IRS Taxpayer Advocate Ramps Up Criticism of Private Debt Collection Program

The national taxpayer advocate, Nina Olson, last week expressed a new round of concerns over the IRS private debt collection program in her latest report to Congress. Olson said that monitoring the program was a top priority for her in the coming fiscal year.

In a report detailing her office’s agenda for FY 2009, Olson claimed that the IRS is giving the private collectors too much credit for some of the payments allocated to the program.

The IRS reported that the program – currently comprised of only two collection agencies: Waterloo, Iowa-based CBE Group and Arcade, N.Y.-based Pioneer Credit Recovery, a unit of Sallie Mae – brought in $31 million in gross collections in FY 2007. Olson said that more than $6 million of that total is attributable to IRS actions, not the work of the collectors. She points out that only $24.7 million of the $31 million was “commissionable,” meaning the collection agencies got paid on the lower total.

But Jeff Trinca, vice president of Van Scoyoc Associates, a Washington law firm representing the collection agencies, took exception to Olson’s reasoning concerning commissionable collections in her report. He noted that in many cases, the IRS sends out letters informing tax debtors that they owe money and that a collection agency will be contacting them shortly. The agencies then must wait 10 days before contacting the debtors.

“In a fair number of cases the taxpayer gets that letter, says ‘Oh darn,’ and pays the debt,” Trinca told GovExec.com. “The program gets credit but the [debt collection] agency doesn’t get paid.”

He also noted that the IRS uses the debt collection agencies’ names, and the threat that they carry, to collect the debt and that they should receive commissions on those collections.

Olson also noted that the backlog of “easy” cases referred to the private collectors has “dried up.” This has resulted in the IRS sending more complex cases to the collection agencies that should be handled by IRS staff, according to the report.

The National Treasury Employees Union, a longtime opponent of the IRS private debt collection initiative praised Olson’s report, calling the report in a statement, “damning evidence of the folly of continuing this costly and misguided program.”