WASHINGTON — A senior Democratic senator said Friday that Congress this year will try to close down an Internal Revenue Service private debt collection program that he and other critics say has failed to be cost-effective.
“We’re going to try to shut this down,” said Sen. Byron Dorgan, D-N.D., the Democratic Policy Committee chairman and a member of the Appropriations Committee. “This was a terrible idea from the start.”
Democrats in both the House and Senate, saying it is inappropriate for the private sector to be involved in tax collection, have made several attempts to eliminate the program that farms out small-scale tax delinquency cases to several private collection companies. Those efforts have been blocked by administration opposition and White House veto threats.
Dorgan, in an interview, said one approach would be cutting off money for the program when Congress acts on its spending bills this year.
He cited IRS and National Taxpayer Advocate figures showing the private collectors, after receiving commissions, contributed about $20 million to the Treasury in the year after the program started in late 2006. He said that, considering the $71 million in startup costs, the program lost more than $50 million. The agencies are entitled to commissions of up to 24 percent.
Dorgan also referred to an estimate by the National Taxpayer Advocate, an independent IRS office that has opposed the program, that the IRS could have brought in about $1.4 billion if it had applied that $71 million to in-house collection programs.
IRS officials say the private agencies are handed delinquency cases, often in the $5,000 to $10,000 range, that the tax agency lacks the manpower to pursue. Original estimates called for collection of $1.5 billion to $2.2 billion in the first 10 years of the program.
Jeff Trinca, an attorney representing the debt collection industry, said startup costs for technology, communications and security equipment are one-time expenses and that the program by its existence will not cost the government money. The involved agencies should be close to reaching the 2008 goal of bringing in revenues of around $88 million, he said.
Because of IRS manpower shortages, it often doesn’t deal with debts of less than $5,000, and the private collection program “is the only thing really available that’s there and it’s working right now to get at the debt and tax gap.”
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