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Bill would privatize IRS debt collection

WASHINGTON -- The Internal Revenue Service would be required to turn over millions of unpaid tax bills to private debt collectors under a measure before the Senate, reviving a program that has previously led to complaints of harassment and has not saved taxpayers money.

The provision was tucked into a larger bill, aimed at renewing an array of expired tax breaks, at the request of Sen. Charles Schumer (D-N.Y.); New York is home to two of the four private collection agencies that stand to benefit from the proposal.

It requires all "inactive tax receivables" to be assigned to private debt collectors if the IRS cannot locate the person who owes the money or if IRS agents are unable to make contact within a year.

Some taxpayers would be spared the barrage of notices and phone calls, including innocent spouses, military members deployed to combat zones and people "identified as being deceased." But heirs could find themselves under siege for unpaid estate taxes. So could people who incur a tax debt under the new Affordable Care Act -- either because they owe a penalty for not buying health insurance or because the IRS was too generous in estimating the size of their health-care tax subsidy.

As the measure arrived on the Senate floor last week, Nina Olson, the nation's taxpayer advocate, wrote a letter to lawmakers urging them to withdraw the proposal.

"Outsourcing the collection of federal tax debts is a bad idea," she wrote. "It disproportionately impacts low-income and other vulnerable taxpayers, and despite two attempts (in the past) at making it work, the program has lost money both times, undermining the sole rationale for its existence."

Moreover, "if debt collectors come to be seen as the public face" of President Barack Obama's health-care program, Olson wrote, "I am concerned that could make the IRS's job" of administering the new health-insurance program "more difficult."

Schumer proposed the provision, which has bipartisan support, last month during a meeting of the Senate Finance Committee. The panel agreed to add it to the broader tax measure, which is expected to win Senate approval this week. It is unlikely to reach Obama's desk quickly, however, because of a dispute with the House over reviving the expired tax breaks.

In a statement, Schumer defended the proposal, saying it would correct problems that arose when the IRS employed private debt collectors for about a year in the late 1990s and again during the George W. Bush administration.

Aides to Schumer noted that congressional tax analysts predict the new program would haul in $4.8 billion of delinquent taxes over the next decade, of which half would be used to cover the cost of expanding a popular tax break for research and development for startup businesses.

As for the rest, $1.2 billion would be used to hire new IRS agents and beef up enforcement and $1.2 billion would be paid to private debt collectors, potentially showering fresh cash on two companies based in upstate New York: ConServe, of Fairport, and Pioneer Credit Recovery, of Arcade.

The companies are among only four private agencies the Treasury Department approves to collect debts for federal agencies other than the IRS.

"This program would create hundreds of jobs in two of the poorest areas in New York, all while increasing federal revenues and not costing a single government job," Schumer said. "We have crafted a plan that has the safeguards necessary to protect taxpayers, the infrastructure to make it work effectively, and the resources it needs to succeed. Both on the merits of the program itself and for jobs in New York, it makes eminent sense."

Schumer spokesman Matt House added that the senator is open to clarifying the measure to ensure that tax debts resulting solely from the Affordable Care Act would be exempted.

Although the IRS aggressively pursues those judged able to pay, Olson, an IRS employee who serves as the taxpayers' voice in the agency and before Congress, said the agency takes a more flexible approach to those who are struggling financially. In many cases, she said, the IRS simply waits for the taxpayer to amass a refund and uses that money to bring the account current.

Earlier this month, testifying before the House Ways and Means Committee, IRS Director John Koskinen also urged lawmakers to reject the idea, citing past experience. "We ended up losing money," he said.

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