Here comes the IRS collection agencies

The language of HR 1169 remains primarily intact in section 3031 of HR 2896. The provision allows the IRS to contract with outside collection agencies to pursue taxes that are more than five years in arrears. The provision specifically outlines the procedure for the IRS’s interaction with the debt collection agencies. The debtor will not pay the agency directly; they will be referred to the IRS for payment. The provision creates a “revolving fund from the amounts collected by the private debt collection companies” from which the agencies will be paid. The provision also specifically states that no collection agency will be paid more than 25% of what it collects. It is inferred that the IRS will allow competitive bidding for the collection contracts.

The Joint Committee on Taxation (JCT) estimates the provision will create net income for the U.S. in excess of $440 million between 2004 and 2008, with positive cash flow beginning in 2005. If kept intact, the JCT estimates the provision will net the government nearly $1 billion by 2013.

The provision has come a long way since it was introduced as a proposal on February 3 of this year in the President’s 2004 budget. That proposal was born in response to an IRS request in October of 2002 for help from private collection agencies in devising a plan to collect back taxes. Many collection agencies, large and small, contacted the IRS with plans to help them collect back taxes. When President Bush proposed his 2004 budget, the collection industry was quick to note the language calling for the IRS’s use of private collection agencies.

Representative Amory Houghton (R-NY) sponsored HR 1169, which provided specific language for allowing the IRS to use collection agencies. The bill was then sent to the House Committee on Ways and Means for examination and debate. On May 13, 2003, the committee held a public hearing to listen to arguments for and against the bill. Newly named IRS Commissioner Mark Everson testified for the bill, saying that the IRS could use the additional revenue and should utilize the core competencies of private industry. Representatives from the ACA as well as private collection agencies also testified in favor of the bill. Representatives from consumer groups testified against the bill, arguing that consumers would be harassed by agencies looking to collect old taxes. HR 1169 stayed in the Ways and Means committee until last month when it was added to HR 2896 as a provision.

The outlook for the passage of the bill seems favorable. The bill is expected to hit the House of Representatives’ floor next week, with a vote coming soon after.   ¶ 9:22 AM