The IRS is now the only tax collector: Can they do the job?

By Anne Rosivach

The decision by the Internal Revenue Service (IRS) not to renew contracts with private debt collection companies after a month-long review of their costs and effectiveness has returned all responsibility for collections to the Agency. IRS Commissioner Doug Shulman said in a statement that the IRS anticipates hiring more than 1,000 collection employees in fiscal 2009, which ends on September 30.

The private tax collection program was not popular in Congress, which attempted to end the program in 2007 and 2008. IRS officials, including Shulman, argued that in the current economic circumstances more taxpayers will require the flexibility in collection and payment options that only IRS agents are authorized to offer.

Other opponents of the private collection agencies included President Obama, who said during his campaign that he viewed the collection of taxes as an inherently governmental function. The National Treasury Employees Union lobbied strongly and successfully that the program was inefficient.

The IRS will pay for the new employees from additional funding for enforcement in the stimulus bill and the $5.1 billion set aside for IRS enforcement in the Omnibus FY 2009 Budget Bill, says Colleen Kelley, President of the National Treasury Employees Union (NTEU). The budget bill, which was signed by President Obama this week, includes an increase of $428 million over the 2008 budget request for the IRS.

Recruiting qualified people could prove a management challenge for the IRS. The Agency is already facing recruiting problems, according to a draft report by the Treasury Inspector General for Tax Administration (TIGTA) on the need to develop an "Agency-Wide Recruitment Strategy and Effective Performance Measures," presented to Congress on February 23. But the IRS has been "planning, anticipating, hoping to strengthen enforcement, even before the IRS ended private collection program, and for reasons that had nothing to do with that decision, because of vacancies resulting from attrition and other reasons," Kelley says.

The TIGTA draft report criticized the IRS's recruitment activities calling them "decentralized and focused on short-term hiring goals. While the IRS has taken steps to improve recruiting, it does not have an agency-wide recruitment strategy that includes a long-term plan for all functions involved in recruiting or a system to measure the effectiveness of all recruiting efforts." In his written response to the TIGTA draft report to Congress, Shulman agreed with their recommendation but also referred to the IRS report, "Workforce of Tomorrow Task Force – Attracting the Best," which highlights the IRS's efforts to address the issue.

Resuming collection activity among cases that had formerly been assigned to the private agencies, many of which involved small-size debts, could prove a second management challenge for the IRS.

In their defense of the private contractor program, the Tax Fairness Coalition, which represented the private collection agencies, alluded to IRS collection priorities, saying that the contractors had returned more than $80 million to the Treasury Department - money that otherwise would never have been recovered, regardless of funding or number of employees.

"The issue here has never been whether the IRS or private debt collection agencies can do this work more efficiently or better," the Coalition stated, according to govexec.com, "it's whether these delinquent taxes are collected at all. Plain and simple, without this program, the IRS will not collect these taxes. Billions of dollars will simply roll off the books, adding to our nation's ever-growing tax gap, and leaving the American taxpayer footing the bill."

In a statement on February 27 to the House Ways and Means Committee, Taxpayer Advocate Nina Olson questioned the IRS weighting of collections, calling attention to the number of long past due collections cases "because the taxpayer does not owe 'enough' delinquent taxes – at least not yet." Olson expressed concern that taxpayers who are in financial difficulty would not receive early intervention from the IRS. "We believe that the age of the account often does not receive appropriate weight in determining its priority, which in turn plays a critical role in deciding which cases receive personal contacts from IRS collection personnel. As a result, many collection accounts do not receive adequate attention."

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