Home Media Center News Releases

Washington, D.C.—With Valentine’s Day just around the corner, how’s this for a present— getting handed nearly one-quarter of the take without even having to compete on cost. Now that’s a sweetheart deal!

That’s how much three private sector debt collection companies are projected to receive this year from Internal Revenue Service (IRS) contracts they didn’t even have to offer their best price to secure. The IRS set the terms, saying the agency would pay the private companies between 21 and 24 percent of the money they collect on the easiest to collect cases. All the companies had to do was agree to the terms.

And most frustrating and costly for taxpayers, the program is moving ahead despite the fact that the IRS itself admits that the work could be done by its own employees at much less cost.

The $11 million sweetheart payout is to collect a projected $46 million in tax debt payments under the agency’s private debt collection initiative—numbers contained in the administration’s proposed fiscal 2008 budget.

This windfall will be generated by an IRS program the agency’s National Taxpayer Advocate has called upon Congress to end, and the Government Accountability Office (GAO), the Treasury Inspector General for Tax Administration and multiple bipartisan members of Congress have openly questioned.

“The debt collection program is nothing short of a debacle,” said President Colleen M. Kelley of the National Treasury Employees Union (NTEU), who has been leading the fight against it.

The IRS got congressional authority to hire private sector debt collectors in a huge corporate tax bill in 2004. The program got underway with contracts to three private

companies late last year; the IRS intends to expand it to 10 or more collection firms this year.

Last month, in her annual report to Congress, Taxpayer Advocate Nina Olson called for its repeal stating the debt collection program “is not cost-efficient, adds unnecessary costs and burdens to taxpayers, diminishes the improved image of the IRS and surrenders too many valuable components of our tax administration system.”

She added that she is concerned that the private collectors are using in appropriate tactics to take advantage of taxpayers. And, she said, the program suffers from “a stunning lack of transparency.”

It may be, however, that the economics are the worst aspect of the program. In a report to the leadership of the Senate Finance Committee, GAO pointed to IRS estimates of collections ranging from $55.8 million to $92 million through December of this year, with costs put at $61.16 million—a figure that does not even include the companies’ bounty of up to 24 percent.

“The simple application of common sense demands that this giveaway to the private sector be ended immediately,” President Kelley said. “At bottom, taxpayers are paying an exorbitant sum of money to put their personal and sensitive information at risk in the hands of private companies,” she added. NTEU is supporting House and Senate legislation that would end the program.

NTEU is the largest independent federal union, representing some 150,000 employees in 30 agencies and departments, including 94,000 in the IRS.