This fall, the Internal Revenue Service will likely make two changes to its tax enforcement efforts that defy logical explanation. IRS Commissioner Mark Everson will soon go forward with plans to cut nearly half its staff of estate tax auditors and to create a program that would allow private companies to pursue taxpayers who owe back taxes. "Slashing the number of estate tax auditors and outsourcing collection of outstanding taxes," explains Adam Hughes, OMB Watch budget policy director, "would move the IRS in the opposition direction they should be headed, which is toward a more robust and resourced agency that can provide both customer service to taxpayers and strong enforcement of tax law." Estate Tax Auditor Layoffs The IRS is planning to offer voluntary retirement to 157 of its 345 estate tax attorneys. Everson claims that since higher exemption levels in the estate tax will produce fewer filings, fewer auditors are necessary, and the savings generated by the lay-offs could be reallocated to more productive departments. The cuts are in spite of the fact that the IRS itself has said estate tax lawyers are the most productive of its employees, bringing over $2,200 in revenue for every hour worked. What's more, six years ago the IRS found that 85 percent of estate tax returns shortchanged the government. Everson's claims did little to assuage congressional Democrats, who sent multiple letters to the IRS chief protesting the proposal. A letter from Sen. Chris Dodd (D-CT) asked Everson for a detailed justification of the job cuts, as well as a quantitative description of the impact the proposed cuts will have on enforcement, both before and after 2010. A separate letter from members of the House of Representatives asked that Everson delay the proposed layoffs until Congress has had the opportunity to review them. Even if the IRS agrees to delay the decision, which is unlikely, Congress may not have enough time this year to thoroughly evaluate Everson's plan. The early retirement proposals will be offered in October, and Congress will be in session a very short time and will have a mountain of work to do prior to the November election. Privatizing Tax Collection In addition to weakening the review of estate tax returns, the IRS is set to go forward with plans to privatize some aspects of collection of back taxes. The IRS will let three private agencies collect back taxes from about 12,500 taxpayers who owe less than $25,000 each. The program is projected to raise $1.4 billion over the next 10 years, with $330 million of that going to collection agencies — a whopping 23.5 percent administrative fee. For less than that fee, the IRS could hire staff who would bring in about eight times as much revenue as the private collection agencies are projected to, according to former IRS commissioner Charles Rossotti. In testimony before the House of Representatives, Everson freely admitted that hiring more staff is far more efficient than privatization. But inadequate appropriations for the IRS, he claims, have made it impossible to hire new staff. The privatization program also raises concerns about abuse and fraud. Private companies may be subject to less federal regulation and will seek to maximize profits rather than deliver quality customer service, increasing the chance that they may extort taxpayers or misuse funds. It's also possible fraudulent schemes involving people posing as collection agencies will emerge threatening to cheat and steal from taxpayers. The IRS has taken some precautionary measures to prevent unauthorized people from posing as private collection agencies, but whether those measures are sufficient remains to be seen. Efforts are already underway to end the privatization program. Rep. Steve Rothman (D-NJ) successfully lead the charge against this policy in the House, attaching an amendment to block the IRS from spending money implementing the outsourcing program to the FY 2007 Treasury-Transportation appropriations bill. While the Senate has not passed its version of the appropriations bill, if the Rothman amendment makes it into the final version, the IRS will find it very difficult, if not impossible, to run the program. Regardless of whether the private collection program is put in place, the total revenues expected will make only a small dent in the "tax gap," the difference between what is owed in taxes and what is paid. The "tax gap" is currently estimated at $345 billion annually, which is $90 billion more than this year's current deficit projection. While outsourcing tax collection to private companies is inefficient, the IRS has certainly not helped, and likely exacerbated, the tax gap in recent years by decreasing its audit rates . The "face-to-face" IRS audit rate has declined 80 percent over the past 20 years - from 1.19 percent in 1984 to 0.15 percent in 2004 - and IRS examinations of business income-tax returns have dropped 66 percent since 1997.