Legislation has been introduced in the House and Senate that would halt an Internal Revenue Service (IRS) program that outsources certain tax collection responsibilities to private companies. The costly and dangerous program has been soundly criticized by Congress, the IRS National Taxpayer Advocate, and outside consumer groups since it began last fall.

The House bill, H.R. 695, co-sponsored by Reps. Chris Van Hollen (D-MD) and Steve Rothman (D-NJ), would repeal the authority to outsource tax collection, which Congress granted to the IRS in 2004. The bill has garnered 66 co-sponsors, including seven Republicans, since it was introduced on Jan. 24.

The Senate bill, S. 335, co-sponsored by Sens. Byron Dorgan (D-SD) and Patty Murray (D-WA) would accomplish the same by barring the IRS from using money to outsource tax collection. It currently has 17 co-sponsors, all Democrats.

These bills follow up on similar legislation that lawmakers failed to enact during the last session of Congress. The House came closest to repealing the program during the FY 07 appropriations process, when the appropriations bill that funds the Department of the Treasury was amended to repeal the privatization program. But that individual appropriations bill was never passed, and the amendment was not included in the FY 07 joint funding resolution, the legislative vehicle in which the Treasury Department appropriations were enacted.

The private collection program has been in operation since September 2006. Three private companies have received contracts to recover debts under $25,000 that the IRS has identified. IRS has not disclosed complete data on the program's expenses and revenues thus far, though GovExec.com reported the IRS had taken in $11 million as of end of December.

Private collection agencies can make up to a 24 percent commission fee on all the revenues they collect. IRS overhead expenses for revenue collection typically run at about three percent of total revenues — nearly one-eighth the cost of using private tax collectors.

Since its initiation, the program has been the subject of debate. In testimony before the Senate Budget Committee on Feb. 14, IRS Commissioner Mark Everson defended the program by claiming that the revenues would otherwise not be collected. Concerns about the program's costs, he said, are irrelevant.

Yet other experts disagree with Everson. In the National Taxpayer Advocate's (NTA) annual report to Congress, Nina Olsen argued the IRS may currently have the resources to pursue these uncollected taxes without private companies. (The Office of the Taxpayer Advocate reports directly to the IRS Commissioner but is independent of the IRS. It serves as a type of ombudsman for taxpayers. The Office also recommends administrative and legislative changes within IRS, and can issue taxpayer assistance orders to help taxpayers.)

In the report, the NTA found that the three private collection companies that have received IRS contracts are only using 75 employees total. The IRS has assigned 65 of its employees to monitor and oversee those private companies — presumably enough staffing to do what the private companies are doing and at a much lower cost.

Furthermore, Congress has the option to give IRS more funding to collect unpaid taxes. The IRS did not request such funding in the FY 08 budget proposal, and nearly $100 million was cut from the enforcement budget at the IRS in the FY 07 joint funding resolution — another consequence of the 109th Congress' failure to complete appropriations bills on time.

The NTA has made abolishing the privatization program its second-highest priority for 2007. The NTA shares the concerns of many in Congress and outside advocacy groups that private collection agencies may have occasion and motive to take advantage of taxpayers who owe smaller debts, many of whom are elderly or disabled. It believes that IRS would handle these cases more efficiently and with less risk for the privacy rights of the taxpayer.

Take Action: Tell Congress to stop the wasteful IRS privatization program immediately!
OMB Watch and Citizens for Tax Justice are teaming up to mobilize support for these bills that will stop the IRS from continuing this privatization program. With your help, we can prevent the IRS from jeopardizing private and sensitive taxpayer information and wasting scarce resources by paying large fees to private corporations.

Send a letter to Congress today urging them to support H.R. 695 and S. 335 and end the IRS privatization program.