Tax debt collectors are down and out

The U.S. House of Representatives decided to give the IRS a little more money, but lawmakers also put limits on how the tax agency could spend the funds.

Specifically, the appropriations bill prohibits the IRS from hiring any more private debt collectors.

The restriction would not alter the debt collection contracts the IRS announced in March (details here). Those have been on hold pending an investigation of an allegedly improper contracting process (details here).

When the matter is resolved, if it is resolved in favor of the three companies the IRS picked to track down unpaid tax bills, those firms will get to work on about 10,000 overdue IRS accounts. The IRS had originally hoped as many as 75,000 tax deadbeat cases would be handled by the private agencies, but the implementation delay has forced the agency to scale back expectations.

The agency sought another $54 million for the coming fiscal year to keep the program going beyond this initial phase. IRS Commissioner Mark Everson admitted to Congress that it would be cheaper to hire more IRS agents to do the job, but said the federal budget process makes that difficult.

The hiring of more IRS employees shows up as a budget expenditure, Everson told a House Appropriations subcommittee in March. The budget doesn't acknowledge the extra money the added employees might collect. And their budgetary costs count against the IRS as it competes with other agencies for revenue while the federal deficit is increasing.

The House members weren't swayed. So when fiscal 2007 rolls around Oct. 1, the IRS will have to make do with the employees they have to get taxpayers to pay their bills. No cash can be allocated for continuation of the private collection agency plan.

Opponents of hiring private debt collectors, and you can count me as one of them, are delighted with the House's fiscal restrictions on private bill collectors.

But I'll admit that the $20.7 million extra that the Representatives agreed to add for IRS operations (bringing the total tax appropriation to $10.5 billion) probably isn't going to do a lot to help close the estimated $290 billion tax gap.

The funding measure is still $104.5 million short of the agency's original budget request, and Everson warned that it "would result in personnel reductions within the IRS."

Hmmm. Money woes leading to rank-and-file personnel cutbacks. I guess Washington, D.C., is finally starting to run the government like private business.

Do your part to ease the tax gap: Remember to get your 1040ES filing for the second quarter of 2006 on its way to the IRS today. Details on the estimated tax process and filing requirements can be found here.