I am writing to urge you to co-sponsor S. 335, legislation introduced by Senator Byron Dorgan that would discontinue the Internal Revenue Service's private tax collection program and ensure that the collection of federal taxes is kept in the professional and accountable hands of federal employees.

Opposition to the IRS tax debt collection program has been voiced by a growing number of members of Congress, major public interest groups, tax experts, as well as the Taxpayer Advocacy Panel, a volunteer federal advisory group—whose members are appointed by the Internal Revenue Service (IRS) and the Treasury Department.  In addition, the National Taxpayer Advocate, an independent official within the IRS, has repeatedly identified the IRS private debt collection initiative as one of the most serious problems facing taxpayers and has called on Congress to immediately repeal the IRS’ authority to outsource tax collection work to private debt collectors.  Despite this widespread and growing opposition, the IRS has proceeded with this ill-advised program.

Under the IRS private tax collection plan, private collection firms are eligible to keep 21% to 24% of what they collect, depending on the size of the case.  In testimony before Congress, IRS officials have repeatedly acknowledged that using private collection companies to collect federal taxes is more expensive than having IRS do the work itself.  In addition, a September, 2002 report by former IRS Commissioner Charles Rossotti to the IRS Oversight Board found that assigning more IRS employees to collection work could bring in roughly $30 for every $1 spent.

This is not the first time the IRS has tried this flawed program. In 1996, the IRS attempted private tax collection with dismal results.  The 1996 pilot program for private collection was so unsuccessful it was cancelled after 12 months, despite the fact it was authorized and scheduled to operate for two years.  A subsequent review by the IRS Office of Inspector General found that contractors participating in the pilot programs regularly violated the Fair Debt Collection Practices Act, did not adequately protect the security of personal taxpayer information, and even failed to bring in a net increase in revenue. 

The idea of allowing private collection agencies to collect tax debt on a commission basis also flies in the face of the tenets of the IRS Restructuring and Reform Act of 1998 which specifically prevents employees or supervisors at the IRS from being evaluated on the amount of collections they bring in.  But now, the IRS has agreed to pay private collection agencies out of their tax collection proceeds, which will clearly encourage overly aggressive tax collection techniques, the exact dynamic the 1998 law sought to avoid.  Furthermore, the IRS is turning over tax collection responsibilities to an industry that has a long record of abuse.  For example, in 2006, the Federal Trade Commission received 69,204 consumer complaints about debt collection agencies – giving debt collectors the impressive title of the FTC’s most complained-about industry.

I also believe the IRS plan to outsource private tax collection poses an unacceptable risk to taxpayers’ financial privacy. The plan calls for the IRS to turn over more than 2.9 million taxpayer files, including social security numbers, to private collection agencies without adequate security measures in place. The lack of serious contractor oversight at the IRS jeopardizes the confidentiality of sensitive taxpayer information.

As the past has clearly shown, privatizing federal tax collection is a waste of taxpayer dollars, invites overly aggressive collection techniques and jeopardizes the financial privacy of American taxpayers.  I strongly urge you to co-sponsor S. 335 and keep tax collection in the professional and accountable hands of federal employees.

If you would like to co-sponsor of this legislation or would like additional information, please contact Allen Huffman in Senator Byron Dorgan's office at 224-2551.