Despite the fact that the House Appropriations Committee voted to block the funding of an IRS initiative to outsource and privatize debt collection, the IRS will be moving forward with its plan – perhaps as soon as next month.

But don’t worry about the security of your personal information, as the IRS hasn’t had issues with laptops containing personal data being lost, or even with the losses of thousands of laptops in general.  And don’t worry about being harassed by private debt collectors either, because the IRS has many “safeguards” in place which would protect taxpayers.  And if you believe that, then I have a bridge to sell you.
Now, I am a tax guy and keep on top of new and major developments in the tax world.  But the only reason that I saw this was from a small article in an accounting newspaper that the NYS Society of CPAs puts out twice a month.  The only mention of this (recently) on the IRS website is a two page document released last week entitled, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.

This program was first announced relatively under the radar as a result of the 2004 Federal Jobs Creation Act and one of the pathetic explanations was that state agencies are doing this already, so don’t worry.  And what have we found since then?  Well, 2 employees of the private debt collection company that New Jersey has been using, OSI Collection Services, Inc. has been knee deep in a corruption scandal:

The state’s taxation director and five other Treasury Department employees were indicted yesterday on official misconduct charges, accused of taking thou sands of dollars worth of dinners, entertainment and other gifts from a state vendor.

Two former employees of the vendor, OSI Collection Services Inc., also were charged in the corruption case. The company was hired by the state to collect delinquent taxes.

Since this is so wrong on so many levels, there is much to be concerned about, so I will take you (briefly) through a few of the major issues.

Vendor Choice

Back in March of 2006, the IRS announced that three firms were selected to take part in the first phase of the “debt collection” initiative.  

The Internal Revenue Service today awarded contracts to three firms to participate in the first phase of its private debt collection initiative.

The firms are:

  • The CBE Group Inc., Waterloo, Iowa.
  • Linebarger Goggan Blair & Sampson, LLP, Austin, Texas.
  • Pioneer Credit Recovery, Inc., Arcade, N.Y.

A total of 33 firms took part in the competitive bidding process that resulted in today’s contract awards.

And what do we find out just 2 short months later?  Why, that one of the firms, Linebarger Goggan Blair & Sampson LLP, has been caught with its hands in the cookie jar on more than one occasion:

A former Linebarger partner was convicted in a 2002 bribery scheme involving payments to two San Antonio city councilmen who voted to approve a collection contract with the law firm.

  • In 2004, Linebarger settled a lawsuit in which a competitor alleged that the law firm offered illegal gifts and bribes, and rigged bids to win collection contracts from several local governments.
  • A collection contract that the city of New Orleans awarded to Linebarger and a Louisiana partner organization in 1998 “has been the subject of an FBI investigation.”

Nothing like a crooked or shady entity in charge of harassing taxpayers to pay a debt.  Not to mention the fact that the IRS’s recordkeeping isn’t always spot on, and this could result in the harassment of innocent taxpayers as well.  But wait – there’s more.  Since one of the big issues with debt collectors is that they get paid a percentage of what they bring in, this generally leads to more strong-arming and some underhanded tactics.  And what does the IRS do to combat this fear?  

The IRS initiative, set to start this year, has been viewed as a privatization plum because the winning bidders would be allowed to keep up to 24% of the amounts they collect.


The House Appropriations Committee Amendment was introduced by Rep. Steve Rothman (D-NJ) and had some startling figures with respect to how much more this program would cost.  There was a huge difference in the amounts of money that could be collected vs. how much money needed to be spent just on the debt collection companies as opposed to hiring more personnel at the IRS.  From Rothman’s web site:

Not only does the Administration’s privatization scheme put taxpayers’ private financial information at greater risk of being lost, stolen, or intentionally misused by identity thieves, it is also expensive. On top of the $54 million start-up price-tag, the private collection agencies will earn commissions of up to 25% on any back taxes they actually collect. In contrast, IRS employees could do the job for less than 3%.

In fact, the bipartisan Joint Committee on Taxation reports that it will cost $350 million on top of the $54 million start-up cost for debt collection companies to collect $1.5 billion over ten years. Yet, by hiring additional IRS employees to collect the unpaid taxes, the IRS would spend $290 million to collect $9.5 billion in one year.

Earlier this year, Rothman’s questioning forced the IRS Commissioner, Mark Everson, to ‘freely admit’ that the Administration’s privatization of tax collection will waste millions of taxpayer dollars each year. In addition to being expensive, debt collection companies are the most complained-about industry in America, according to Federal Trade Commission consumer complaint data.

We’re talking billions more in dollars that could be collected without heavy-handed and threatening procedures if the IRS was to take the smarter approach.  Billions of dollars that could go towards funding veteran’s services.  Or funding educational programs.  Or giving tax relief to people outside of the top 3%.  Or rebuilding New Orleans and the Gulf Coast.  Or countless other programs.


Rest assured, there is nothing to worry about so just pretend that this isn’t happening.  Of course, you probably hear the same thing if you were to have invasive surgery or an unpleasant visit at the proctologist.  But the IRS is looking out to make sure that there are “appropriate” safeguards in place.  

Not to get too much into it, since frankly it is all bullshit to me, but these safeguards include training regarding the Privacy Act of 1974, requirements of contractors to provide internal safeguard reviews on a quarterly basis, contractors are required to certify that they complete the required training annually and that contractors should not base compensation for their employees based on dollars collected.  Of course the entire arrangement with the contractor is based on dollars collected, so that doesn’t say much.

This will be interesting to follow as it rolls out, and sadly even the lack of funding won’t stop this train from leaving the station.  But given the recent issue in NJ with OSI Collection Services as well as the trampling of We the People’s rights, the loss of sensitive data and the history of private debt collection companies, you can bet that things will get ugly.

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