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Washington, D.C.—The leader of the National Treasury Employees Union (NTEU) today called “a clear waste of taxpayer dollars” the decision of the Internal Revenue Service (IRS) to renew the contracts of two private collection agencies to collect taxes.

“This wrong-headed decision flies in the face of a mountain of evidence that this program is a financial flop,” said NTEU President Colleen M. Kelley. Moreover, she said, “the IRS is ignoring the will of Congress—where there is bipartisan opposition to the use of private tax collectors—and making a decision against the best interests of America’s taxpayers.”

Despite financial losses of more than $50 million, the IRS announced today it will renew its contracts for private tax collection with Pioneer Credit Recovery, Inc. and CBE Group, Inc. A third contract, to Linebarger Goggin Blair & Sampson, LLP was dropped during its term last year. Operation under the initial contracts began in September 2006.

On the financial front, the program clearly has been a disaster, President Kelley said. The IRS itself has said that in fiscal 2007, the private companies brought in just $31 million in gross revenue—far below its initial projections of up to $65 million. After deducting commission payments, the net revenue from the activity of the private companies was just $20 million. The result was a loss of $50 million, when the $71 million in IRS program start-up costs are included.

And that’s not even the worst of it, the NTEU leader said. For fiscal 2008, IRS projections are that the private collectors could bring in as little gross revenue as $23.4 million—even less than last year.

In her 2007 annual report to Congress, IRS National Taxpayer Advocate Nina Olson repeated her call for an end to the program noting that it is failing in most respects, including not meeting revenue projections. IRS projected the program would bring in between $1.5 billion and $2.2 billion in gross revenue, before commissions, over 10 years. To do so, the program would have to average $185 million a year; by that standard, it clearly has performed miserably over its first two years.

And, Olson said, it is far more costly than using IRS employees to perform the work. If the IRS had allocated the $71 million it spent 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 a year, she said.

The Taxpayer Advocate noted that the IRS is turning over to private tax collectors cases that may require the exercise of discretion and judgment in collection matters that is appropriately the sole province of the IRS. Extending these contracts will exacerbate that problem, Kelley said, because the number of “simple cases” has been exhausted.

Apart from its financial failings, the program has run true to predictions in one key area: taxpayer abuse. A House Ways and Means Committee hearing revealed multiple taxpayer complaints and violations of taxpayer privacy rights. In one celebrated instance, private collectors made 150 calls to the elderly parents of a taxpayer after the collection agency was notified he no longer was at that address.

“I understand that the private collection agencies are benefitting by earning these hefty commissions, but where is the benefit to the American people,” President Kelley asked.

Among other legislative efforts to end the program, the House approved H.R. 3056, a tax bill introduced by Ways and Means Committee Chairman Rep. Charles Rangel (D-N.Y.), which incorporates the language of H.R. 695. That bill was introduced by Rep. Chris Van Hollen (D-Md.) and would repeal IRS authority to hire private tax collectors. In addition, S. 335, co-sponsored by Senators Byron Dorgan (D-N.D.) and Patty Murray (D-Wash.), would prohibit the IRS from using private collection companies.

NTEU is the largest independent federal union, representing 150,000 employees in 31 agencies and departments.