IRS collection program draws fire

NEW YORK (CNNMoney.com) -- Democratic lawmakers and consumer groups again voiced their opposition to the IRS' private debt collection program Wednesday, even as the program has shown some signs of success.

Testifying before the House's Ways and Means Committee, National Taxpayer Advocate Nina Olson delivered stinging criticism of the program, contending it was not cost effective and ran the risk of compromising the security of a taxpayer's personal information.

"I believe the program risks too much for too little," said Olson.

The National Treasury Employees Union, which represents IRS workers, said that the money could have been better spent on the IRS' own collection efforts.

The IRS launched the program last September as part of a larger effort to narrow the $290 billion tax gap - the estimated amount owed but not ultimately collected each year.

Since the program was launched, the private agencies have collected $19.5 million and received only 25 complaints from deliquent taxpayers, according to the IRS, prompting some lawmakers to suggest giving the program more time.

"I think it's premature to kill this program," said Rep. Kevin Brady (R-Texas).

By 2017, those private firms are expected to collect anywhere between $1.5 billion and $2.2 billion in back taxes, said Kevin Brown, the acting IRS commissioner.

For every dollar collected in back taxes, private debt collectors keep, on average, 18.5 cents.

Opponents asserted during Wednesday's hearing that the IRS is still the best equipped to handle outstanding tax bills. Besides being able to field questions regarding past returns, IRS collection efforts could produce a higher rate of return on delinquent payments, the opponents said.

As part of their deal with the IRS, debt collectors can only identify themselves by name and the company they work for and cannot handle disputes about interest or penalties.

"I recognize the program is controversial," Brown told lawmakers. "But Congress created the program and we are doing our best to carry it out."