IRS and debt collectors, a partnership made in …

Do you want your friends, neighbors and family to know you’re a tax deadbeat? Some fear that such disclosures could soon happen, now that
three private firms have been awarded federal contracts to collect tax
debts.

Yes, the IRS has joined the outsourcing ranks.

The debt collector deals were announced Thursday afternoon. The new IRS
contractors are the CBE Group Inc. of Waterloo, Iowa; Pioneer Credit
Recovery, Inc. of Arcade, N.Y.; and, from right here in Austin, the
heart of Texas, my new hometown, comes Linebarger Goggan Blair &
Sampson, LLP.

In making the announcement, IRS Commissioner Mark Everson specifically mentions the
"concerns expressed about this project, which involves work
traditionally done by the government. As a result, we are putting tough
safeguards in place to protect taxpayer rights and privacy. We will be
closely monitoring contractor performance to make sure they’re
following the law as well as our own internal standards."

Given the feds’ reputation in general (the old joke about the
oxymoronic "I’m from the government and I’m here to help you"
unfortunately got a whole new life following Katrina) and the lack of
esteem most have for the IRS in particular, Everson’s pledge to make
sure the private firms meet agency standards isn’t much of a confidence
builder.

Combine that with the horror stories about debt collectors
and it’s easy to understand why some people think this might be the
Worst. Idea. Ever.

But, as is so often the case, money talked.

In seeking the authority to assign some tax bills to private
collectors, the IRS argued that such outsourcing would involve
primarily uncontested tax debts and it would free up agency employees
to more aggressively pursue more egregious, and richer, violators.
Congress and president agreed, and this pilot program was included in
the American Jobs Creation Act of 2004.

The collection program will be expanded over 10 years; the next phase
is in 2008, when up to 10 firms will be added. When all is said and
done, the IRS expects private debt collectors will bring the U.S.
Treasury an additional $1.4 billion in outstanding taxes. That’s just a
drop in the tax gap (blogged
here) bucket, but I guess you gotta start somewhere.

Of course, as part of the private sector, these debt collectors do have
their price. In exchange for the money they bring in, the firms
reportedly will get a commission (program supporter words) or bounty
(opponents’ description) of up to 25 percent based of the money they
collect.

In addition to the expected consumer and privacy protection groups
expressing trepidation about this new tax debt collection direction,
some federal workers themselves are also unhappy. The most vocal is the
National Treasury Employees Union, which counts 90,000 IRS employees
among its membership.

NTEU President Colleen M. Kelley called the announcement "a sad day for
America’s taxpayers," in that "American taxpayers can no longer have
the confidence that federal tax collections are not based on personal
gain."

And the union naturally is worried that such diversion of traditional
IRS duties to outside companies could lead to permanent job losses within
the federal agency. The NTEU already is fighting with the IRS over the
closure of customer call sites in Chicago and Houston. You can read
about that battle in this NTEU
release.

Hmmm. Kinda makes you wonder if in between
nuclear energy talks in India, the president might have also mentioned
that the Asian nation start thinking about where it would like to
locate an IRS call center.

TODAY’S TAX TIP: If you don’t want to face a debt collector as well as
the IRS, you need to figure out how to pay any tax bill you owe. You do
have some options. They may not be the options you really want, but
they’re better than the added penalties, interest and potential
hassling of a bill collector.

You can pay by credit card. Of course, if you don’t pay off your
plastic, you could get a separate visit from the debt collector. Or you
can investigate the IRS’ installment payment plan. Or, if all else
fails, try to work out a smaller payment deal via the agency’s Offer in
Compromise program.

You can find details on these potential payment methods here.

Addendum March 14: It’s Carnival time! Both the the latest Carnival of Debt Reduction and the 39th edition of the Carnival of Personal Finance included this post in their compilations of the week’s noteworthy financial stories. Check out both Carnivals for more on how to make the most of your money.