The government’s long-awaited plan to use collection agencies to chase billions of dollars in unpaid taxes moved forward this week when the Internal Revenue Service began taking bids for the work.
Short on staff, the IRS has toyed with the plan for several years. Congress passed a law last year allowing the agency to outsource the work rather than add employees. A small number of collection agencies, probably three, will be picked to handle cases that involved more than $100, and where the taxpayer didn’t dispute the amount owed.
The private collectors will have none of the powers of enforcement that IRS workers have, such as the ability to impose tax liens and wage attachments. They’ll most likely be sending letters, under their letterhead, gently explaining that the government wants what’s coming to it. Of course, a summary of taxpayer rights also will be included. The government wants the public to feel more nudged than threatened.
Critics of the plan have worried that collection agencies would violate taxpayer rights in the effort to collect money. But IRS officials said only debt collectors that were included on a GAO-approved list would be selected.
Outsourcing was not the agency's first or favorite choice to tackle its collection backlog. The agency once had asked Congress for a modest increase in funding that could return $9 billion to the public coffers, it was estimated. The funding wasn't forthcoming, and President Bush instead suggested outsourcing.
It quickly became a controversial plan, in part because of a roundly criticized IRS pilot private collection program in 1996-1997. The pilot was so disastrous Congress pulled the plug. It not only failed financially, but also abused taxpayers by being in violation of the Fair Debt Collection Practices Act.
Americans owed the IRS $120 billion in collectible taxes, including interest and penalties, in 2003 – up from $112 billion a year earlier, a General Accounting Office report concluded. Officials had become increasingly concerned that letting such a large debt stand was sending the wrong message to consumers, stating it was “not a good signal to taxpayers about the importance of complying with their tax obligations,” the GAO concluded.