Washington, D.C. - The United States House of Representatives today passed an amendment to the Treasury Transportation Appropriations Act which prevents the privatization of debt collection by the Internal Revenue Service (IRS). More than one year ago, Van Hollen introduced similar legislation, H.Con.Res. 213, the Taxpayer Abuse Prevention Resolution of 2003, which expressed the sense of the Congress that private sector debt collection contractors should not be paid on a commission basis or as a percentage of the amount of federal taxes they collect.
A provision included in the recently passed Foreign Sales Corporation (FSC)/Extraterritorial Income Exclusion (ETI) legislation would change federal tax collection policy to allow the IRS to pay private debt collectors a 25% commission to collect unpaid tax debt -- a proposal that will jeopardize the rights and privacy of American taxpayers. Today’s amendment will simply and directly prohibit the Secretary of the Treasury, or his designee, from using any funds appropriated under the FY 2005 Act to "plan, enter into, implement, or provide oversight of contracts" between the IRS and private collection agencies related to the collection of federal taxes.
“This is good news for American taxpayers,” said Van Hollen. “It is wrong to use bounty-hunter tactics to collect taxes. Private debt collectors with a personal financial stake should not be empowered to replace IRS agents who have a duty to treat taxpayers with respect. The taxes we collect should go to benefit the American people, not fatten the pockets of private debt collectors.”
The amendment passed today will combat the provision that authorizes the IRS to "contract out" federal tax collection to private sector debt collection companies. This fundamental change in long-standing IRS policy raises many concerns which should be seriously considered before allowing this authority to be implemented by the IRS. Some of those concerns are: 1) potential improper disclosure of taxpayer information; 2) lack of recourse by taxpayers in the event of improper disclosure; 3) potential taxpayer harassment by debt collectors; 4) potential use of taxpayer information for 'identity theft'; 5) potential "offshoring" of such work to companies outside of the United States; and 6) the incentive-based compensation system for private debt collection companies that will encourage overzealous and abusive tactics.
“The government-taxpayer relationship is one of the foundations of our nation,” said Van Hollen. “Collection of federal taxes has always been an inherently governmental function guaranteeing the confidentiality of taxpayers' personal information. This proposed policy change calls into question the integrity of the overall system and, I believe, will undermine taxpayer confidence in the federal government.”
Two pilot projects were authorized by Congress to test private collection of tax debt for 1996 and 1997. The 1996 pilot was so unsuccessful that the 1997 project was cancelled. Contractors violated the Fair Debt Collection Practices Act (FDCPA) and did not protect the security of personal taxpayer information. An IRS Internal Audit Report found that contractors made hundreds of calls to taxpayers during times prohibited by the FDCPA, and that calls were even placed as early as 4:19 a.m.
The IRS Restructuring and Reform Act of 1998 (RRA 98) specifically prevents employees or supervisors at the IRS from being evaluated on the amount of collections they bring in. But now, the IRS wants to pay private collection agencies out of their tax collection proceeds, which will clearly encourage overly aggressive tax collection techniques. Furthermore, the IRS is proposing to turn tax collection responsibilities over to an industry that has a long record of abuse. For example, in 2002 (the latest year statistics are available), the Federal Trade Commission received 25,185 consumer complaints about debt collection agencies – making debt collectors the FTC’s most complained-about industry.