February 27,2009

Grassley, Schumer, Harkin Urge IRS to Give Debt Collection Program a Chance to Work

WASHINGTON – Sens. Chuck Grassley, Chuck Schumer, and Tom Harkin have
urged the Treasury Department and Internal Revenue Service to keep the tax collection
program known as the private debt collection program.

In a letter to the agency leaders, the senators said the program criticisms are
unfounded, the program is still very new and should be given a full chance to work, and
that efficiencies will result from the use of qualified private contractors who are set up to
handle the work of calling taxpayers who have acknowledged that they owe taxes but
haven’t paid.

Grassley is ranking member and Schumer is a member of the Committee on
Finance, with jurisdiction over tax policy and the IRS.

The text of the senators’ letter follows here.

February 26, 2009

 

The Honorable Timothy F. Geithner
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue
Washington, DC 20220

The Honorable Douglas H. Shulman
Commissioner of Internal Revenue
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Dear Secretary Geithner and Commissioner Shulman:

We are writing regarding the private debt collection program (PDC) that is being
implemented by the Internal Revenue Service (IRS) and has been in place since 2006.
We are aware that many critics believe that the program does not operate effectively, and
they lead an annual effort to strip the IRS of all authority to implement it. But we do not
believe that the necessary data has been collected and disseminated that would allow an
informed decision to be made about the program’s long-term effectiveness.

Make no mistake: If the program is genuinely unsuccessful, we would be among
the first to concur that it should be terminated. However, we remain very concerned that
IRS will terminate the PDC program before a complete and thorough accounting of the
program is conducted. For example, while some are critical of the effectiveness and
efficiency of the PDC program, we have yet to see solid, reliable numbers. Criticism of
the program’s return on investment do not account for its start-up or investment costs,
and ignore the fact that the program has not been fully operational for any of its two
years.

We appreciate that the IRS has decided to use an independent third party to study
the effectiveness of the program, and its report may be issued as early as next week. But
it is not clear that the new study will discuss ways to increase the efficiency and
effectiveness of the PDC program or explain why similar programs at other federal
agencies appear to be successful. For example, the Department of Education uses PCAs
to collect student loan debt, and the Department of Treasury Financial Management
Service uses them to collect small business loans, farm loans, and other similar debt owed
to the federal government, and these programs appear to work well with little
controversy.

Given the amount of uncollected tax debt, a program that was allowed to operate
at full capacity would have the potential to be successful, yet the current program has
only operated in fits and starts. In fact, during the past fifteen years, the Government
Accountability Office (GAO) and the Treasury Inspector General for Tax Administration
(TIGTA) have issued numerous reports discussing the IRS’s problems in collecting
delinquent debt. A list of these reports is attached. Some of the key findings include:

-- In its May 1993 report, New Delinquent Tax Collection Methods for IRS, the
GAO highlighted the complexity of the IRS’s collection process. GAO presented
a number of options to improve the IRS’s delinquent debt process, including
establishing early telephone contact with debtors and utilizing private collection
agencies. So there is a long track record indicating that a well-run PDC program
could be successful.

-- In its June 2007 report, Tax Debt Collection: IRS Has a Complex Process to
Attempt to Collect Billions of Dollars in Unpaid Taxes, the GAO description of
the IRS’s collection process indicates that IRS has not experienced significant
improvement in its collection function since 1993. The report also states that the
total unpaid tax debt as of fiscal year 2007 was $290.1 billion, of which $184.8
billion was classified as non-potentially collectible inventory and $25.5 billion
was deemed potentially collectible, but not in active collection status. This would
seem to be further justification for a viable PDC program.

-- In its December 2008 report, Tax Administration: IRS’s 2008 Filing Season
Generally Successful Despite Challenges, Although IRS Could Expand
Enforcement During Returns Processing, the GAO notes that, because collections
staff was reassigned to answer telephone calls regarding stimulus payments, the
IRS reported $655 million in forgone revenue through August 2008 alone, which
means that the number for the whole calendar year will likely be greater. If the
IRS viewed the PDC program as part of its larger collection program, rather than
a stand-alone program, PCAs may have been able to complete the work of the
collections staff that had been temporarily reassigned.

It is important for critics of the program to recognize that the IRS’s PDC program
is designed to go after tax debts that have been conceded by taxpayers, but not paid.

What’s more, even if the IRS enforcement budget were significantly increased, the
accounts turned over to PDC are those that would still likely be ignored by IRS collection
agents. In his May 2007 testimony before the Committee on Ways and Means,
Subcommittee on Oversight, Acting Commissioner Kevin Brown, confirmed that IRS
would not otherwise pursue these debts even if IRS were given additional resources.

We remain cautiously optimistic that a PDC program could be successful in
helping to close the tax gap, but only if it is allowed to operate at full capacity. Only
after that point could a determination be made about whether the program is meeting its
objectives. We are hopeful that the report being prepared will provide answers to the
following questions. If not, we hope that you will take the time to let us know the
following key information before the IRS makes any final decision about the PDC
program:

-- The primary argument for terminating the IRS PDC program is that it is not cost
effective. In order to better understand the program’s revenues and costs, we
would like a monthly accounting of all funds expended on the program since its
inception, including a breakdown of all costs for IRS personnel involved in
administering the program (salary levels, positions descriptions, etc.), as well as
costs associated with technology and travel.

-- We would also like to know the number of cases placed with the private agencies
since the program began, including the number of cases for which the amount was
collected in full, the number of resulting installment agreements, and the number
of cases recalled and reasons for recall. We would also like an accounting of the
commissions earned by the PCAs since the program started.

-- Some taxpayers choose to ignore the IRS’s many letters and respond to the IRS
only after it notifies them that their cases will be referred to a PCA. In these
cases, where the IRS benefits from the use of the PCA’s names, we would like to
know why the PCAs are not compensated when those taxpayers settle those debts.

-- We would also like for you to describe how IRS’s collection process and
procedure differs from the process and procedure used by PCAs in collecting IRS
debts, including the IRS’s ability to make outbound phone calls, negotiate or
settle tax debts, and impose liens and levies.

-- Another criticism of the program is that the IRS has run out of cases that can be
assigned to the current PCAs, which is why other PCAs have not been added.
However, the exclusion list, which was not determined by statute but by the IRS,
appears fairly extensive. In addition, as noted above, the GAO’s June 2008 report
indicates that, as of fiscal year 2007, there was at least $25.5 of potentially
collectible inventory that IRS was not actively pursuing. We would like to know
how each of the exclusion criteria was determined.

-- Tables 5, 6 and 7 of the GAO’s June 2008 provide a breakdown of the total
delinquent debt for fiscal years 2002 through 2007. Please update these tables to
add numbers for fiscal year 2008 and provide a breakdown of this amount by the
exclusion criteria. We would also like to know why all potentially collectible
inventory is not in active collection status and cannot be assigned to PCAs.

-- We would also like to know whether Treasury or any other agency has studied the
cost effectiveness of the use of PCAs by Treasury or other federal agencies. If
such studies are available, we would like to see them.

Finally, you may be aware that there are almost 200 jobs in both Iowa and New
York that will be lost if the IRS PDC program is terminated prematurely. Given the
current economic crisis, such job losses should not be forced to occur before a full
accounting of the program’s success is made available and/or the program is allowed to
operate as originally intended. The recently enacted Economic Recovery Act, which will
further strain IRS resources, is an additional reason why the PCAs should be allowed to
operate until the success or failure of the program can be definitively determined.

If you have any questions regarding the above, please do not hesitate to contact
our staff. We also ask that you brief our staff on the forthcoming study before the study
is finalized and made public.


Sincerely,

Chuck Grassley
United States Senator

Charles E. Schumer
United States Senator

Tom Harkin
United States Senator


--------------------------------------------------------------
Contact:

Jill Gerber, Committee on Finance, Ranking Member Sen. Chuck Grassley, 202/224-
6522
Kate Cyrul, The Office of Sen. Tom Harkin, 202/224-3254
Brian Fallon, The Office of Sen. Chuck Schumer, 202/224-7433

Attachment:

Collection & Private Debt Reports2.xls