Expand IRS Outsourcing Program: CBE Chief

The chief of a collection agency working with the Internal Revenue Service is defending the collection-privatization program against critics and hopes to see it grow in the next year.

Thomas R. Penaluna, president and CEO of The CBE Group, tells insideARM the program is working well despite intense Congressional scrutiny and opposition from a leading auditor of the IRS. (“Taxpayer Advocate Slams IRS Privatization Program,” Jan. 10).

Nina E. Olsen, the taxpayer advocate, called the program a failure despite an IRS investment of $71 million, and that the private agencies are significantly less successful than IRS employees in resolving taxpayer past-due accounts.

In an interview, Penaluna spells out his answers to Olsen’s findings and other oft-repeated complaints about the program – that the private agencies are inefficient and wasteful, that his collectors are too aggressive when dealing with delinquent tax payers, and that tax collection should not be outsourced.

First, his workers are more efficient and less expensive than IRS collectors, said Penaluna. A recent study found that an IRS collection officer costs $154,000 a year in salary, benefits, expenses and so on. In comparison, staffing firm Robert Half International found that the salary of a credit/collections analyst topped out at $47,750 in 2007. (The Half study didn’t include ancillary benefits).

“We do (the work) for less than IRS workers. Our wages are significantly less than the average wage for an IRS employee,” said Penaluna.

In addition, the privatization program is designed so that the IRS will work the accounts that promise larger payoffs, he said.

“The IRS goes after the accounts where they can get the most returns,” said Penaluna. In contrast, the private agencies primarily work on individual income tax accounts, and “the age of the accounts vary. Some are a year old, some six months,” he said.

Penaluna’s CBE Group and Pioneer Credit Recovery are the two collection agencies currently in the program. Pioneer is a subsidiary of SLM Corp., better known as student lender Sallie Mae. Linebarger, Goggan Blair & Sampson dropped out of the program in February 2007.

On the charge of harassment, Penaluna said an independent survey conducted for the IRS found that CBE and Pioneer received customer satisfaction ratings of 95 percent and higher.

“There are virtually no validated complaints for either of the private collectors in the program. That shows harassment is not an issue,” he said.

As for collections being strictly a government function, Penaluna said that “thirty-four states do some out sourcing of their tax collections, that’s not a strong argument.”

Despite the complaints and headwinds, Penaluna said he continues to promote the program with members of Congress, arguing it should be expanded.

“We are still in a limited implementation phase. We are fine tuning some procedures. The IRS is very committed. The amount spent has been significant, but it has been spent very wisely. It’s ready to be opened to more agencies,” Penaluna said.

Waterloo, Iowa-based CBE claims more than 25 years of experience providing third-party collection services to federal, state, and local municipal agencies. Along with the IRS contract, it also collects for the U.S. Department of Education.