New Rule Allows IRS to Use Debt Collection Agencies
Beginning in the spring, four private collection agencies will start collecting for the IRS as mandated under the Fixing America’s Surface Transportation Act (FAST Act). If that does not send cold shivers of terror running down your spine, you likely do not fully comprehend the potential impact of this new practice. Dealing with private collection agencies with government backing can make dealing with the IRS seem like Sunday brunch with friends. This initiative will do away with taxpayer safeguards for the cases assigned to the private agencies, increase tax scams and, in the end, probably lose rather than make money.
The IRS Will Turn the Private Agencies Loose Only on Certain Cases — Maybe
Theoretically, these private agencies will only be assigned to older overdue tax accounts that the IRS is no longer pursuing as actively as more recent accounts.
The private companies will not be assigned to cases involving taxpayers who are
- Minors under the age of 18
- In designated combat zones
- Victims of tax-related identity theft
- Currently under examination, litigation, criminal investigation or levy by the IRS
- Subject to pending or active offers in compromise
- Subject to an installment agreement
- Subject to a right of appeal
- In the tax classification of “innocent spouse”
- In presidentially declared disaster areas and requesting relief from collection
Much of this list is due to the fact only the government can legally negotiate federal tax debt. But look at who is NOT on this list. For example, those who have been granted not collectible status are not on this list, and current thinking is that the IRS will send the private collection agencies after those accounts, and other accounts not specifically on the list.
Tried Twice, Failed Twice
Getting private collection agencies to go after old accounts on behalf of the overwhelmed IRS may sound like a good idea for increasing revenues. But, in fact, the federal government has tried this twice before over the last 20 years and failed miserably. No magic Band-Aid has been applied to this plan to indicate it should fare any better.
- August 1996 through June 1997. In this first use of private collection agencies, they assisted the IRS with such activities as locating taxpayers, reminding them of their tax liabilities, and securing commitments to pay). The IRS stopped the program, because it lost money.
- The second program was in effect from 2005 to 2009, and this time private collection agencies were given broader powers. The Treasury Department estimated the program would increase revenues by over $1 billion in a 10 year timeframe. The Joint Committee on Taxation estimated $1.356 billion. It didn’t happen. The IRS stopped the program, because it lost money.
The Bill Throws Away Taxpayer Safeguards
The Taxpayer Advocate Service (TAS) exists to assist taxpayers in resolving problems with the IRS and to identify systemic problems in the IRS and propose legislative changes. If a taxpayer thinks the IRS is not being fair with them, they can contact this office. If an IRS agent abuses or lies to a taxpayer, they can be fired. However, the government has no way to enforce removal of private collection personnel who abuse taxpayers.
The IRS assures us that the tax collection agencies must follow the consumer protection provisions of the Fair Debt Collection Practices Act. This hopefully will protect federal taxpayers from some of the worse abuses of power that has had dire impacts at the state level where private agencies do the collections and have been given governmental powers they have egregiously abused with such practices as garnishing all a taxpayer’s wages and demanding installment agreements a taxpayer would never be able to pay. But make no mistake; private collection agencies will have much wider latitude on their interactions with taxpayers than do federal agents.
Expect an Increase in Successful Tax Scams
Up until now, we have been able to tell tax payers that if they received high pressure intimidation tactics from a caller claiming to be with the IRS, it was a scam, and they should hang up. With private collection agencies taking over some IRS debt collection, that will simply no longer be the case. Even with private debt collection, taxpayers should receive notices in the mail before they hear from legitimate collection agencies collecting for the IRS. Also, the IRS will give notice that a taxpayer’s account is being transferred to a private collection agency. But all of that is very small comfort. The result of bringing in private collection agencies is going to be scammers seeing opportunity, tax scams escalating and victims multiplying.
Taxpayers should be aware that private collection agencies will not ask for payment by debit cards, as scammers often demand. The private collection agencies will instruct taxpayers how to make electronic payments or send checks by mail to the IRS.
Even the National Taxpayer Advocate Is Against Private Collection Agencies Acting on Behalf of the IRS
Nina Olsen, the National Taxpayer Advocate, at the request of several senators wrote a very detailed letter giving her views of reinstating an IRS private collection agency program. She is adamantly against it. She stated,
“The Office of the Taxpayer Advocate and I personally were intimately involved in the development of the 2006-2009 PDC program.3 We also handled more than 3,700 cases involving taxpayers against whom PCAs sought to collect. Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue… the program ended up losing money. We have no reason to believe the result would be any different this time.”
She stated ten specific concerns, some of which we have addressed above, as well as some additional points. They are summarized and paraphrased here:
- The IRS does, in fact, take some action to collect on even inactive cases. It is false that “inactive” cases are completely dormant.
- The private collection agency program requires significant start-up costs that will adversely affect other programs.
- The goals of the IRS and private collection agencies are not the same.
- The IRS wants delinquent taxpayers to pay what they can afford while avoiding hardship. The IRS also wants to maximize long-term compliance.
- Private collection agencies are completely profit-driven and want to get as much out of taxpayers as they can as fast as they can with no regard to hardship or long-term compliance.
- The program places “a bulls-eye on the backs of low income taxpayers.” 79% of the cases in the “inactive” category, those that would be assigned to private collection agencies are below the low income threshold.
- The Internal Revenue Code contains strict confidentiality rules to ensure that taxpayer data is not disclosed. Giving this information to private agencies creates very real risks that this data will be misused.
- Private collection agencies are not under the same laws as federal employees regarding abuse of taxpayers. An IRS agent may very likely be fired; there are no real repercussions to stop private collection agencies from abusing taxpayers.
- IRS employees are instructed to be straightforward in dealing with taxpayers. Private collection agencies instruct their employees to use “psychological” techniques to pressure taxpayers.
- A consequence of using “psychological” tactics is that financially struggling taxpayers who cannot afford to pay their debts feel pressured into making commitments they ultimately cannot keep. But, then, private collection agents are just trying to get as much as they can as fast as they can with no care for the long term or the taxpayer’s welfare.
- Under the proposal, the IRS would be required to send taxpayer cases to private collection agencies due to liability under the Affordable Care Act (ACA) for not purchasing health care coverage.
- The program is likely to lose revenue even as it erodes taxpayer rights.
Know Your Rights
If you remember nothing else from this article, remember this: You do not have to deal with the private collection agency to which your account has been assigned. But if you want your account transferred away from that agency, you must submit a written request to the private collection agency.
A system is also in place for taxpayers to report misconduct by a private collection agency. You can call the Treasury Inspector General for Tax Administration (TIGTA) Hotline at 1-800-366-4484 or visit http://www.tigta.gov or write to:
Treasury Inspector General for Tax Administration
Post Office Box 589
Ben Franklin Station
Washington, DC 20044-0589
To report a threat, assault or attempted assault by a private collection agency employee, contact the TIGTA Office of Investigations with responsibility for your geographic area.
If you have any doubt at all who is contacting you, you are also urged to contact Ayar Law for a free consultation at (248)262-3400.