Bankrate: IRS agents to get help from private debt collectors
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By Jay MacDonald
Bankrate.com
When President Bush signed into law the American Jobs Creation Act of 2004
last October, one industry in particular had cause to celebrate new career
opportunities: America's debt collectors.
The bill authorizes the Internal Revenue Service to contract with private
collection agencies to help whittle down $78 billion in potentially
collectable debt. The IRS estimates that $13 billion of that is "low-hanging
fruit," fully adjudicated and uncontested cases owed by taxpayers who can
and will pay up. The IRS simply doesn't have the time or resources to chase
down these debtors. Private collectors will likely make time for the job;
those chosen to do the IRS's legwork stand to keep up to 25 percent of what
they collect.
But IRS outsourcing is not going to happen overnight. If all goes as
anticipated, the IRS will solicit requests for proposals in late 2005,
identify a vendor or vendors in the spring of 2006 and begin outsourcing
some collection activity in 2007.
Outsourcing outrage
Outsourcing was not the agency's first or favorite choice to tackle its
collection backlog. IRS Commissioner Mark Everson had asked Congress for a
modest increase in funding that he estimated could return $9 billion to the
public coffers. The funding wasn't forthcoming, and President Bush instead
suggested outsourcing.
It quickly became a controversial plan B, in part because of a roundly
criticized IRS pilot private collection program in 1996-1997 that was so
disastrous Congress pulled the plug on it. That program not only failed
financially, it also abused taxpayers in violation of the Fair Debt
Collection Practices Act.
When the private collection idea resurfaced in this latest incarnation, it
prompted a bipartisan challenge in the House. Opponents argued that the law
forbidding the IRS from outsourcing tax collection exists for a very good
reason: No taxpayer wants personal financial information falling into the
wrong hands.
Former IRS Commissioner Sheldon Cohen fears that a double standard will
ultimately undermine the private collection program. Congress forbids the
IRS from rewarding its internal tax collectors with bonuses or promotions
based on the debts they recover for fear that would lead to overzealous
tactics, yet it believes that private debt collectors will act responsibly
when presented with a 25-percent cut.
"I ask rhetorically, are they going to be allowed to do the things that
you've forbidden IRS people from doing?" Cohen says. "I suspect that they
will not. The IRS contracts all forbid them from doing certain things. Now,
who's going to supervise them? That's a different question. Murphy's Law
applies to these people just as it applies to anyone else: If something can
go wrong, it will. The worst-case scenario is, you'll have some terrible
scandal coming out of some group pushing the envelope and it will discredit
the service and the whole program, not of their own making."
Would Cohen have resorted to outsourcing, even as a last resort?
"I would have resigned first," he says flatly. "I've been with groups of
eight or 10 former commissioners at a time who served under both Republican
and Democratic administrations and I've never heard any one of them speak in
favor of it."
Widespread disapproval
Cohen and his colleagues aren't the only ones upset with the outsourcing
plan. The National Treasury Employees Union counts 98,000 IRS employees
among its 150,000 membership. Colleen M. Kelley, president of the National
Treasury Employees Union, points out that in addition to her constituency's
concern about increased privatization, the program is simply penny-wise and
pound-foolish.
"If the IRS were provided with enough money to hire IRS employees to do this
type of collection work, there would be a much greater return on the
dollar," Kelley says. "It would take a very small investment compared to the
money they are willing to pay these debt collection contractors, who will be
keeping up to 25 percent of the money they collect.
"It would take not nearly that kind of money to give the IRS the resources
they need to hire some more employees and collect nearly $9 billion in taxes
that are owed, which is about 10 times as much as is projected to come in
through private debt collectors."
San Francisco attorney Robert Sommers, author of the Tax Prophet Web site,
is equally skeptical that taxpayer privacy will be maintained.
"No doubt private debt collection experts are proficient at collecting
debts, including tax debts, but whether these private collectors will
protect a tax debtor's rights and privacy is a major concern," he says. "The
legislation as written provides appropriate safeguards, but whether those
protections will actually be put into practice is another question."
Protections in place
IRS spokesman John Lipold says privacy concerns rank high on the agency's
list as well.
"Taxpayer privacy will be fully maintained by any private collection agency
that the IRS employs," Lipold says. "They will be held to a very high
standard in accordance with confidentiality requirements and statutory
restrictions. Whoever is chosen is going to follow the IRS code."
The IRS also will evaluate which debts should be outsourced. Only
appropriate cases will be turned over to private collection agencies.
"They are going to be assigned cases where there is a good potential for
either full payment or installment payments. This is work that we just don't
get to. There is a backlog of collections that we need to make that we just
don't have the resources to go after.
"These aren't going to be the cases where we need to involve enforcement.
Cases that require IRS expertise or that require some discretion are not
going to be referred to a collection agency. Those would be kept in-house."
Part of the program, Lipold says, will involve evaluating the collection
contractors to measure case resolution and customer and contractor
satisfaction. Consistent with federal law, individual collectors cannot be
evaluated based on dollars collected.
And there is no plan to replace any existing IRS collectors with hired
hands.
"Private collection agencies can supplement the IRS's existing collection
efforts," he says. "We don't in any way see them replacing the current
resources that we have."
Concerns remain
Despite assurances from the IRS and lawmakers who approved the move,
concerns about the use of private debt collectors persist.
One worry is the possibility of abusive collectors, an issue raised in a
Dec. 9, 2004, Washington Post editorial questioning the outsourcing move:
"The debt collection industry may have improved its practices in recent
years, but it still is the leading source of complaints to the Federal Trade
Commission. Just a few years ago, Congress was in a tizzy about abusive IRS
tactics. Do lawmakers think that private debt collectors are a safer bet?"
Rozanne Anderson, general counsel and senior vice president of legal and
government affairs for ACA International, The Association of Credit and
Collection Professionals, says the fears of thug-like tactics are long
outdated. Not only is harassment illegal under the Fair Debt Collection
Practices Act, which ACA helped pass in 1977, but debt collectors today
rarely even meet the people they contact, as their work is done more
efficiently via phone.
As for potential privacy violations, supporters of private tax collection
say the last thing the debt collector wants or needs is a person's financial
information.
"The debt collector will be given a very limited amount of information about
the taxpayer," says Anderson. "The only thing the debt collector needs to
know is the amount due and the name, address and phone number. They do not
need a tax return or tax history of the taxpayer; collectors don't want that
information and it's not relevant. How someone has paid their taxes in the
past has no bearing on the fact that they owe $10,000 today."
Plus, the public-private partnership when it comes to debts is not new.
Private collectors have worked for years with numerous federal, state and
local governmental agencies, collecting on everything from parking tickets
to federal student loans. ACA's Government Services Program represents 225
private collection agencies within its membership of 5,300 agencies. In all
likelihood, the contractors ultimately hired by the IRS will already be
working with the Department of Treasury or other government agencies.
"They already have a track record," says Andersen. "As approved contractors
already, they will be more likely to be considered candidates because they
have some procedures in place already."
Andersen says the notion that private collection agencies will somehow be
given more leeway in dealing with taxpayers than IRS agents is not only
false but backward.
"There are more restrictions placed on private collection agencies than on
the IRS," she says. "FDCPA in its entirety will control the behavior and
conduct of the private collector. When you talk about IRS employees, they
have inserted a few provisions into their code of conduct, but they are not
even subject to the entire FDCPA as the private collector will be. In terms
of the law, there are more safeguards for the consumer with the private
collectors."
Jay MacDonald is a contributing editor based in Mississippi.
-- Posted: Jan. 18, 2005