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WASHINGTON, D.C. —January 14, 2004 — National Treasury Employees Union (NTEU) President Colleen M. Kelley called “risky, costly, and unnecessary” the Treasury Department’s proposal to allow the IRS to use private collection agencies to collect federal income taxes. The proposal was included in the Treasury Department’s fiscal year 2005 budget proposals, which were announced yesterday. “This proposal would risk exposing sensitive taxpayer information, would subject taxpayers to the abusive tactics of private debt collectors, and would cost U.S. citizens much more money than if IRS employees did the job,” Kelley said.

The FY ’05 budget plan is not the first time the federal government has considered privatizing federal income tax collection. President Bush first proposed using private debt collectors about a year ago, but Congress reviewed and rejected the idea several years ago. “The federal government has already tested this idea … and it failed miserably,” Kelley said. Kelley was referring to two pilot projects authorized by Congress in 1996 and 1997. The 1996 program resulted in such egregious abuses by private debt collectors that the 1997 program was cancelled. According to an IRS Internal Audit Report (Ref. No. 080805, 12/19/97), the private debt collectors under contract to the federal government committed hundreds of violations of the Fair Debt Collection Practices Act – including calling a taxpayer at 4:19 a.m.

“IRS employees are – by far – the safest, most cost-effective means for collecting federal income taxes,” said Kelley. IRS employees can collect outstanding debt more cheaply than contractors. With an appropriation of $296 million for compliance, the IRS could collect an additional $9.47 billion in revenue per year. That’s a $31 return per dollar spent, compared to only $3 revenue per dollar spent for private collection agencies.

Private debt collectors are already the most complained-about industry in America, inspiring more than 25,000 complaints to the Federal Trade Commission in 2002 alone. NTEU believes that current federal government proposals allowing private debt collectors to keep 25 percent of what they collect would only encourage abusive behavior. IRS employees, on the other hand, are prohibited from being evaluated on the basis of revenue collected.

Even more disturbing than the potential for abusive treatment from debt collectors, Kelley said, is the very real risk of exposing sensitive taxpayer information. “In this era of identity theft, I do not believe the federal government should engage in practices that could needlessly expose confidential taxpayer information,” said Kelley.

A February 2003 Treasury Inspector General for Taxpayer Administration (TIGTA) report faulted the IRS for failing to conduct background checks on more than 2,100 contract employees working in offices in Maryland who had access to sensitive information. While the IRS is liable for damages caused by an IRS employee’s misuse of sensitive taxpayer information, taxpayers would not have proper redress with the federal government for misuse of their confidential information by contractors. Instead, taxpayers would be left to seek damages against the private collection agency.

In announcing the proposal, the Treasury Department indicated that the private collection agencies “would not have any enforcement power and would be carefully monitored to ensure that

taxpayer rights are protected.” However, the IRS has a poor track record of managing contractors. For instance, when serving as a contractor in the IRS “lock box” program, Mellon Bank lost 78,000 taxpayer checks worth more than $1.2 billion in revenues for the Treasury.

Kelley described as “fantasy” the Treasury Department’s assertion that the proposal would result in $1.531 billion in revenue over 10 years. “The 1996 pilot program lost money,” Kelley said.

The president’s bid to privatize federal income tax collection may be considered by Congress before the FY ’05 budget. Last March, Rep. Amo Houghton (R-N.Y.) introduced legislation to allow the IRS to use contractors to collect federal income taxes. In September, Sen. Charles Grassley (R-Iowa) attached a provision permitting private tax collection to an unrelated international tax reform bill, the Jumpstart Our Business Strength, or JOBS, Act (S. 1637), which was reported favorably by the Senate Finance Committee and awaits action by the Senate. The JOBS Act has to be approved by Congress and signed into law before March in order to avoid World Trade Organization penalties for American corporations.

NTEU is not alone in opposing the administration’s proposal. The Tax Executives Institute, the National Association of Enrolled Agents, the Tax Section of the American Bar Association, the Consumer Federation of America, Consumers Union, National Consumer Law Center and the National Consumers League have all voiced concerns about to the plan.

NTEU is the largest independent federal union, representing some 150,000 employees in 29 agencies and departments … more than 98,000 members are IRS employees.

For more information, visit the NTEU web site at www.nteu.org