United States

Private collection of overdue taxes

INSIGHT ARTICLE  | 

The IRS announced that at the end of April it will begin using four private debt collection agencies in an attempt to collect unpaid federal income taxes. The four private collection agencies selected by the IRS to do the job are: CBE, ConServe, Performant and Pioneer Credit Recovery.

The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect only certain types of seriously overdue accounts: inactive and old accounts with balances of $50,000 or less. The plan is to transfer about 140,000 of such accounts to private debt collection agencies. The IRS has pointed out that the main factor that contributed to the need to assign these accounts to private debt collection agencies is lack of IRS resources.

Opponents of this new program identified several areas of concern:

Lower-income taxpayers may be taken advantage of

Taxpayer Advocate Service (an independent organization with the IRS that protects the rights of taxpayers) analyzed 360,000 delinquent accounts that could be potentially turned over for private collection and concluded that a third of those account holders have income of less than $20,000 a year. Many of these individuals may qualify for special IRS programs, such as offers in compromise, due to low income. Since debt collection agencies get paid a commission for every dollar retrieved for the IRS, little incentive exists for the agencies to notify these taxpayers of their rights as low income taxpayers.

Outsourcing debt collection will open the opportunities for tax fraud

Generally, the IRS will not contact taxpayers via telephone. However, according to the new program, debt collection agencies will be contacting taxpayers by telephone after the IRS sends out written correspondence to taxpayers notifying them of such. Telephone scams that involve fraudsters impersonating the IRS agents and demanding immediate payment are routinely among the most prevalent tax scams each year.

Likelihood of program success is in doubt

The likelihood of the program success has been called into question, because the IRS had little success with a similar program that operated from 2006-2009. In addition, opponents of the program question credentials of Pioneer Credit Recovery, one of the designated collection agencies. In 2015, Pioneer was fired by the US Department of Education, after it repeatedly gave borrowers misleading and inaccurate information in an effort to collect past due student loan debt.

To address the taxpayers’ concerns about potential fraudulent calls, the IRS announced that before a collection agency will contact the taxpayer via the phone, the IRS will issue a letter notifying the taxpayer about the transfer of the delinquent account to the specific private collection agency. After that, the collection agency will send a letter to the taxpayer notifying about the same. Only after those two letters are sent, the company will call the taxpayer. The IRS announced that there will be information in these two letters that will help the taxpayer identify that the collection agency making a call is legitimate.

To make a complaint about a private collection agency or to report misconduct by its employee, taxpayers can call the TIGTA hotline at 800-366-4484 or visit www.tigta.gov

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