by Ken Rankin

Washington - The Bush administration’s plan to use private tax collection agencies to recover billions of dollars in unpaid federal income taxes came under fire on Capitol Hill as critics of the scheme raised concerns about taxpayer abuse at the hands of private sector “bounty hunters.”

Even advocates of the proposal acknowledged some misgivings about turning over Internal Revenue Service tax collection responsibilities to outside agencies that stand to pocket billions of dollars in fees for performing activities that the tax service should be doing itself.

Although he is sponsoring legislation to permit the use of private collection agencies to reduce the growing backlog of unpaid taxes, Rep. Amo Houghton, R-N.Y., conceded that this is not the best solution to the problem. “Ideally, the IRS would collect every individual tax debt owed to the Treasury without resorting to outside agencies,” he said during House hearings on the plan.

Democrats on Houghton’s House Ways and Means Oversight Subcommittee were considerably more critical of the proposal, which would allow private bill collectors to keep up to 25 percent of the overdue payments that they recover from taxpayers.

“The very notion of unleashing a small army of bill collectors on the taxpayers of this nation should give us all major pause,” said Rep. Earl Pomeroy, D-N.D., the subcommittee’s ranking Democrat. “Why would we want to give people who are not directly accountable to the Treasury and IRS commissioner a bounty for getting money from taxpayers?”

Recently confirmed IRS Commissioner Mark Everson defended the administration’s proposal in his testimony, contending that his agency “cannot continually pursue each taxpayer who fails to pay an outstanding tax liability.”

The use of private collection agencies “could efficiently and effectively address these liabilities” while enabling “the IRS to focus its enforcement efforts on more complex cases and issues,” he told Congress.

Under the administration’s plan, PCAs would be retained to perform “carefully defined and limited collection activities” restricted to two groups of taxpayers: those who have filed a tax return showing an amount of tax due, but who have failed to pay the tax, and others who have made three or more voluntary payments to satisfy a tax delinquency, but stopped making payments.

“These taxpayers clearly are aware of their liabilities,” Everson said. “In many cases, however, they are taking advantage of the fact that the IRS cannot continually pursue each taxpayer who fails to pay an outstanding tax liability.”

The administration’s willingness to sic private bill collectors on taxpayers stems from the growing problem of unpaid tax that isn’t being collected by the short-staffed IRS. Currently, more than $13 billion in individual income tax debt has been declared “uncollectible” due to IRS collection and resource priorities - up from $7 billion just three years ago.

Worse yet, officials at the tax service estimate that the total will continue to rise by 3 percent to 4 percent annually.

Over 40 states have used private collection agencies successfully as part of their tax collection efforts, and other federal agencies have used private collection agencies for a number of years to collect a significant amount of delinquent federal student loans and other non-tax debt.

But even supporters of the administration’s plan to use PCAs are cautioning Congress to think twice before allowing private firms to engage in what has been traditionally considered “an inherently governmental function.”

IRS National Taxpayer Advocate Nina E. Olson, for one, told the House committee, “I have a level of discomfort with the concept of using private collection agencies based on my earlier professional experiences representing taxpayers in states that utilize PCAs.”

Although Olson conceded that the use of PCAs by the IRS was a “reasonable” approach in view of the agency’s staff shortages, she stressed that “my office will be watching closely to ensure that, if authorized and implemented, this initiative succeeds in meeting its constitutional requirements, creates a level playing field between IRS and PCA employees, [and] protects taxpayer rights.”

Other witnesses at the hearing were less willing to give the benefit of the doubt to private bill collectors.

CPA Colleen M. Kelley, president of the National Treasury Employees Union, called the use of private collection agencies a “costly, risky” scheme that “would lead to a gross invasion of the privacy of American taxpayers.”

“This proposal will cost the taxpayers more money than having this work done by IRS employees, and will jeopardize the rights and privacy of thousands of taxpayers by putting millions of taxpayer files in the hands of private companies,” she told Congress. “There are also serious questions regarding the government’s liability and taxpayer remedies should such information be misused, and whether the IRS has the needed technology to select appropriate cases.”

Kelley cited a report commissioned by former IRS Commissioner Charles Rossotti, last September, which concluded that if Congress would appropriate an additional $296 million to enable the IRS to hire more compliance employees, the service would be able to collect an additional $9.47 billion in known tax debts per year.

“This would be a $31 dollar return for every dollar spent, Kelley testified. “Compare that to the administration’s 25 percent commission scheme - $3.25 billion to collect $13 billion, or a $3 dollar return for every dollar spent.”

“Plain and simple, we can avoid putting taxpayer information in the hands of private collectors by steadily increasing compliance staffing levels at the IRS and, in the process, give the taxpayers a return on their tax dollar that is 10 times better than the privatization initiative being proposed,” she said. “Yes, I am a certified public accountant, but this is math my six-year-old nephew understands.”

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