Looking To Save, IRS Stops Outsourcing Collections

The Internal Revenue Service will stop using private contractors to collect delinquent taxes. Instead, the government plans to hire more of its own collection agents.

That's one small reversal of a trend toward government outsourcing that accelerated during the Bush administration. Last year, the government spent almost $500 billion on contractors.

For the past couple of years, the IRS has been using private bill collectors to go after delinquent taxpayers. The contractors work on commission and keep up to $1 for every $4 they bring in.

IRS employees have long argued they could do the same job more cheaply in-house, and independent observers agree. But Colleen Kelley, who heads the IRS workers' union, says that during the Bush administration, saving money wasn't the point.

"This was an initiative by the previous administration to privatize federal jobs," Kelley says. "It was never about how the work could be done at the least cost and most efficiently for taxpayers. If that had been the criteria from the beginning, this program would never have gotten started."

As government contracts go, the IRS project was small potatoes: in the tens of millions of dollars. But this week, President Obama ordered government-wide changes in contracting, saying that could save taxpayers some $40 billion a year.

"We will stop outsourcing services that should be performed by the government and open up the contracting process to small businesses," Obama said. "We will end unnecessary and no-bid and cost-plus contracts that run up a bill that is paid by the American people."

Contracts with the two IRS bill collection companies expire Friday, and the government says they won't be renewed. The IRS says keeping the collection function in-house will not only be more cost-effective, but it also will provide more flexibility for cash-strapped taxpayers, because IRS employees can offer more payment options than the private contractors could.

This year, the agency is planning to hire more than 1,000 additional agents to beef up its collection effort. The contract employees who have been doing the work will be invited to apply for the jobs.

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