IRS Turns Over Tax Debt Collections - How Will It Turn Out?

Bundled in with a 2015 law, Congress gave the IRS a directive to give private debt collection agencies the task of collecting certain types of delinquent tax debt. This isn’t a first; in fact, a similar tactic was attempted about two decades ago resulting in a myriad of complaints about harassment and dubious collection practices. Another stab at private collection was again attempted during George W. Bush’s tenure in office and yielded similar results.

Next Time’s the Charm?

Why would the government attempt a similar program if it failed multiple times before? One of the problematic issues as noted by National Taxpayer Advocate Nina Olson relates to the potential for collection given that almost 80 percent of these tax debts are due from taxpayers with incomes under the poverty threshold. You can’t squeeze blood from a stone and no amount of calling or threatening is going to produce results from those who simply cannot pay. Regardless, the program is moving forward and here is how it works.

How the Program Works

Taxpayers who have an overdue tax bill that falls under the program will receive a letter from the IRS before the account is transferred to a debt collection agency. This letter lets the taxpayer know which of the four authorized agencies their account is being assigned to and will include an IRS publication giving more information about what to expect and how the program works. A letter from the collection agency will follow after this.

Debt collectors are allowed to say they are collecting on behalf of the Internal Revenue Service (but are not required to). Collection agencies must follow fair debt collection practices, meaning they must be courteous and respect your rights as a taxpayer. In practice, this means debt collectors can’t call you early in the morning or late at night or threaten you.

The debt collector can discuss payment plans and agreements, but remember that any and all payments must be sent directly to the IRS. Never pay the tax debt collector. Electronic payments using a debit or credit card should be made only through the IRS payment system – never give your card number to a debt collector.

You also should know that debt collectors cannot place a lien, issue a levy or threaten you with arrest or charges of deportation. The IRS saves these actions for in-house staff. Understanding these details are important so you can protect yourself from scams and theft.

Beware Scammers

Not sure if you owe the IRS any money? You can easily check online to verify anything a debt collector is telling you by visiting the official IRS’ website at www.irs.gov/balancedue. Look up your account on the site; if the balance says zero and you are hearing from a debt collector about tax money owed, this should be a red flag. Generally, you won’t receive a phone call from a private debt collector unless you have older unpaid tax bills that go back a few years. You’ll almost certainly already have been contacted by the IRS multiple times as well.

Conclusion

If you owe the IRS a tax debt, be aware that the agency now has more resources available to chase you down; however, most people in a position to be sent to one of the new private debt collectors already know they have an issue. Remember that as we transition to this program, it will be ripe with opportunities for fraud by scammers. The best way to protect yourself is to understand your rights and how the program works.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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