Roadblock for private tax debt collectors

The IRS has issued a stop-work order to three private debt-collection firms that were awarded contracts earlier this month to start going after unpaid tax bills. You can go here to read more about the contracts and why many, including yours truly, thinks such outsourcing is not such a good idea.

CCH, the publishing and tax software company, reports that the IRS put the brakes on the controversial collection plan after GC Services LP and Diversified Collection Services, Inc., filed protests with the Government Accountability Office, which handles contracting disputes involving any federal agency.

The complaining companies were among the 30 that did not make the initial cut in the contract process.

Private debt collectors, many of whom don't have, shall we say, the most savory of reputations when it comes to dealing with "customers," were slated to begin collecting on the IRS' behalf this summer. The IRS is hopeful that the timetable won't be pushed back too far.

According to CHH, the IRS responded the to companies' filings by saying "protests are not unusual in the procurement process." The agency also said it will continue to prepare for the use of private debt collectors until the protest is resolved and will "respond accordingly when (the) GAO issues its ruling."

Longer term,the IRS is looking to hire around seven more debt collection agencies by 2008 to go after what the IRS says will be "relatively simple cases" in which taxpayers have acknowledged that they owe Uncle Sam.

But for now, the IRS has until April 17, the same deadline most of us also face to get our returns at least en route to the agency, to provide the GAO with a report on its side of the matter. The GAO has until June 26 to issue its decision.