Private tax debt collection: Let’s hope it's better than last time
10.31.2016 “Taxpayer Rights Protected” screams the headline of the IRS’s recent announcement that it is going to begin private debt collection in Spring 2017. If this latest attempt at privatizing tax collections is anything like the last time, taxpayers should be deeply concerned. A damning assessment of the 2005 IRS private debt collection program was delivered by the National Taxpayer Advocate (NTA) in its Objectives Report to Congress for FY 2017.
In 2005, when the IRS prepared to launch a program allowing private collection agencies (PCAs) to collect delinquent tax debt, the National Taxpayer Advocate identified the initiative as a serious threat to taxpayer rights, questioned the program’s revenue projections, and in 2006 called for repeal of the legislative provisions that authorized it. As we predicted, the private debt collection (PDC) program did not meet IRS expectations or those of Congress, and the IRS discontinued the program in 2009. Despite the proven inefficiencies of the prior PDC program, Congress enacted legislation in 2015 that requires the IRS to assign certain delinquent taxpayer accounts to PCAs.
The NTA goes on to predict that the new IRS plan for implementing the private debt collection program includes “practices that will harm taxpayers and tax administration.” Here are some of the practices that caused problems last time that the IRS apparently has not fixed this time, according to the NTA:
● Taxpayers in economic hardship require assistance and debt Resolution tools that private collectors cannot provide.
● The IRS has not required private collection agencies to be transparent about their procedures.
● The IRS proposes to pay commissions to private collection agencies on taxpayer remittances prompted by IRS action rather than the private collector’s action.
● The training and guidance the IRS proposes to provide to private collection contractors is insufficient.
How the Program Works
The new program was authorized under a federal law enacted by Congress in December 2015. It allows private contractors to collect outstanding inactive tax receivables, accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. The IRS has selected four contractors to implement the new program, including:
1309 Technology Pkwy
Cedar Falls, IA 50613
200 CrossKeys Office park
Fairport, NY 14450
333 N Canyons Pkwy
Livermore, CA 94551
325 Daniel Zenker Dr
Horseheads, NY 14845
The IRS intends to assign accounts to private collectors where the accounts are overdue or the IRS lacks the resources to “work the case.” The IRS promises to give written notice to each taxpayer and their representative that an account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming this transfer.
Note that private collection agencies will not ask for payment on a prepaid debit card. Any electronic payments will be made on IRS.gov/payments. The IRS is instructing taxpayers that payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency.
Accounts Not Assigned to Private Collection Agencies
IRS will not assign accounts to private collection agencies involving taxpayers who are:
• Under the age of 18
• In designated combat zones
• Victims of tax-related identity theft
• Currently under examination, litigation, criminal investigation or levy
• Subject to pending or active offers in compromise
• Subject to an installment agreement
• Subject to a right of appeal
• Classified as an innocent spouse case
• In presidentially declared disaster areas and requesting relief from collection
After All the Scam Warnings….
The IRS has warned taxpayers numerous times to be wary of impersonators. Now taxpayers will have the added burden of trying to determine if a private debt collector is legitimate or if the threatening person on the other end of the line is just another scam. The agency has promised it will “do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.” Do you feel better? Neither does this writer. Don’t despair. The IRS has a private debt collection page with a lot of reassurances.
Taxes and Parking Tickets?
Will private debt collection work? Think about the incentives for the debt collectors. In 2012, a parking ticket scandal came to light in Atlanta when it was discovered that some employees of the private parking ticket company hired by the city were illegally ticketing compliant drivers. The problem, it seems, is that the company pressured its employees to hit “impossible” quotas. The IRS’s hired bill collectors will be working on commission. Case closed.
About the blogger
Lucia Nasuti Smeal is a guest blogger on tax topics for Frazier & Deeter. Smeal is an attorney, a tax Professor with Georgia State University’s J. Mack Robinson College of Business, and former editor of Tax Notes Today, published by Tax Analysts. Smeal also worked as a legislative analyst for the Congressional Research Service and is a former member of the U.S. House Periodical Press Corps. She is a frequent speaker on current tax developments.