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Washington—In the most comprehensive assessment yet of the Internal Revenue Service’s use of private debt collectors, National Taxpayer Advocate Nina Olson has ripped the program as “failing in most respects,” saying it “turns the concept of taxpayer rights on its head,” and pointing out that it is a monumental financial failure as well.

In her 2007 report to Congress on a variety of issues within the IRS, including its use of private companies, Olson calls once again for repeal of the agency’s authority to hire private debt collectors.

“The collection of federal tax debt is a core governmental function,” she wrote. “The private debt collection (PDC) initiative is failing in most respects. It is not meeting revenue projections. It is not more successful than the IRS at finding hard-to-locate taxpayers. It is significantly less successful than IRS employees at fully resolving taxpayer past due accounts. Most significantly, the IRS has placed the interests of the (private debt collectors) above the interests of taxpayers and tax administration.”

President Colleen M. Kelley of the National Treasury Employees Union (NTEU), who has been leading the fight against the use of private debt collectors, said “The Taxpayer Advocate’s report is the most damning evidence yet of the incredible failure of this misguided program.”

The financial returns in the first year of the program are particularly telling. According to Olson’s report, while the IRS projected that the initial stages of the program would cost $71 million and bring in approximately $134 million, the facts are that between October 2006 and September 2007, the work of the private companies resulted in net collections of only $20 million. The private companies are paid a bounty of up to 24 percent of the money they collect.

If the IRS had allocated that $71 million 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, Olson said.

Moreover, for fiscal 2008, the taxpayer advocate said the IRS has revised sharply downward its projection of gross revenue to be collected by the private companies; it now stands at between $23 million and $30 million—far less than the agency’s original estimate of $88 million for the fiscal year.

This initiative, Olson said, “has failed to demonstrate that it makes good business sense,” adding that “as measured by the IRS’s performance, the PCAs’ performance is lackluster, at best.”

President Kelley has long questioned the financial viability of the program. “The costs of this program, both in taxpayer dollars and taxpayer rights, are clearly spelled out in this report. Congress should act quickly to repeal this wasteful program.”

Moving beyond financial considerations, Olson took aim at the IRS’s failure to require the private companies to disclose training materials, scripts, letters and operational plans relating to taxpayer contacts—materials that the IRS itself must disclose about its own collection operations.

“By doing so,” she said, “the IRS substantially undermines the concept of a level playing field by allowing the telephone calling scripts and related information about how PCAs deal with taxpayers to be concealed from public view and scrutiny.”

Such actions, Olson added, seem “contrary to the three taxpayer bills of rights enacted by Congress,” calling that kind of secrecy “inappropriate and dangerous for a tax system that depends on the goodwill of its taxpayers to achieve its high voluntary compliance rate.”

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