NYC Non Filers

In an effort to collect on an estimated $280 billion in back taxes, the Internal Revenue Service is contracting with private collection agencies, a move that raises concerns of privacy watchdogs.

Many critics of the change say that relying on collection agencies to collect back taxes is to rely on an industry that is frequently berated for its overly-aggressive collection tactics. Indeed, the Federal Trade Commission says it receives more complaints about collection agencies than it does from any other industry. Though the industry is supposed to strictly follow laws designed to protect consumers, these laws are frequently ignored, financial experts charge. Some of the violations include collectors calling late at night, using obscene language, threatening debtors with jail time and revealing the debt to third parties such as parents, employers, children and friends.

The thought of taxpayer money potentially funding these activities troubles experts, with many fearing it will tarnish taxpayer's impression of the IRS, and by extension, the government.

Privacy advocates also say they fear highly sensitive tax information isn't safe in a bill collector's hands and could lead to identity theft. To illustrate this, privacy right advocates point to an investigation by television station WBNS in Columbus, Ohio that found a collection agency threw sensitive tax documents containing personal information on 449 people in an unlocked dumpster.

The IRS says it has already set up precautions to prevent abuses by collection agencies. The companies it contracts with and their employees will be thoroughly screened, it says. All collectors will be well-versed in privacy laws and receive annual updates.

If a debt collector does use any of the information improperly, they can be charged with up to $50,000 and five years imprisonment. Privacy will be guarded. All sensitive information "is subject to specific guidelines for destruction" and must be witnessed by an IRS employee, according to an IRS fact sheet.

Moreover, the IRS says the move will actually offer greater protection to consumers who owe back taxes, since laws governing collection agencies are more stringent than for in-house collectors. For example, it is illegal for collection agencies to erroneously threaten consumers with jail time, call at inconvenient hours of the day, or to contact a debtor at their workplace if the employer disapproves.

Critics remain unconvinced, pointing to instances where bill collectors contracted by the Department of Education harassed, lied to and strong-armed borrowers who owed on their student loan debt.

«Private collectors of student loans have deliberately deceived consumers by misrepresenting themselves as the Department of Education,» Deanne Loonin, staff attorney for the National Consumer Law Center, said as she testified before the Government Reform Committee Subcommittee on Government Efficiency and Financial Management against the proposal to allow the IRS to contract with collection agencies. "They.ve overcharged consumers for collection fees, used misleading telegrams to trick borrowers, browbeaten borrowers into unaffordable payment plans, threatened them with actions that collectors can't take, and pressured consumers to borrow from relatives.

Despite these objections, the IRS is scheduled to begin using collection agencies to collect back taxes in September of 2006, and hopes the effort will bring in an additional $1.4 billion over the next decade.