IRS collection program draws more privacy critics

Democrats and consumer advocates, citing privacy and cost concerns, renewed efforts to terminate a government program that pays private companies to collect delinquent income-tax debts.

Republicans and the head of the Internal Revenue Service, which runs the program, defended the private debt collectors' efforts, saying they have netted roughly $19.5 million in tax revenue in eight months. The IRS plans to expand the program next year, and expects to collect more than $1.5 billion in tax revenue it otherwise would have forfeited.

The issue was the focus of a hearing by the House Ways and Means Committee, which in March began investigating complaints about the private debt collectors' tactics,.

National Taxpayer Advocate Nina E. Olson said the program should be shut down immediately, partially because of potential abuses of privacy. Committee Chairman Rep. Charles B. Rangel, D-N.Y., also favors ending the program, which uses private collectors to go after individuals owing no more than $100,000.

The IRS has acknowledged its agents could do the work more efficiently and for less money, but says collecting these debts is not high on its priority list. Instead, the agency puts its resources into tracking down the nation's biggest income-tax delinquents.

Acting IRS Commissioner Kevin Brown said that as of April 28, nearly 38,000 cases have been placed with the private companies resulting in about $19.5 million of gross revenue collections. In that time, 25 taxpayers have complained about treatment. One case found a violation by a private company, two are pending review and 22 have been dismissed, he added.

Last March, the IRS selected three companies for the program's initial phase - CBE Group Inc., in Waterloo, Iowa, Pioneer Credit Recovery Inc., and Austin, Texas-based Linebarger Goggan Blair & Sampson LLP. The companies began work in September and the agency renewed the deals with CBE and Arcade, N.Y.-based Pioneer, which is a subsidiary of SLM Corp., known as Sallie Mae, in March.

Government auditors have said the program is working but have made recommendations to protect the security of taxpayer information and improve its efficiency.

The IRS plans to expand the debt collection program in March with new contract awards expected in October, Brown said, adding that projections are for between $1.5 billion and $2.2 billion in tax revenue collections over 10 years.

Brown acknowledged that is a "relatively small" amount of the $290 billion gap between what the IRS says taxpayers owe and what they pay.

Democratic lawmakers in both houses tried unsuccessfully last year to stop funding for the program, which was approved by a Republican-controlled Congress in 2004.

The private companies, which can receive up to 24 percent of debts collected, must adhere to strict security policies to ensure taxpayer protections. The firms so far have received an average commission of about 18.5 percent, Brown said.

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