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Lawyers and legislators are apprehensive about a provision in the American Jobs Creation Act of 2004 that lets the Internal Revenue Service hire private firms to help it collect back taxes-but exempts it from liability for potential constitutional violations. The IRS announced that it will assign the collection work this summer to CBE Group Inc. of Waterloo, Iowa; Pioneer Credit Recovery Inc. of Arcade, N.Y.; and Linebarger Goggan Blair & Sampson, a law firm in Austin, Texas. The agency said that private collectors will be subject to “the same stringent taxpayer protection and privacy rules that IRS employees work under,” but unlike IRS employees, they stand to recover up to 25% of their take. The government also denies liability for private collectors’ activities, which come under the aegis of the Fair Debt Collection Practices Act (FDCPA). This modification confuses tax attorneys because the FDCPA was drafted to apply to consumer debt, not unpaid taxes, said Richard J. Rubin, a Santa Fe, N.M., solo practitioner who represents consumers in debt-collection litigation. “It’s going to be parsed very carefully when it comes down to litigation,” Rubin said, because Congress neither made clear how the FDCPA will apply to private tax collectors it was not originally drafted to include, nor did it amend the FDCPA to address the collection of taxes by private entities. Norman A. Lofgren, a tax and estate planning partner at Looper Reed & McGraw in Dallas, agreed, adding that identity theft issues and the potential for abuse concern him about the IRS hiring “private mercenaries.” He noted that a similar attempt to privatize tax collection failed and cost the government $17 million 10 years ago. Lofgren also said that giving private tax collectors monetary incentives goes against what tax reformers like former Senator William V. Roth Jr., R-Del., tried to address in the IRS Restructuring and Reform Act of 1998 (RRA), which uncoupled the amounts recovered by IRS employees from raises and promotions. Rep. Rob Simmons, R-Conn., and 71 bipartisan co-sponsors have introduced a House bill to repeal the Treasury Secretary’s authority to hire private tax collectors based on many of the same concerns. That bill was referred to the House Committee on Ways and Means last April. But Deborah G. Wolf, who oversees the IRS private debt collection initiative as director of the IRS filing and payment compliance modernization office, said the agency “has really taken to heart” the lessons of its 1996 failure. Congress already extended provisions of the FDCPA to the IRS under its 1998 reforms, creating a basis for Congress to assert that the law applies to private debt collectors in the new authorizing legislation, Wolf said. She added that private companies will operate under the same RRA and the Taxpayers Bill of Rights requirements as the IRS. In contrast to the regional 1996 project, the new nationwide program has a sophisticated IT component and private collectors will be given potentially productive cases where before they were given only problem cases, she said. Wolf also said the 25% compensation goes to the companies, not to individual collectors. Thomas R. Penaluna, CBE’s president and CEO, applauded the work the agency did to guarantee the viability and security of the program since the last time it tried unsuccessfully to privatize tax collection. Pioneer Credit Recovery Inc. did not return calls for comment by press time. Some have expressed concern over the inclusion of Linebarger Goggan. The firm dropped former name partner Juan M. Pena, who received a 2 1/2-year prison term for his role in a bribery scheme that centered on obtaining a 2002 contract from the city of San Antonio to collect unpaid fees and fines, U.S. v. Pena, No. 02-cr-257 (W.D. Texas). It also was the subject of a rival’s lawsuit, settled in August 2004, incorporating the Pena matter with allegations of similar activities in Houston; Miami-Dade County, Fla.; and other jurisdictions. Gila Corp. v. Linebarger Goggan Blair & Sampson, No. 03-cv-0269 (W.D. Texas). Calls for comment to Linebarger Goggan were not returned. The IRS said in a statement that the firm had responded satisfactorily to the issue, and that it did not adversely affect its business performance.

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