Friday, October 8, 2004

A bill working its way through Congress would allow private contractors to collect debts on behalf of the IRS, a potential boon for the Treasury and collection agencies but a certain hassle for many who are behind on their taxes.

The Internal Revenue Service earlier this year estimated that it had a $78 billion inventory of potentially collectible debt, and President Bush in his most recent budget proposals asked Congress to allow the IRS to hire private collection agencies to contact some taxpayers who hadn’t paid up.

“The IRS has the potential to become one of the largest sources of new business for agencies,” said Mike Ginsberg, president and chief executive of Kaulkin Ginsberg, a Bethesda industry adviser.

The bill collectors would go after taxpayers with a total of about $16 billion in outstanding payments — those who have filed returns showing an amount of tax due, but who have failed to pay up, or taxpayers who have started, but broken off, IRS payment plans.

The private agencies would get to keep up to 25 percent of the money they collect, and the Treasury would gain nearly $1.4 billion in revenue in the next decade, according to congressional estimates.

The House passed the measure Thursday night as part of a broad corporate tax bill, and the Senate was expected to vote over the weekend. The debt-collection provision was meant to offset some of the roughly $140 billion in new tax breaks for U.S. companies.

Not everyone thinks the collection process will be fair.

Treasury employees worry that confidential taxpayer information would be improperly circulated.

“I continue to believe that this will put taxpayer privacy at risk and open taxpayers to enforcement efforts by contractors,” said Colleen M. Kelley, president of the National Treasury Employees Union.

The National Consumer Law Center, a nonprofit group that works with low-income people, warned that debt collectors could bother Americans with frightening and illegal tactics.

“As with all debt collection there is potential for abuse, whether it is harassing phone calls or statements that constitute harassment, such as overstating the ability to bring a lawsuit,” said Anthony Rodriguez, a center attorney.

Debt collection is not a beloved industry.

The Federal Trade Commission reported more complaints last year about third-party collectors — 34,543 — than about any other industry, often because of abusive, deceptive and unfair practices.

Debt collectors resent their portrayal as heavy-handed henchmen.

“We believe we could bring internationally recognized business processes, state-of-the-art technology and most importantly highly trained and professionally qualified people to the job of shrinking the … ballooning accounts receivable at the Internal Revenue Service,” Dexter Smith, senior vice president at Allied International Credit Corp., told the House Ways and Means Committee in May.

The administration and congressional supporters of the new provisions also believe they have crafted a process that is inherently fair.

“Everyone should pay a fair share, and those who don’t place a burden on everyone else,” said Treasury Department spokeswoman Tara Bradshaw.

Collection agencies would be closely monitored by the IRS, have to follow the law and could not take or threaten enforcement action, she added.

The IRS hopes that farming out the work would allow it to focus on more complex cases and issues, such as corporate cases.

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