”

A comparison of the results is striking, Olson said. The IRS actually performs substantially better than the private tax collection agencies, collecting three times as much as the contractors; IRS collected 13 percent of the balance due, while PCAs collected four percent of the balance due. On top of that, private tax collectors are paid a bounty of up to 25 percent, a factor which poses long-term risks to taxpayer privacy and taxpayer rights.

National Treasury Employees Union (NTEU) President Colleen M. Kelley, who has been leading the fight against the private tax collection program since its inception, called Olson’s report damning evidence of the need for the PDC program to be discontinued. “It is irresponsible for the IRS to maintain a program that represents a net loss to the U.S. Treasury. Since its inception, the IRS has spent approximately $80 million to set up and administer the program but only received $60 million in net revenue, after paying these firms nearly $13 million in commissions,” President Kelley said.

The NTEU leader added that Olson’s analysis states that the IRS has not identified any best practices from the private tax collectors, one of the stated intentions of the program. “It is a faulty assumption that private industry always knows better,” she said. “The IRS is now assisting PCAs on improving their own collection practices and paying for the privilege.”

The numbers tell a more compelling story of the private tax collection program’s overall failure. According to IRS Congressional testimony, PCAs were originally projected to bring in up to $65 million in fiscal 2007 and up to $127 million in fiscal 2008. Instead the program raised $32 million in fiscal 2007 and only $37 million in gross revenue in fiscal 2008. Olson writes, “the data demonstrates how superior the IRS is at resolving these cases and how keeping tax collection inside the IRS benefits the IRS and taxpayers alike.”

President Kelley has long questioned the financial viability and efficiency of the private tax collection program. “Since the program began, there has been no question that using private companies to collect taxes is far more costly than having trained, qualified IRS employees perform the same work,” she said.

Beyond financial considerations, Olson’s report came to similar conclusions. “The cost effectiveness data, combined with the IRS mission of helping taxpayers become compliant, (as contrasted to the PCA mission of maximizing profits for its shareholders), makes the case that federal tax collection should remain in the hands of federal employees charged to collect federal revenue,” Olson wrote.

NTEU is the largest independent federal union, representing 150,000 employees in 31 agencies and departments, including more than 90,000 in the IRS.

For more information on the failures of the private tax collection program,visit www.IRSwatch.org. Taxpayers who prefer to work with IRS employees, rather than debt collectors, can find information on how to opt out at the same site.