IRS turning to private collectors

WASHINGTON – Make no mistake about it: The Internal Revenue Service wants Americans to pay their delinquent tax bills. The trouble is, it doesn’t seem to have the staff to collect from those taxpayers who have been remiss.

So the agency no one likes to hear from is turning to the industry no one likes to hear from: private debt-collection firms. The government this month began accepting bids from debt-collection agencies that it hopes to begin using as early as next summer to go after billions of dollars in unpaid taxes.

IRS officials assure there will be no muscle involved – no knocks at the door, no midnight phone calls. Indeed, the private collectors will have none of the powers of enforcement that IRS workers have, such as the ability to impose tax liens and wage attachments.

They are more likely to send a letter, under the contractor’s letterhead, politely explaining that the government would like what it is owed. A summary of taxpayer rights would also be included, in the government’s attempt to make sure that the public feels more nudged than threatened.

The government decided to turn to the private sector when it became clear that Congress was unlikely to increase the agency’s budget to allow it to hire enough workers to go after all the outstanding debts.

And it turns out the government is due a lot. According to the GAO report, Americans owed $120 billion in collectible taxes, including interest and penalties, in 2003. That was up from $112 billion the year before.

In soliciting bids, the IRS said private collectors would earn from 21 percent to 24 percent of what is collected, depending on the size of the debt.

A small number of companies, probably three, will be chosen to handle simple “balance due” cases during a trial period. The collectors would be assigned only cases that involved more than $100, and where the taxpayer did not dispute the amount owed. An example might include something as simple as a taxpayer mailing in a return but forgetting to enclose a check.

If all goes well, the program will be fully implemented to include as many as a dozen contractors, who will take on a larger number of cases by early 2008.