Matter, that is.
The IRS has announced that, within the next few weeks, it will turn over thousands of taxpayer accounts to three private companies for debt collection (slated to increase to ten companies by 2008). These accounts are those with outstanding amounts owing of $25,000 or less.
Ostensibly, the idea for this move towards privatization is to save taxpayer dollars. However, IRS officials claim that the move will actually be more expensive (up to eight times more) and will result in fewer dollars collected (approximately five times less). The net difference to taxpayers? A projected $1.1 billion collection from private companies versus $87 billion from IRS revenue officers – if only they could hire more revenue officers. However, despite the economics, which are undisputed, Congress has refused to allow IRS to hire more revenue officers.
So, it’s a little more expensive and we’re collecting a little less money. It’s still a good idea, right? Hardly. The concern of practitioners and others is two-fold:
- Who will safeguard the taxpayers’ privacy? and
- Will this provide more confusion for taxpayers with amounts in controversy?
There are no clear answers.
Privacy, the Service claims, will not be a concern. They are, after all, using carefully selected professional organizations. Or so they say. A little research indicates that one of the three companies selected is a law firm in Austin, Texas, Linebarger Goggan Blair & Sampson, where a former partner, Juan Peña, is now serving jail time for bribing San Antonio city officials in exchange for contracts. And in July 2006, the same law firm was implicated in a lawsuit that claimed Brownsville city officials influenced a second collections contract. That lawsuit is still pending. Gives you warm fuzzy feelings about that law firm, no?
Beyond questions about the integrity of the companies who won bids, there is a real concern that in an incentive-based collections world, there might be abuse in order to collect dollars. The companies will retain approximately 20% of the collections, so the more money collected, the more money pocketed.
Additionally, the IRS attempts to assist taxpayers with alternatives such as Offers in Compromise, installment plans and more; a collection agency has no such incentive. In fact, the more “help” to the taxpayers, the less in profits. So why bother?
So what does this mean for taxpayers? I predict that this will be the single biggest tax news of the year – despite little to no press covering the event right now. I also suspect that a number of litigation firms will start to get cozy with tax practitioners (perish the thought!) because there is no way that this will be a smooth transition. Adding to the IRS’ headache over this matter will likely be their involvement in a number of taxpayer lawsuits…
