07:31 AM CST on Monday, March 20, 2006

The Internal Revenue Service has hired three private collection firms, including an Austin law firm, to begin collecting past tax debts this summer.

You can imagine how this initiative has raised eyebrows.

I'm not saying the firms will engage in wrongdoing, but two concerns do come to mind: How secure will taxpayer information be, and how nasty will the collectors be in gathering the back taxes?

"The vast majority of states use private firms to help collect delinquent taxes," said IRS Commissioner Mark W. Everson.

"The new authority that Congress gave to the federal government allows us to use private firms as well."

After a bidding process involving 33 firms, the IRS selected Linebarger Goggan Blair & Sampson LLP in Austin, and collection firms the CBE Group Inc. in Waterloo, Iowa, and Pioneer Credit Recovery Inc. in Arcade, N.Y., for the tax collection duties.

The IRS is extremely sensitive about the release of taxpayer information, and rightly so. Your taxpayer information has valuable data, such as your name, address, Social Security number, income and marital status.

"The IRS will not disclose to anyone the information you give us, except as authorized by law," the agency says in its publication on taxpayer rights.

IRS officials said they've extended those strict standards to the three collection firms.

"We have carefully considered all of the concerns expressed about this project," Mr. Everson said.

"As a result, we are putting tough safeguards in place to protect taxpayer rights and privacy. We will be closely monitoring contractor performance to make sure they're following the law, as well as our own internal standards."

The safeguards the IRS has put into place include:

•Requiring that employees and officers of the collection firms undergo IRS training.

•Requiring background checks of the firms' employees who will have access to confidential tax information.

•Prohibiting the collection firms from basing employee compensation on how much tax debt they collect. However, the companies will be paid 21 percent to 24 percent of the amount collected.

•Prohibiting the collection firms from imposing liens, levies and seizures on taxpayer assets.

The firms also won't be authorized to take on IRS duties such as making arrangements in which the IRS will accept less than the full balance due, working on taxpayer hardship cases, bankruptcies or litigation.

The debt collections industry said it realizes how highly scrutinized it will be.

"We are committed to the highest standards of consumer protection and professional conduct," said Rozanne Andersen, general counsel for ACA International, the association of credit and collection professionals.

"Taxpayers will be dealt with in a straightforward and courteous manner and will retain all the rights established by the Internal Revenue Code, including access to the IRS Taxpayer Advocate Service."

Let's hope the government gets it right this time.

Congress rejected the use of private collection agencies to collect taxes and canceled a pilot program in 1996, because the agencies violated debt collection laws. There was also inadequate protection of taxpayer information and a loss of about $17 million during the program.

The CBE Group will put only its most experienced collectors on the IRS cases – "those who have proven to be beyond reproach as far as handling consumers' needs and so forth," said chief executive Tom Penaluna.

The collection firms also said they have secure information systems to protect taxpayer data.

The safeguards are assuring, but let's hope nothing slips through the cracks.

"You really won't know whether there will be issues until the program starts," said Craig Margolis, a lawyer at Vinson & Elkins in Washington and a former federal prosecutor.

If something does happen to taxpayer information or a taxpayer feels he's been abused by a collection firm, he won't be able to sue the government.

The Internal Revenue Code says, "The United States shall not be liable for any act or omission of any person performing services under a qualified tax collection contract."

That doesn't make sense.

"These people the government is hiring – why shouldn't the government who hires them be accountable for their conduct?" said Norman Lofgren, a former IRS lawyer and now a tax attorney at Looper Reed & McGraw PC in Dallas.

There's legislation in Congress that would repeal that portion of the tax code and prohibit the IRS from hiring private firms to collect tax debts.

IRS officials said the agency would pull its contract with a collection firm if it violates terms of the agreement.

"There are specific instances where breach of contract provisions will be invoked, and the company will lose its contract," said IRS spokesman David Stell.

"Taken together, these are powerful motivators for doing the job right at all levels."

E-mail pyip@dallasnews.com