IRS to Drop Private Tax Collection

Under the privatized program, the IRS turns over delinquency cases, often in the $5,000 to $10,000 range, that the IRS lacks the manpower to pursue.

The program costs about $7.6 million a year to administer, and private contractors are allowed to keep about a quarter of the taxes they collect.

The contracts the private agencies were working under expire Friday. The IRS has been reviewing the program for the past month to determine whether to extend the agreements.

There have been numerous attempts in Congress to kill the program since former President George W. Bush signed it into law. A massive spending bill pending in the Senate includes a provision that would cut off funding for the privatization program. The bill, which would fund federal agencies through September, could be voted on next week.

"After a thorough review of this program, I have decided not to renew the contracts," IRS Commissioner Doug Shulman said in a statement. "I believe this work is best done by IRS employees, and I believe we have strong support from the administration and the Congress for increased IRS enforcement resources going forward."

Several top Democrats in Congress praised the decision.

"Collection of taxes is an inherent function of our federal government," said Rep. Charles Rangel of New York, chairman of the tax-writing House Ways and Means Committee. "American taxpayers deserve to work with the trained professionals from the IRS to work though any issues they have."

House Majority Leader Steny Hoyer, D-Md., said, "I commend the Obama administration for doing what the last administration refused to do -- provide an honest evaluation of the merits of contracting out this public service to private agencies."