| WASHINGTON, March 5
WASHINGTON, March 5 The U.S. Internal Revenue
Service said on Thursday it will end its contracts with private
debt collectors to bring in unpaid tax debts after a study
found in-house collection efforts were more cost-effective.
The decision ends a controversial program started in 2006
aimed at collecting small, undisputed debts that the normal IRS
collection apparatus was not well-equipped to pursue.
Democrats in the U.S. Congress have been trying to kill the
program almost since its inception, raising concerns about its
effectiveness and reports of taxpayer harrassment by private
"After a thorough review of this program, I have decided
not to renew the contracts," IRS Commissioner Doug Shulman said
in a statement. "I believe this work is best done by IRS
employees, and I believe we have strong support from the
Administration and the Congress for increased IRS enforcement
Shulman, who was appointed to his job by the George W. Bush
administration, said the IRS intends to hire over 1,000 new
collection employees in this fiscal year ending Sept. 30. These
new employees will provide more flexibility in deciding which
debts to pursue for collection.
The independently reviewed study showed it is reasonable to
conclude that when working with a similar debt inventory, IRS
collection is more cost effective than using private
It found that the IRS automated collection system cost
seven cents per dollar collected, while the private contractor
cost was 24 cents per dollar collected. The IRS system
collected 11 percent of the balance due while the private
contractors collected 4 percent of the balance due from the
Shulman also said that, by law, IRS employees also have a
range of options in attempting to resolve difficult collection
cases that private contractors do not have.
"In these challenging economic times, I have asked all IRS
employees to go the extra mile to help financially distressed
taxpayers," Shulman said.
Still, the decision drew the ire of some lawmakers,
including Sen. Charles Grassley of Iowa, the top Republican on
the tax-writing Senate Finance Committee.
"The administration has decided that after spending nearly
a trillion dollars in the stimulus bill to keep people working
across the country, they are going to cut a program that
provides jobs to hundreds of people during the middle of a
recession, including 60 in Iowa," Grassley said in a statement.
"It's hard to believe that after worrying so much about
keeping people employed, the administration has chosen this
route," Grassley said.
Sen. Richard Durbin, an Illinois Democrat, applauded the
decision, saying tax collection was a core goverment function.
"Until private debt collectors can prove they can do the
job better, do it more efficiently and do it at a lower cost
than the IRS, there is no reason we should continue this
program," he said.
(Reporting by David Lawder; Editing by Kim Coghill)