IRS Announces an End to Private Debt Collection Services

By Alistair M. Nevius, J.D.

On March 5, the IRS confirmed that it will not renew expiring contracts with private debt collection agencies, effectively ending its private debt collection program (IR-2009-019). Senator Chuck Grassley (R-IA) had previously broken the news by reporting that Treasury Secretary Timothy Geithner had told him about the termination in a conversation.

Private debt collection agencies contract with the government to collect tax debts that have been conceded by the taxpayer but not paid. In the IRS press release, Commissioner Doug Shulman said, “I believe this work is best done by IRS employees, and I believe we have strong support from the Administration and the Congress for increased IRS enforcement resources going forward.”

The Service introduced the use of private debt collection agencies to help collect unpaid tax debt in 2006. Congress authorized the practice in the American Jobs Creation Act of 2004, P.L. 108-311, which enacted Sec. 6306, permitting the IRS to enter into “qualified tax collection contracts.” The program had been in the planning stages for several years and had been tested on a limited basis in 1996.

From the time the idea was raised, some tax practitioners and others have objected to private collection of tax debts. Taxpayer Advocate Nina Olson, for example, expressed concerns about protecting taxpayer rights and due process in testimony before a House government reform panel on April 15, 2002.

Senator Grassley, on the other hand, objects to killing a program that provides jobs. “It’s hard to believe that after worrying so much about keeping people employed, the administration has chosen this route,” he announced in a press release on March 5.

It is unclear how much money has been collected by the private debt collection program. Senator Grassley, along with Senators Chuck Schumer (D-NY) and Tom Harkin (D-IA), argued that private debt collection should not be stopped “before a complete and thorough accounting of the program is conducted” (in a letter to Secretary Geithner and Commissioner Shulman dated February 26, 2009). The Service, however, stated in its announcement that the results of a cost-effectiveness study—“supported by an independent review”—showed that it is “reasonable to conclude” that collection by IRS employees is more cost-effective than the use of private debt collectors.

For more on the private debt collection program, see Yuskewich, “ IRS Initiative for Private Debt Collection,” 37 The Tax Adviser 54 (January 2006).

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