IRS and debt collectors, a partnership made in …

Do you want your friends, neighbors and family to know you're a tax deadbeat? Some fear that such disclosures could soon happen, now that three private firms have been awarded federal contracts to collect tax debts.

Yes, the IRS has joined the outsourcing ranks.

The debt collector deals were announced Thursday afternoon. The new IRS contractors are the CBE Group Inc. of Waterloo, Iowa; Pioneer Credit Recovery, Inc. of Arcade, N.Y.; and, from right here in Austin, the heart of Texas, my new hometown, comes Linebarger Goggan Blair & Sampson, LLP.

In making the announcement, IRS Commissioner Mark Everson specifically mentions the "concerns expressed about this project, which involves work traditionally done by the government. As a result, we are putting tough safeguards in place to protect taxpayer rights and privacy. We will be closely monitoring contractor performance to make sure they're following the law as well as our own internal standards."

Given the feds' reputation in general (the old joke about the oxymoronic "I'm from the government and I'm here to help you" unfortunately got a whole new life following Katrina) and the lack of esteem most have for the IRS in particular, Everson's pledge to make sure the private firms meet agency standards isn't much of a confidence builder.

Combine that with the horror stories about debt collectors and it's easy to understand why some people think this might be the Worst. Idea. Ever.

But, as is so often the case, money talked.

In seeking the authority to assign some tax bills to private collectors, the IRS argued that such outsourcing would involve primarily uncontested tax debts and it would free up agency employees to more aggressively pursue more egregious, and richer, violators. Congress and president agreed, and this pilot program was included in the American Jobs Creation Act of 2004.

The collection program will be expanded over 10 years; the next phase is in 2008, when up to 10 firms will be added. When all is said and done, the IRS expects private debt collectors will bring the U.S. Treasury an additional $1.4 billion in outstanding taxes. That's just a drop in the tax gap (blogged here) bucket, but I guess you gotta start somewhere.

Of course, as part of the private sector, these debt collectors do have their price. In exchange for the money they bring in, the firms reportedly will get a commission (program supporter words) or bounty (opponents' description) of up to 25 percent based of the money they collect.

In addition to the expected consumer and privacy protection groups expressing trepidation about this new tax debt collection direction, some federal workers themselves are also unhappy. The most vocal is the National Treasury Employees Union, which counts 90,000 IRS employees among its membership.

NTEU President Colleen M. Kelley called the announcement "a sad day for America's taxpayers," in that "American taxpayers can no longer have the confidence that federal tax collections are not based on personal gain."

And the union naturally is worried that such diversion of traditional IRS duties to outside companies could lead to permanent job losses within the federal agency. The NTEU already is fighting with the IRS over the closure of customer call sites in Chicago and Houston. You can read about that battle in this NTEU release.

Hmmm. Kinda makes you wonder if in between nuclear energy talks in India, the president might have also mentioned that the Asian nation start thinking about where it would like to locate an IRS call center.

TODAY'S TAX TIP: If you don't want to face a debt collector as well as the IRS, you need to figure out how to pay any tax bill you owe. You do have some options. They may not be the options you really want, but they're better than the added penalties, interest and potential hassling of a bill collector.

You can pay by credit card. Of course, if you don't pay off your plastic, you could get a separate visit from the debt collector. Or you can investigate the IRS' installment payment plan. Or, if all else fails, try to work out a smaller payment deal via the agency's Offer in Compromise program.

You can find details on these potential payment methods here.

Addendum March 14: It's Carnival time! Both the the latest Carnival of Debt Reduction and the 39th edition of the Carnival of Personal Finance included this post in their compilations of the week's noteworthy financial stories. Check out both Carnivals for more on how to make the most of your money.