U.S. lawmakers warned against using private debt collectors for IRS

WASHINGTON (Reuters) - Making the Internal Revenue Service hire private companies to collect unpaid taxes, as proposed in a U.S. Senate bill, would be a money-loser for the tax agency, a watchdog panel has said.

“The experiment has failed twice and there is nothing to lead us to believe it will not fail again,” the IRS Oversight Board said in a letter to lawmakers on Tuesday.

Congress’s Joint Committee on Taxation has estimated that private debt collectors could raise $4.8 billion in new tax revenue over 10 years.

That boost to government coffers could help offset the costs of renewing dozens of temporary tax breaks, many of them for corporations - a challenge now facing Congress.

Democratic Senator Charles Schumer recently introduced the bipartisan private debt collection proposal, offering it as an offset for the temporary tax breaks, known as the tax extenders.

But the joint committee’s revenue estimate excludes administrative costs and “is far too optimistic,” said the IRS Oversight Board, a nine-member panel appointed by the president.

The IRS has contracted with private debt collectors twice before. From 2006 to 2009, the IRS had to spend its own funds to run the program and ended up losing money, said the panel, which emailed the letter to Reuters on Wednesday.

Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh; Editing by Tom Brown