IRS mulling use of private firms to collect back taxes

Wednesday, October 16, 2002

WASHINGTON -- The Internal Revenue Service is considering the use of private collection agencies to help it track down billions of dollars in delinquent taxes, raising concern Tuesday from key lawmakers about privacy and taxpayer protection.

Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee that oversees the IRS, said he is skeptical about putting such powers in the hands of for-profit businesses. "The collection of this nation's revenue needs is an inherent government function," he said.

Earlier this year, IRS officials concluded after a preliminary analysis that use of collection agencies "is a feasible, cost-effective approach" to tackling some delinquent accounts, according to testimony provided to Congress.

The Treasury Department, of which the IRS is a part, is still mulling over the idea, said Pam Olson, assistant secretary for tax policy. But she said it could provide another tool for the government to collect what it is owed.

"There is a large and growing amount of unpaid taxes owed to the government," she said.

The General Accounting Office, the investigative arm of Congress, recently estimated that at least $20 billion in unpaid taxes could be readily collected but is not being pursued. That amount probably represents only the tip of the iceberg, but firm estimates are difficult to come by.

The Wall Street Journal, which first reported Tuesday on the possible use of collection agencies, used an estimate of $240 billion in delinquent taxes. Much of that, however, is not collectible because taxpayers have died or have no money.

Huge gap to fill

In a recent report, IRS Commissioner Charles Rossotti acknowledged there is "a huge gap between the number of taxpayers whom the IRS knows are not filing, not reporting or not paying what they owe, and our capacity to require them to comply."

Rossotti recommended that Congress increase the agency's staff by 2 percent in each of the next five years "to close the known compliance gap."

If the Treasury Department decides to use collection agencies, it will confront a host of privacy and taxpayer protection questions. Such a plan would have to address how collection agency employees would be screened, which cases are appropriate for them and how a private business could be prevented from harassing taxpayers to fulfill its government contract.

Congress also would have a say, either in approving such a program or in providing the budget for it.

"While it is prudent for the IRS to explore options ... any proposal to amend tax laws to permit private debt collection would have to be measured against the important privacy and safeguard rights presently afforded taxpayers," Baucus said.

Olson said addressing those concerns would be foremost in development of any program.

"They would have to understand all the requirements about protecting taxpayer confidences," she said. "They would have to live up to the same standards that apply to the IRS."

Keeping tabs on cards

Also Tuesday, the IRS stepped up its campaign to identify taxpayers who are using MasterCard credit cards issued by offshore banks to hide taxable income.

The agency asked federal judges in 11 cities to issue summonses to businesses, ranging from hotels to car dealerships, to allow the IRS to find records for specific cards taxpayers are believed to be using improperly.

"Our goal is simple and straightforward: identify the people who may be using these offshore cards to evade paying their taxes," Rossotti said.


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