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Legislators keep rejecting, IRS keeps collecting

Marketplace Staff Sep 7, 2006

KAI RYSSDAL: We’re still a long way from April 15th, but some delinquent taxpayers got a not-so-subtle reminder from the taxman today. The Internal Revenue Service started using private collectors to track down people with a balance due. It’s not the first time the IRS has tried to outsource its collections. But it didn’t work so well the last time around. From Washington, Nancy Marshall-Genzer reports on why the IRS is trying again.

NANCY MARSHALL-GENZLER: The private collectors will get a commission. They get to keep up to 25 percent of every dollar they drag out of a delinquent taxpayer. The agency’s head of collections, Brady Bennett, says the program will pay for itself.

BRADY BENNETT:“The cost of the program actually comes from the funds that are collected by the private collection agency. This is a situation where we’re maximizing the use of available resources.”

But not everyone agrees. The last time the IRS tried this, in 1996, the Government Accountability Office concluded that the program took in about $3 million, but it cost $21 million to administer. Private contractors will have to be trained, their phone calls monitored, and IRS employees sent to watch over them. So, if there are doubts about whether the program will save money, why do it?

Kevin McCormally of Kiplingers Magazine points the finger at Congress.

KEVIN MCCORMALLY:“Congress will not give the IRS a dime to hire more employees. Because, no one’s ever lost an election beating up on the IRS, so the IRS has been told to go out and hire private debt collectors, even though it’s going to cost 20 to 25 cents on a dollar to collect these debts with the private people, versus maybe 3 to 5 cents on a dollar if they hired employees.”

The IRS takes in almost $300 billion less than what it’s owed every year. So, even critics agree it needs to beef up collection efforts. Some in Congress aren’t convinced private collectors are the way to do that. The House has voted to hold back funding for the private collectors. The Senate has yet to act.In Washington, I’m Nancy Marshall-Genzer for Marketplace.

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