House passes bill ending IRS private debt collection program.

The U.S. House of Representatives recently passed the Tax Collection Responsibility Act (H.R. 3056) which, if signed into law, would effectively block an Internal Revenue Service (IRS) program that allows private debt collection firms to assist the IRS in collecting unpaid taxes. The bill passed

The IRS private debt collection program took effect in September 2006 and was originally conceived as a way to reduce the nation's tax gap, the $345 billion difference between taxes owed and taxes collected. Other measures proposed by Congress to curb the tax gap include the 3% withholding tax scheduled to take effect on all government business contracts in January 2011. Since its inception, private debt collectors have collected more than $30 million in unpaid taxes and dosed 9,000 cases.

The bill passed by the House is revenue neutral and would compensate for the immediate loss of revenue by revising tax expatriation rules, repealing the suspension of certain penalties and interest and would temporarily increase tax requirements for large corporations.

In the Senate, the bill faces opposition from Senate Finance Committee ranking member Chuck Grassley (R-IA). "This bill is dead on arrival in the Senate as far as I'm concerned" said Grassley. "It attempts to stop a program that's brand new, yet already working. It's helping to close the tax gap, which key members of the other party say is a priority."

Proponents of the act claim that tax collection should be the government's job and that contracting out the task endangers the security of taxpayer information. They also claim that hiring private debt collectors is expensive and no more effective than the IRS' own efforts.