Letter To The Honorable Timothy F. Geithner, Secretary Of The Treasury, And The Honorable Douglas H. Shulman, Comissioner Of Internal Revenue

Letter

Sen. Chuck Grassley of Iowa is urging the Senate and the Treasury Department and Internal Revenue Service to save a new program to collect taxes that are owed and not in dispute. Grassley said the program - known as the private debt collection program - should have a chance to work, especially since the IRS is neither willing nor equipped to collect such tax debt. However, despite his efforts, the Senate's Democratic leadership is strong-arming debate of an omnibus spending bill and allowing zero amendments to move forward.

"I filed an amendment to save this program, but the Senate Democratic leadership isn't going to allow it to pass. Not a single amendment has," Grassley said. "Even though this program has bipartisan support, I couldn't even get sign-off on a simple colloquy with key Democrats - a statement among senators on the floor - that would have clarified that the IRS could keep the program going even with the 2009 prohibition on using appropriated funds. So the employees of the contractor in Waterloo and taxpayers everywhere don't have a chance with the way this bill is being processed by the majority."

Grassley has outlined the reasons for giving the program a chance in a variety of settings. He's pointed out the IRS' own documentation of workers' hours spent on union activities rather than IRS tasks such as tax collection and the IRS' unwillingness to take on the debt targeted via this program. His correspondence over union activities is attached.

Grassley today wrote to the Treasury Department and IRS, seeking information to counteract claims about the program from the Treasury/IRS employees' union. Earlier this week, Grassley filed an amendment to the 2009 omnibus appropriations bill before the full Senate. His amendment would strike a provision that essentially kills the private debt collection program. He and Sen. Max Baucus, chairman of the Committee on Finance, reminded appropriators that tax collection is the Finance Committee's, not the Appropriation Committee's, jurisdiction. Following are: (1) the text of Grassley's letter today to the Treasury Department and IRS; (2) the text of his floor speech describing the amendment; and (3) the text of a letter from Grassley and Sens. Chuck Schumer and Tom Harkin in support of the program. Grassley is ranking member and former chairman of the Committee on Finance, with jurisdiction over taxes.

March 4, 2009

The Honorable Timothy F. Geithner

Secretary of the Treasury

Department of the Treasury

1500 Pennsylvania Avenue

Washington, DC 20220

The Honorable Douglas H. Shulman

Commissioner of Internal Revenue

Internal Revenue Service

1111 Constitution Avenue, NW

Washington, DC 20224

Dear Secretary Geithner and Commissioner Shulman:

I am writing to seek clarification of issues raised by the National Treasury Employees Union ("NTEU") regarding the Internal Revenue Service's private debt collection ("PDC") program in its letter to members of the Senate dated March 3, 2009. I have included a copy of the letter for your convenience.

The NTEU asserts that taxpayers referred to private collection agencies ("PCA") are subject to an "unacceptable double standard". The NTEU also asserts that IRS employees can do tax collection more effectively than PCAs. In comparing work done by IRS employees to that of PCAs, the NTEU continues to cite the National Taxpayer Advocate's ("NTA") non-scientific, unobjective, flawed analysis to claim that IRS Automated Collection System employees do similar work with a higher rate of return. The NTEU also claims that PCAs have only collected half of what they are projected to bring in but receive higher commissions than PCAs hired by other government agencies.

Yet, the NTEU doesn't acknowledge that its own lobbying restricts the success of the PCAs, that the IRS collection employees do not in fact do the same work as PCAs, or that the PCAs have higher customer satisfaction rating than the IRS employees. The NTEU also conveniently fails to mention that IRS employees spend more time on union activities than any other federal agency and that cutting back on that time alone could probably increase IRS revenue collections.

In the letter Senators Harkin, Schumer and I sent to you last week, we specifically asked you to describe how the IRS's collection process and procedure differs from the process and procedure used by PCAs in collecting IRS debts. The answer to this question alone would seem to refute the NTEU's basic arguments. Because I believe the NTEU is engaged in a serious disinformation campaign that is being touted by opponents of the program, including the NTA and members of Congress, in addition to answering the questions raised in last week's joint letter, I ask for detailed responses to the following:

Describe the standards, including privacy safeguards and additional security costs, which contractors must meet to participate in the PDC program.

Provide an estimate of the costs incurred by the PCAs to adhere to these standards

Describe the difference in standards and costs to PCAs in contracting with the IRS versus other federal agencies.

Explain why the IRS has not expanded the program to include other PCAs and indicate whether the standards for participation deter other participants.

Explain why PCAs are not provided with the same authority as IRS employees to provide Offers in Compromise or otherwise negotiate or settle tax debts, and impose liens and levies. Provide copies of all memorandum and other correspondence with the Office of Chief Counsel, including e-mails and documentation of phone conferences and meetings, that support this decision.

Provide a breakdown of the cases referred to PCAs by income and provide the language that PCAs must use to inform taxpayers of their rights.

The latest monthly report on the PDC program provided to my staff indicates that PCA employees have scored over 99% ratings in the areas of Regulatory, Procedural, and Customer Accuracy, Timeliness, and Professionalism. I understand that similar ratings for IRS collection employees are less than 65%. Does the IRS use the same quality measures for rating IRS collection employees? If yes, provide IRS percentages for all of the measures. If no, describe how IRS employees are rated.

A primary reason that PCAs have collected only half of what they have been assigned is because they are being assigned cases so old that even the IRS cannot locate the taxpayer.

Describe how data IRS provides to PCAs about taxpayers is different from the data Department of Education or FMS provides to their PCAs.

Explain why PCAs are not permitted to use their own proprietary databases to locate taxpayers. Provide copies of all communications with Chief Counsel on this subject.

Explain why, when a PCA returns a case to the IRS, a case is not removed from the PCA's liquidity calculation.

Provide a breakdown of the expenses incurred to date and describe whether they are start-up expenses or recurring expenses.

Provide a breakdown of recurring expenses and explain why the IRS cannot reduce those expenses so that IRS can cover the costs of the administering the program with the earnings it retains from PCA collections.

In last week's letter, we asked you to explain how each of the 31 exclusion criteria, which prohibit the PCAs from working on certain types of cases, was determined. Please also provide the following information:

Explain whether PCAs have any similar restrictions in contracting with other federal agencies.

Provide copies of all written correspondence, including e-mails, with the Office of Chief Counsel, the NTEU and the NTA regarding this topic.

Compare and contrast the IRS' collection process and procedure to that of for-profit businesses.

Discuss whether the age of IRS' receivables and collection rate is consistent with industry standards.

Explain why IRS does not make outbound phone calls as soon as a debt is classified as delinquent.

Both the GAO and TIGTA have reported on the significant drop in the level of service provided on the IRS' toll-free help lines last year because of stimulus payment questions. Explain why the PCAs were not used to complete the work of the IRS collection personnel that were assigned to answer stimulus payment phone calls during the 2008 filing season.

Given that the IRS' delinquent tax debt inventory is growing every year, explain why the PDC program is not being considered as part of the IRS' overall collection strategy, but rather appears to be a stand alone program.

Is it expected that the American Recovery and Reinvestment Act of 2009 will have the same impact on IRS telephone customer service as the 2008 stimulus payments?

Will IRS collection staff again be reassigned to assist with phone service during filing season?

Will PCAs be given additional work to prevent revenue loss resulting from such reassignment? If not, explain why.

The Washington Post article, "IRS Tries Walking in Our Shoes," dated February 15, 2009, reports Commissioner Shulman as saying that the IRS will be working to provide leniency for those taxpayers experiencing economic hardship. The article also quotes him as saying that these taxpayers are just getting a break, not a free ride. This is encouraging, especially in these troubling times.

However, given that IRS hasn't been keeping track of delinquent taxpayers for decades, how does the IRS expect to track those who are just getting a break?

Is it expected that PCAs will assist IRS in keeping track of these taxpayers? If no, explain why.

In May 2007, Acting IRS Commissioner Kevin Brown testified that IRS would not be pursuing the debts that have been assigned to the PCAs, even if additional resources were provided to the IRS. Indicate whether this is still the IRS's position. If yes, explain, including why the IRS believes that all tax debt should not be treated equally for collection purposes.

Provide the number of employees working on the PDC program that are members of the NTEU and explain how IRS is managing the conflicts of interest arising from employees working on the program who also oppose it.

I understand that the IRS is still negotiating the NTEU contract. Please update the data provided by former Commissioner Everson in his letter to me dated April 11, 2007. I have attached a copy for you review.

The NTA continues to speak about the cost effectiveness of the IRS private debt collection. Even though her prior analysis, which was not repeated in her most recent report, was flawed because it was not objective or scientific, she continues to be quoted by opponents of the program. I appreciate that the IRS is conducting its own cost effectiveness study and that it has enlisted the aid of an independent contractor to do this. However, I am troubled that the NTA reported on data from the IRS study in her most recent annual report when neither I nor my staff was officially briefed by the IRS on its study. I am also aware that she has been discussing the report with the press as I received requests for comment on the study back in January. In order to better understand the NTA's involvement in this study, please answer the following.

Describe the NTAs involvement in the study, including whether any NTEU members from her office were allowed to participate in shaping or otherwise discussing the study.

Did the NTA seek permission or authorization to include data from the IRS' PDC study in the NTA's annual report? If no, did the IRS object to the NTA's discussion in her annual report? If yes, why did the IRS grant such permission?

Describe in detail the review and approval process for this study, including the "chain of command" and the titles of those in that chain of command.

Did the NTA seek permission or authorization to speak to the media about the IRS' PDC study? If yes, why did IRS permit the NTA to discuss this publicly but fail to provide the study to my staff? If no, what, if any, disciplinary action will be taken against the NTA?

As stated in the letter from last week, there are almost 200 jobs in small towns in both Iowa and New York that will be lost if the IRS PDC program is terminated. Given the current economic crisis, such a job loss should not be allowed to happen without good reason, particularly since such job loss might cause job loss in other states. Terminating the IRS PDC program prematurely, as happened in 1996, in the hopes that IRS will increase its collection staff is not a good enough reason. It would seem that IRS should dedicate additional resources to those tasks which cannot be conducted by private contractors, such as examinations.

Finally, I understand that the provision in the Omnibus appropriations bill currently being debated would prohibit IRS from using 2009 appropriations to administer the program. However, I hope that this alone will not cause you to terminate the program. The revenues retained by the IRS on the amounts collected by the PCAs should be sufficient to cover the costs of the program. If they are not, please explain why and explain why costs of administration cannot be reduced through reductions of personnel or travel expenses.

I understand in the next few days, if not today, that you will be making a decision on whether to continue to the program. I would appreciate a response to these questions as well as the questions posed last week before the decision is publicly announced. I would encourage you to meet with my staff before providing the responses so that you can be sure to answer all questions thoroughly.

Sincerely,

Chuck Grassley Ranking Member

cc: The Honorable Max Baucus

The Honorable Charles E. Schumer

The Honorable Tom Harkin

The Honorable John Lewis

The Honorable Dave Camp

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