Who'll collect your back taxes now?

Under the law, the agencies could be rewarded by keeping up to 25 percent of the amount they collect. But Mr. Morgante suspects that as a result of the bidding, the percentage may drop to 13 to 15 percent.

IRS Commissioner Mark Everson backs privatization as a way to free IRS agents to focus on more difficult enforcement and collection activities. The plan is to turn over "low-hanging fruit" - relatively easy-to-collect unpaid taxes that could bring in an estimated $1.2 billion for Uncle Sam over 10 years. The job would swell the business of successful tax-collection agencies. The more than 6,500 agencies in the nation serviced $135 billion in delinquent consumer debt in 2000, bringing in about $13 billion for their business customers. The Association of Credit and Collection Professionals (ACA) lobbied Congress to win approval of the privatization measure.

Private debt collection is "far more effective than government workers doing the job," adds Scott Hodge, president of the Tax Foundation. The federal government has already sold to private collectors bad debt resulting from the student loan program, farm loans, and Small Business Administration loans. "It's a sound business-collection practice."

In 1996, the IRS tried a small experiment using private firms to collect back taxes. It failed. The IRS spent as much as it collected. But if Congress gave the IRS sufficient funds to pursue the $350 billion or so that taxpayers should pay but haven't, the IRS would collect much more money at lower cost than private debt collectors could - and significantly reduce the budget deficit, argues Donald Alexander, an IRS commissioner during the 1970s.

Of course, beefing up IRS enforcement is not politically popular, points out Mortimer Caplin, an IRS commissioner in the 1960s. Members of Congress have been "playing to their audience by curtailing the activities of the IRS." During the Clinton presidency, for example, Congress stopped the IRS from rewarding agents on the basis of how much they collected. The idea was to discourage rough collection techniques.

Will private collection agencies be any less rough? Critics note that these agencies usually pay employees a base salary plus a bonus based on the amount they have collected. The commission on average is 12 percent. Last year, the Federal Trade Commission received 34,543 complaints about third-party debt collectors - more than from any other industry.

The IRS is striving to avoid such problems. The firms will be scored not only on the amount collected, but also on the "quality" of how they deal with taxpayers. IRS officials will be able to listen in on calls to delinquent taxpayers. Also private debt collectors will not have the power to garnish wages or seize assets.

Nor would they deal with complex tax matters involving bankruptcy, for example, or make "an offer in compromise" that reduces the tax owed. Taxpayers with a grievance about a private collection agency will have access to the IRS Taxpayer Advocate Service. But the law says they cannot sue the IRS. So they will have to go to a civil court to seek redress from a private collector.

Privacy will have "top priority" for successful bidders, says Jennifer Loon of the ACA, the private tax-collection body. "We can't afford to have problems."

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