A federal judge has filed paperwork alerting the Internal Revenue Service that he plans to halt their experiment in outsourcing debt collection, siding with a Texas company that claimed they had been unfairly excluded from the bidding process.

Last fall, the IRS received approval to outsource debt collection to private companies, but limited the bidders for the first phase of the project to companies that already had contracts with the federal government to perform the services. Houston's Universal Fidelity filed suit in the U.S. Court of Federal Claims earlier this year.

Bids for the pilot phase of the project were due in the spring, and the IRS's original timeline had called for the selection of three companies for the first phase of the project before the summer was out. Scheduled to begin in 2006, the initial trio would be phased in before the full project was launched in 2007 and a total of 10 companies were performing collections for the IRS. The private agencies would be paid a percentage of the revenues they collected on behalf of the government. The IRS has estimated that uncollected federal tax payments amount to around $270 billion annually.

The IRS declined to comment before the judge issued his final ruling.

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