The Internal Revenue Service said that it will renew contracts with two out of the three private agencies it signed to participate in a pilot program outsourcing debt collection. Conspicuously absent from that announcement was the fate of that third agency.The IRS said yesterday that it would extend the contracts of Waterloo, Iowa-based CBE Group Inc. and Arcade, N.Y.-based Pioneer Credit Recovery Inc., a unit of SLM Corp. The new contract will run through March 8, 2008.

The announcement didn't mention contract renewal for the third firm participating in the pilot, Austin, Texas-based Linebarger Goggan Blair & Sampson LLP. The IRS has declined further comment, citing federal procurement regulations.

"The CBE Group and Pioneer Credit Recovery gained extensive experience in the first phase of the debt collection program and are well positioned to move the program forward," the IRS said in a statement. For the second phase of the project, the IRS plans to contract with up to 10 firms.

The three firms were awarded contracts in March 2006, although the program’s start was delayed while the Government Accountability Offices examined prejudice complaints lodged by two competitors against the Texas firm. The GAO eventually denied those bid protests. Over the course of 10 years, the IRS expects the private firms to help collect about $1.4 billion in outstanding taxes -- making the contracts extremely lucrative for the private contractors, who get to keep a percentage of whatever they collect.

Just last month, National Taxpayer Advocate Nina Olson’s annual report to Congress contained especially harsh words for the private debt collection program, and earlier this month Sen. Chuck Grassley, R-Iowa, the ranking member of the Senate Finance Committee, presented some harsh words of his own in a letter questioning her findings.

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