IRS to Outsource Some Tax Collection - Raises Privacy Concerns

IRS to Outsource Some Tax Collection – Raises Privacy Concerns

January 16, 2006 - In 2004, Congress passed the American Jobs Creation Act. As innocuous as the title sounds, it contained a provision allowing the IRS to outsource collection efforts to private contractors. But both the National Treasury Employees Union (NTEU) and the Government Accountability Office (GAO) are questioning the wisdom of this; saying that the move may jeopardize personal privacy and lead to cases of fraud and identity theft.

It is not surprising that NTEU opposes the IRS using private contractors to collect back taxes. After all, such a move means that non-union companies will be doing jobs that have been held by union members up until now. But the reason for GAO opposition is disturbing. The GAO is Congress’ investigative arm. The GAO is saying that it has doubts about the ability of the IRS to protect the data that it will be furnishing to private contractors.

The IRS is requesting proposals from companies who are interested in handling collections for them. They plan to select three companies to start work in March. Each of the companies will be awarded a one year contract, with an option to renew for an additional year.

The initial contracts are considered to be “test agreements”. Provided that everything goes well over the two year test period, new agreements would be negotiated and the program would be fully rolled out sometime in 2008.

The IRS would only use private contractors for a small portion of its collection activities. Only when the there was no dispute over the fact that taxes are owed by a specific tax payer, and only when the IRS had been unable to collect the taxes on its own. The IRS believes that it will be able to collect an additional $1.4 Billion over the next ten years using this new resource. Contractors would be awarded 25% of actual collection amounts.

But in order to private contractors to be effective, they need to be given access to IRS data. This is what the GAO is concerned about. And if past behavior is any indication, GAO concerns may be well founded.

In an audit of IRS security procedures, the GAO found a variety of circumstances in which private contractors working for the IRS had been granted systems access without first having to go through a background check. In one case, a private contractor had access to highly sensitive taxpayer data for four years prior to being screened for security.

In all, the GAO issued a highly critical letter to the IRS, with thirty recommendations for change to protect tax payer data from private contractors. In response, the IRS has said that it has implemented rules and procedures to shore up data security.

But the government track record on the protection of highly personal financial data is not good. All levels of government routinely sell consumers data, including data containing Social Security Numbers and bank account numbers, under the guise of it being public record information.

At least one member of the House of Representatives has concerns as well. Rep. Rob Simmons (R-Conn) has introduced a bill to revoke the IRS ability to use private contractors. Private businesses have not done well at protecting consumer data either. Two weeks ago, Peoples bank had to announce that it lost a data tape containing the personal financial data of 90,000 of its customers. Rep. Simmons concerns appear to be well founded.