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IRS may try again to use 'mercenaries' to collect taxes: Watchdog

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A nonprofit, nonpartisan watchdog on Friday warned American taxpayers that both the U.S. Senate and House of Representatives, who are searching for cost-cutting in federal agencies, are pondering a return to allowing the Internal Revenue Service (IRS) to hire private contractors -- de-facto mercenaries or bounty hunters -- to help collect millions of dollars in delinquent federal taxes.

The Project on Government Oversight (POGO) reported in a study released Friday claiming that the IRS is being directed by congressmen and the Obama administration to significantly reduce the number of workers in the IRS' government staffed collection office.

"But we’ve been down this road before, and the results were less than encouraging. While tax collection is considered an inherently governmental function, the collection, control, and disbursement of fees, royalties, duties, fines, taxes and other public funds…. staffing shortages in the 1990s compelled the IRS to hire private companies to assist the agency in recovering unpaid taxes in relatively simple collection cases," said POGO.

In 2009, the Examiner was one of the few news outlets to cover a decidedly troubling IRS program. According to the report:

"The very nature of the program provides incentives for collectors to push the limits of legality to extract a little more revenue from their targets. As part of the IRS Restructuring and Reform Act of 1998, Congress, fearing overly aggressive collection practices, explicitly prohibited the IRS from compensating its own collectors based on the amount of money they collect. If Congress believes that incentive-based pay will cause official IRS collectors to cross the line, why would they think private collectors would behave any differently?"

While the earlier program received low-marks from lawmakers, they are once again considering private debt collection to hunt down suspected tax-evaders or late-payers. In fact, according to POGO, the Democratic Party controlled Senate Finance Committee recently approved an amendment stipulating that the IRS will return to a program of using private collection agencies.

POGO's study argues against using private collection agencies for a number of reasons, according to their report:

"In our opinion, private debt collection will never work. Government tax collectors have an inherent advantage over private collectors. As government employees, IRS collectors can exercise discretion when working with delinquent taxpayers. They can postpone collection, establish payment schedules, settle debts for less than the full amount owed, and waive penalties.

"Private collection agencies, on the other hand, are not allowed to exercise discretion (by definition, an inherently governmental function is one that involves discretion). They can only demand payment. If the case develops an unexpected complication, the contractor must refer it to an IRS employee. That one critical difference—discretion—is the reason private debt collection programs have failed in the past."

Not surprisingly, the Examiner report came to the same conclusion almost five years ago:

"Paying private debt collectors on a commission basis is costly and threatens the rights and privacy of the American taxpayers. Congress must ensure, as this resolution seeks to do, that federal tax collection functions will not be handed over to private sector bounty hunters."

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