IRS Begins Private Debt Collection of Back Taxes: What You Need to Know
The Massachusetts Tax Alert™
Yale Yechiel N. Robinson, Esq.
April 5, 2017
The IRS announced on April 4, 2017 that it will soon authorize four private debt collection companies to send letters and make phone calls to selected delinquent taxpayers. The IRS will only forward a past-due account to private collection if the IRS has tried and failed repeatedly over several years to collect the tax.
What Taxpayers Need to Know
The IRS, in its announcement linked above, warns taxpayers to remain vigilant against scammers who pretend to represent the government. The private debt collectors will follow policies and procedures that are intended to distinguish the legitimate tax collectors from criminal scammers. Anyone who receives a communication from a suspected scammer is encouraged to email firstname.lastname@example.org.
Please note that the private debt collectors will ask the taxpayer to pay the U.S. Treasury directly. Taxpayers should not send payment to the private debt collectors or to any unauthorized person or entity.
What Tax Practitioners Need to Know
The Detroit Free Press reported on April 4, 2017 that the IRS discontinued two previous private debt collection programs, most recently in 2009, after the private debt collectors “had limited success” at generating revenue for the federal government. Congress authorized the new debt collection program in December 2015.
The Treasury Inspector General for Tax Administration issued a report in 2015 with the title: Reduced Budget and Collection Resources Have Resulted in Declines in Taxpayer Service, Case Closures, and Dollars Collected. More recently, in 2016, the Government Accountability Office issued a critical report recommending changes in the IRS Field Collection Program. These reports suggest that the IRS is overwhelmed with too few employees pursuing too many delinquent taxpayer accounts. The private debt collection program may be part of an IRS strategy to allocate its limited resources to maximize revenue.
However, Nina E. Olson, the National Taxpayer Advocate, raised concerns that the private debt collectors could insist on collection of tax that would impose an economic hardship on indigent taxpayers. The IRS itself must refrain from collecting tax from taxpayers who would suffer an economic hardship, but the IRS can outsource the debt to a private collector who is not bound by those safeguards, according to Ms. Olson as cited in the Detroit Free Press (linked above).
For this and other reasons, some taxpayers should communicate directly with the IRS, not with a private debt collector. Although IRS collection officers have not always returned my phone calls in a reasonable time frame, I have found most of these people to be courteous when I have succeeded in speaking with them.
It is possible that from a customer service point of view, the private debt collectors will be more responsive to the needs of taxpayers who wish to pay their taxes in full or enter into an installment agreement. However, for taxpayers who need to pursue collection alternatives such as an Offer in Compromise, a hardship deferment (also known as “uncollectible” status), a Collection Due Process hearing, or the removal of a lien or levy, the private debt collectors will not be able to assist. These types of complex collection problems need to be resolved within the IRS bureaucracy. The IRS announcement on this topic explicitly limits these issues to IRS personnel only.
Therefore, if a tax professional receives a call from a taxpayer indicating that the taxpayer received a letter from a legitimate private debt collection agency authorized by IRS, the professional should discuss with the taxpayer the range of options, such as an installment agreement. If the situation is complex, the tax professional should strongly consider calling IRS Collections directly at 1-800-829-3903. If the situation is urgent, the tax professional should consider involving the Taxpayer Advocate Service.
End of blog post.