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In Pursuit of Delinquent Taxpayers

When President Bush signed into law the American Jobs Creation Act last October, he authorized the Internal Revenue Service to hire the services of commercial debt collectors.  Supported by the Bush Administration as a means of increasing revenue collections during a time of bloated budget deficits, debt collectors will now be able to pursue delinquent taxpayers for back taxes.  The government estimated that some $78 billion can be collected with collection agencies contributing $1 billion to treasury coffers over a 10 year period.

Apparently the IRS lacks the resources to pursue debtors.  Estimating that $9 billion could be collected with those additional resources, IRS Commissioner Mark Everson asked Congress for additional funding.  Even if a collection officer receives $60,000 in annual salary, he will collect on average $900,000.  But Congress did not appropriate the requested funding because adding  IRS employees is considered an outlay.  As a result President Bush suggested outsourcing.

And now that outsourcing has been approved, Commissioner Everson is saying:  'We do view this as an important step forward in strengthening tax administration.  It parallels what is already being done in over 40 states.  It will be done with full protection of taxpayer rights, and . . . it's absolutely necessary, particularly in an environment where Congress has cut back on funding for the IRS.'

In today's world according to Rozanne Anderson, general counsel and senior vice president of legal and government affairs for the Association of Credit and Collection Professionals, the Fair Debt Collection Practices Act (passed in 1977) safeguards the consumer from harassment.  'The only thing the debt collector needs to know is the amount due and the name, address and phone number (of the taxpayer).'  IRS spokesman John Lipold, apparently reflecting the viewpoint of the IRS Commissioner concerning taxpayer rights, promises:  'Taxpayer privacy will be fully maintained by any private collection agency that the IRS employs.  They will be held to a very high standard in accordance with confidentiality requirements and statutory restrictions.'

However concern for potential abuse by commercial debt collectors and consequent invasion of privacy has not mitigated.  Consider the case of Jeffrey Grimes.  In 1987 he arrived home from work to find his 12-year-old daughter in tears.  'Daddy,' she cried.  'Some nasty lady telephoned and said you owe lots of money.  She said you were a bad man and bad things will happen if you don't call her.  She screamed at me.'  Jeffrey provided financial services to his clients in his home town, and was widely respected for his integrity and acumen.  His two children thought he hung the moon.  Now some bill collector was harassing  him and his family for a debt he was already vigorously disputing with a real estate management trust.  Outraged he fought back and eventually succeeded in defeating the trust.  But not before the collector had placed a black mark on his credit report.

The debt collection industry remains the leading source of complaints to the Federal Trade Commission.  Little wonder, therefore, that some members of Congress have opposed contracting debt collectors.  The IRS already has sweeping powers to enforce collection of back taxes, including audits, penalties, levies, seizures, and incarceration.  And $1 billion does not appear significant when compared to $78 billion.  So why contract with commercial debt collectors?