IRS Private Debt Collection Program Under Fire

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May 24, 2007 5:22 PM

The IRS plans to expand a controversial program that uses private debt collectors to collect back taxes, despite criticism from Congress and its own tax advocate.

Congressional investigators say there have been hundreds of complaints about repeated and abusive phone calls from debt collectors participating in the IRS program. Among those who have filed complaints are people in nursing homes, wives of servicemen in Iraq and low-income taxpayers facing economic hardship.

"It's bad enough having to owe the Internal Revenue Service, but to be harassed by private collectors is just not fair," said Congressman Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, which held hearings on the program this week. Rangel has threatened to enact legislation to close the program if the IRS fails to do so on its own.

World News Video IRS Tactic to Alleviate Tax Debt

Critics also charge the IRS program has led to widespread confusion and frustration among taxpayers.

Under the rules of the program, collectors cannot say they are working for the IRS and are calling about a tax matter without first receiving proof of a taxpayer's identity. This has led to complaints from consumers saying they have received calls that sound like scams from collectors who have pressed them to provide social security numbers without identifying the purpose of the call.

Audio Click Here to Hear One of the Calls Yourself.

Nina Olson, the National Tax Advocate of the IRS, is helping to lead the campaign to repeal the program, which she says has cost $50 million more in administrative costs than it has collected in back taxes. 

"As I saw the business case just evaporate, it was my decision and my determination that this program was a waste of taxpayers' dollars," Olson told the Blotter on ABCNews.com

The debt collection industry says its own surveys show taxpayers who have been contacted are happy with the program. 

"The overall customer satisfaction rate is exemplary. In fact, in terms of professionalism, consumers are rating the private collection agencies at 100 percent satisfaction," said Rozanne Andersen of ACA International, the trade group for the collection industry.

Currently, two companies have been authorized to participate in the IRS program, CBE Group, Inc., of Waterloo, Iowa, and Pioneer Credit Recovery Inc. in Arcade, N.Y. The companies are entitled to keep 25 percent of what they collect. The IRS plans to add another eight debt collection firms to the program by next year.

In the hearings, the president of CBE defended his company's performance and said its workers are committed to acting in an ethical manner.

Congressman Tom Reynolds, R-N.Y., whose district is home to Pioneer Credit Recovery, was one of the main proponents of the program when it was enacted two years ago.  Campaign finance records show that Reynolds has received at least $4,000 in direct campaign contributions from the owners of Pioneer, who have given more than $85,000 to Republican candidates, PACs and committees since 2000. 

A spokesperson for Rep. Reynolds told ABCNews.com, "Looking at this program, Congressman Reynolds' No. 1 concern is looking at the over 1000 jobs it provides in our district. Additionally Congressman Reynolds is concerned that taxpayer privacy is protected by the IRS and any other parties that have access to tax payer info."

Pioneer Credit was not available for immediate response.

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