Push for Private Debt Collection Clouds IRS Confirmation: Taxes

A Republican senator is reviving an old fight over using private companies to help collect tax debts, an issue that may threaten President Barack Obama’s nomination of John Koskinen as IRS commissioner.

Senator Charles Grassley of Iowa wrote to Koskinen last week asking for his view on private debt collection and seeking a commitment from him to rely on outside contractors within his first 60 days as Internal Revenue Service commissioner if he wins confirmation, Bloomberg BNA reported.

Grassley has been a longtime proponent of the program, ended in 2009 amid objections from Democratic lawmakers. Grassley and program backers say contractors should be used to work on smaller, low-yielding tax debts that aren’t a priority for IRS employees.

“Instead of raising taxes, as the president and his supporters want, we need to do a better job of collecting taxes that are already due and owed,” Grassley said in his Sept. 26 letter to Koskinen.

Grassley, serving his sixth term, is a senior member of the Senate Finance Committee that is considering Koskinen, a former chairman of U.S.-owned mortgage financier Freddie Mac, for the IRS job.

Grassley’s push could re-ignite a battle over private debt collection that pitted him and other Senate Republicans against the Democrats, the National Treasury Employees Union and consumer advocates.

Government’s Role

Calling tax collection an inherent role for government, the opponents of the privatization program that had been authorized in 2004 said the efforts could be performed cheaper and more efficiently by IRS employees.

The private collectors brought in $68.8 million in tax debts from 2006 to 2009. As criticism of it mounted, though, the effort was shut down in 2009 after a study by the Mitre Corporation concluded that given similar resources, IRS collection was more cost effective.

“The collection of federal taxes is a core government function that should only be performed by the IRS,” Representative John Lewis, a Georgia Democrat, said during the 2009 debate on the program. “The Ways and Means Committee has received testimony from a number of sources, including former IRS officials, that the IRS can collect federal taxes cheaper and more efficiently than the private collection agencies.”

Grassley, in whose state one of the collection agencies was located, said the study was flawed and that the program wasn’t allowed to get past infrastructure costs that would have improved its cost efficiency figures.

IRS Flexibility

Under the program, the debt collectors were paid 24 percent of what they collected, and IRS was allowed to keep 25 percent of the money for its own uses.

In his letter, Grassley stressed the program’s ability to bring much-needed dollars into IRS coffers without additional federal appropriations.

“Tax delinquent accounts continue to increase with the amount in the queue growing by 46 percent over the past five years,” Grassley wrote. With IRS under fiscal constraints, “the answer cannot solely be ever larger appropriations from Congress,” he said.

IRS enforcement actions yielded $50.2 billion in fiscal year 2012, a 9 percent drop from 2011 in part because of budget cuts, according to a report by the Treasury Inspector General for Tax Administration released last month.

Reduced Workforce

The IRS shed 8,000 full-time positions from 2010 to 2012 including 5,000 front-line enforcement workers. That represents a 14 percent reduction, according to the report.

In a statement earlier this year, the IRS said enforcement revenue totals in 2010 and 2011 were unusually high because they included revenue from the agency’s voluntary disclosure program for undeclared offshore accounts.

The IRS audited one in 97 individual tax returns in 2012, down from one in 90 in 2010. The tax agency has been auditing S corporations, partnerships and gift-tax returns more frequently in recent years.

Koshinen, 74, was nominated for the IRS post Aug. 1. He is a former deputy director of the Office of Management and Budget under President Bill Clinton and led the government’s efforts to prepare for converting computer systems for the year 2000.

At one point during his 2008-2011 tenure as Freddie Mac’s chairman, he also served as its chief executive officer, its chief financial officer and its chief operating officer.

As IRS commissioner, he would be at the helm of an agency that has been under attack since May when its officials revealed extra scrutiny had been to small-government advocacy groups as they applied for tax-exempt status.

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