IRS to drop private debt collection program

WASHINGTON -- The Internal Revenue Service is eliminating a program that uses private debt collectors to go after tax delinquents, the agency announced Thursday evening.

The decision came after the IRS reviewed the program and determined that IRS employees could better do the work. The decision, however, was quickly criticized by a key supporter of the program in Congress.

The program is relatively small, bringing in a little more than $80 million since it was started in 2006. But it has caused big political headaches for the IRS.

The union representing IRS workers and the National Taxpayer Advocate, an independent ombudsman within the IRS, oppose the program, as do some Democrats in Congress. Other powerful lawmakers from both political parties support it.

Sen. Chuck Grassley of Iowa, the top Republican on the Senate Finance Committee, blasted the decision to end the program, saying the IRS was caving in to "union-driven political pressure."

"The administration has decided that after spending nearly a trillion dollars in the stimulus bill to keep people working across the country, they are going to cut a program that provides jobs to hundreds of people during the middle of a recession, including 60 in Iowa," Grassley said in a statement.

Colleen M. Kelley, president of the National Treasury Employees Union, said earlier Thursday that the program should never have been started.

"It's not good for taxpayers, it's not good for the IRS," Kelley said.

Under the privatized program, the IRS turns over delinquency cases, often in the $5,000 to $10,000 range, that the IRS lacks the manpower to pursue.

The program costs about $7.6 million a year to administer, and private contractors are allowed to keep about a quarter of the taxes they collect.

The contracts the private agencies were working under expire Friday. The IRS has been reviewing the program for the past month to determine whether to extend the agreements.

There have been numerous attempts in Congress to kill the program since former President George W. Bush signed it into law. A massive spending bill pending in the Senate includes a provision that would cut off funding for the privatization program. The bill, which would fund federal agencies through September, could be voted on next week.