Chipping Away at the Arguments Against Private Tax Debt Collection

On the day Congress passed a budget bill that included language allowing the IRS to contract with private debt collection agencies to go after past due taxes, those in opposition to the plan began hurling invective in the general direction of the ARM industry.  FTC complaint numbers were trotted out, old cases of collector malfeasance were referenced – complete with horror stories from woebegone consumers – and the “high-minded” debate over inherently governmental duties in the hands of private contractors was played out.

But that was just the first salvo.  Over time (remember, it’s been nearly three years now), opponents of the IRS private debt collection initiative have tried out a number of different arguments.  Recently, however, there have been some interesting news stories that shine a somewhat different light on the arguments used against outsourcing to private collectors.

One of the favorite anti-private collection arguments used by opposing members of Congress is taxpayer data security.  Members of the Senate and the House worry that sensitive taxpayer data in the hands of private contractors would be less safe than with the iron-clad systems employed by the IRS.  And that is certainly a valid argument.  There have been numerous stories over the past two years of data gone missing from private businesses; even some stories involving collection agencies and their vendors.  But is the IRS impervious to lapses in data security?  For a while, it certainly seemed so; after all, one of the IRS’s core competencies is data handling.  But a very recent story painted a slightly different picture.

On April 5 of this year, a story ran on Federal Computer Week’s web site that detailed the loss or theft of some 490 IRS laptops over the past three years.  The article says that the IRS has compiled – in a deliciously ironic self-audit – a list of 387 data breaches due to the missing equipment.  The primary reason given for the breaches was “inadequate encryption of taxpayers’ personal data.”  Although the IRS obviously has strict data-handling procedures in place, it appears that some employees are not taking them to heart.  Does that sound familiar?  An individual employee can wreck havoc on data security policies, at the IRS or at a private contractor.

Speaking of individuals, bad apples can ruin many things.  But bad apples only pop up in “shady” businesses like collection agencies, right?  The IRS only hires golden apples.  Well, according to a Reuters story running on April 6 – oddly enough in their “Oddly Enough” section – a former IRS employee was charged with fraud recently after authorities suspected him of stealing $330,000 in merchandise from stores and then retuning the goods for store credit.  How did he get away with simple retail fraud on such a grand scale?  He routinely flashed his IRS badge to the return clerks if they began to get suspicious.  Prosecutors said he was using the “I’m a trustworthy civil servant” card to assuage fears that he might be pulling a fast one.  And it worked for three years at Home Depot stores in nine different states.