Does the IRS Use Private Debt Collectors?

Yes. he IRS, tasked with collecting taxes and enforcing tax laws, has turned to private debt collectors to assist with certain tax debts. This move has stirred debate, with some questioning the IRS’s intentions. Let’s dive deeper into the two main reasons the IRS cites for bringing in private debt collectors.

Efficiency and Resources

The IRS cites efficiency and resource constraints as primary reasons for utilizing private debt collectors. Here’s a closer look at what this entails:

1. Resource Limitations:
   • The IRS has faced significant budget cuts and staffing reductions over the years. According to the IRS Oversight Board’s Annual Report, the agency’s budget has been cut by nearly $900 million since 2010, leading to a reduction in the workforce by approximately 17,000 employees. These cuts have strained the IRS’s ability to manage and pursue outstanding tax debts effectively.
   • The IRS’s enforcement budget has also been affected, limiting the agency’s capacity to handle the increasing backlog of unpaid taxes. As a result, the IRS has had to prioritize cases, often focusing on more complex and higher-value tax issues.
2. Backlog of Unpaid Taxes:
   • With a growing backlog of unpaid taxes, the IRS has struggled to keep up with collections. According to a Government Accountability Office (GAO) report, there were billions in unpaid taxes each year that the IRS could not collect due to limited resources and personnel.
   • By outsourcing certain tax debts to private collection agencies, the IRS can delegate simpler, less complex cases to these agencies, allowing the IRS to focus its limited resources on more complicated cases involving higher amounts of unpaid taxes or those requiring extensive investigation.
3. Middle-Class Impact:
   • Critics argue that this outsourcing disproportionately impacts middle-class Americans. While the intention is to streamline collections, there is concern that private debt collectors may aggressively pursue debts from middle-class taxpayers who may lack the resources to navigate these interactions effectively.
   • The National Taxpayer Advocate has highlighted concerns that private collection agencies may target more vulnerable populations, such as low-income taxpayers, due to the relatively lower complexity of their cases compared to high-income individuals with more complex tax situations.

Legislative Mandate

The use of private debt collectors by the IRS is not just a matter of choice but also a requirement under federal law. Here’s the legislative backdrop:

1. Fixing America’s Surface Transportation (FAST) Act:
   • Enacted in December 2015, the FAST Act (Pub. L. No. 114-94) includes a provision that mandates the IRS to use private collection agencies for certain inactive tax receivables. This provision is codified in the Internal Revenue Code under IRC § 6306.
   • The FAST Act was primarily a transportation funding bill, but it also included various tax-related measures, one of which required the IRS to contract with private collection agencies to collect outstanding tax debts.
2. Internal Revenue Code § 6306:
   • IRC § 6306 outlines the criteria for the tax debts that can be outsourced to private collection agencies. These criteria include:
     • Tax debts that have been inactive for more than a year.
     • Cases where the IRS lacks the resources to pursue collection.
     • Instances where the IRS has been unable to locate the taxpayer.
   • The law aims to enhance the efficiency of tax collections by ensuring that inactive tax debts are actively pursued, albeit through private agencies.
3. Congressional Intent:
   • The legislative history of the FAST Act suggests that Congress intended to maximize tax collections by leveraging private sector resources. This move was seen as a way to increase revenue without additional funding for the IRS, by tapping into the capacity of private collection agencies.
   • However, this has been controversial, with some lawmakers and advocacy groups arguing that it may lead to aggressive collection tactics that could harm taxpayers, particularly those who are financially vulnerable.

The Debate and Concerns

The decision to use private debt collectors has sparked debate and raised several concerns:

• Effectiveness vs. Fairness:

1. 1. • While private debt collectors can enhance the efficiency of tax collections, questions remain about the fairness and ethics of this practice. There are concerns that private agencies may prioritize their profit motives over taxpayer rights and protections.
      • Reports have emerged of aggressive and sometimes misleading tactics used by private collectors, leading to increased scrutiny and calls for stronger oversight and regulation.

• Impact on Taxpayers:

1. • The National Taxpayer Advocate has voiced concerns that private debt collectors may not be equipped to handle the nuances of tax law and taxpayer rights. There is a risk that taxpayers may not receive the same level of protection and fairness as they would when dealing directly with the IRS.
   • Taxpayer education and awareness become crucial in this context. Taxpayers need to be informed about their rights and the correct procedures to avoid falling prey to scams or unfair practices.

 

Understanding the IRS’s Use of Private Debt Collectors

Criteria for Debt Collection by Private Agencies

Not every tax debt gets handed over to a private agency. The IRS selects accounts based on specific criteria:

• Accounts that have been inactive for at least a year.
• Accounts where the IRS doesn’t have the resources to pursue collection.
• Accounts where the IRS hasn’t been able to locate the taxpayer.

Who Are the Private Debt Collectors?

The IRS has contracts with three private collection agencies:

• CBE Group
• ConServe
• Coast Professional Group

These agencies contact taxpayers and set up payment plans for outstanding tax debts. If someone else contacts you, it’s a scam. Be especially cautious if they threaten you or ask for payments via wire transfer, Zelle, or internet money transfers. Scammers are everywhere!

The Collection Process

Understanding the collection process can help you navigate your interactions with private debt collectors.

Initial IRS Communication: Before transferring your account to a private collection agency, the IRS will send a letter (Notice CP40) and Publication 4518. This letter provides information about the debt transfer and the name of the assigned collection agency. You’ll also get a Taxpayer Authentication Number.

Initial Contact from the Private Collection Agency: Once your account is transferred, the private collection agency will send an initial contact letter. This letter will include:

• Verification of your identity.
• Details of your outstanding tax debt.
• Instructions on how to resolve the debt.

Keep the Taxpayer Identification Number safe. It’s used to confirm your identity and verify that the caller is legitimate. You’ll be asked to exchange portions of the Taxpayer Authentication Number with the private collection agency to validate each other’s identity.

 

Ongoing Communication and Payment Arrangements: The private collection agency will follow up with phone calls to discuss payment options. You can choose from various payment plans, including lump-sum payments, installment agreements, or offers in compromise.

 

Taxpayer Rights and Protections

When dealing with private debt collectors, it’s crucial to know your rights to prevent harassment and ensure fair treatment. Whether or not you owe a debt– and regardless of how much that debt is- you have rights and the government (and their private collectors!) have to respect those.

Communication Rights:

• Right to Fair Treatment: Private debt collectors must treat you with respect and refrain from using abusive language or threats.
• Right to Request Written Communication: You can request that all communications be in writing rather than over the phone.
• Right to Verify the Debt: You have the right to verify the debt and request documentation from the collection agency.

Financial Rights:

• Right to Negotiate Payment Terms: You can negotiate payment plans that suit your financial situation.
• Right to Dispute the Debt: If you believe the debt is incorrect, you can dispute it and provide evidence to support your claim.
• Right to Privacy: Private debt collectors must adhere to privacy laws and cannot disclose your tax debt information to unauthorized third parties.

Detailed Breakdown of Taxpayer Rights

Right to Fair Treatment: The Fair Debt Collection Practices Act (FDCPA) ensures that private debt collectors treat you fairly and respectfully. This includes:

• No Harassment: Collectors cannot use obscene or profane language, make repeated calls to annoy, or use threats of violence.
• No False Statements: Collectors cannot misrepresent the amount owed, falsely claim to be attorneys or government representatives, or imply that nonpayment will result in arrest.

Right to Written Communication: You can request that all communications from the debt collector be in writing. This helps keep clear records and avoid misunderstandings. It’s advisable to send a written request to the collection agency, stating your preference for written communication only.

Right to Verify the Debt: Under the FDCPA, you have the right to request verification of the debt. The collector must provide details about the debt, including:

• The amount owed.
• The name of the original creditor.
• A statement that the debt will be assumed valid unless disputed within 30 days.

To exercise this right, send a written request for debt verification within 30 days of the initial contact from the debt collector.

Right to Negotiate Payment Terms: You can negotiate payment terms that align with your financial situation. This can include setting up installment agreements or discussing a possible reduction in the total amount owed through an offer in compromise. Communicate openly with the debt collector about your financial capabilities.

Right to Dispute the Debt: If you believe the debt is incorrect, you have the right to dispute it. Disputes must be made in writing within 30 days of receiving the initial notice from the debt collector. Once a dispute is filed, the debt collector must cease collection efforts until the debt is verified.

Right to Privacy: Private debt collectors must adhere to strict privacy guidelines. They cannot disclose information about your tax debt to unauthorized third parties. Communication with third parties is generally limited to acquiring location information about you.

Prohibited Practices Under the FDCPA

The FDCPA prohibits various unfair practices by debt collectors:

• Harassment and Abuse: Debt collectors cannot use threats of violence, obscene language, or repeatedly call with the intent to annoy or harass.
• False or Misleading Representations: Collectors cannot misrepresent the amount owed, falsely claim to be attorneys or government agents, or threaten legal actions that are not intended.
• Unfair Practices: Collectors cannot collect any amount greater than what is owed, unless permitted by law. They also cannot deposit post-dated checks prematurely or threaten to take property without the legal right to do so.

Tips for Dealing with Private Debt Collectors

Here are some practical tips for managing interactions with private debt collectors:

• Verify the Legitimacy: Always verify the legitimacy of the debt collector by contacting the IRS or the collection agency directly using contact information from official IRS notices.
• Keep Detailed Records: Maintain detailed records of all communications with the debt collector, including dates, times, and content of conversations.
• Request Written Communication: To avoid misunderstandings, request that all communications be in writing.
• Never Share Personal Information: Do not share sensitive personal information, such as Social Security numbers or bank account details, unless you are certain of the collector’s legitimacy.
• Know Your Rights: Familiarize yourself with your rights under the FDCPA and IRS guidelines to protect yourself from unfair practices.

Resources for Taxpayers

There are numerous resources available to help you navigate the collection process and resolve tax debts:

IRS Resources:

• IRS Taxpayer Advocate Service: An independent organization within the IRS that helps taxpayers resolve issues.
• IRS Payment Options: Information on various payment options for tax debts.
• IRS Contact Information: Contact information for the IRS.

Government Resources:

• Consumer Financial Protection Bureau (CFPB): Provides information and resources on dealing with debt collectors.
• Federal Trade Commission (FTC): Offers guidance on consumer rights and protections.

Nonprofit Organizations:

• National Consumer Law Center (NCLC): Provides information on consumer rights and debt collection.
• American Institute of CPAs (AICPA): Offers resources and guidance on tax-related issues.

Common Questions and Concerns

Can I Choose Not to Work with a Private Debt Collector? Yes, you can request that your account be returned to the IRS if you prefer not to work with a private debt collector. To do this, contact the assigned collection agency and make the request in writing. However, assignment of your tax collection case to a private collection agency is generally a good thing. They cannot levy or take other enforced collection action against you. These are usually very old tax debts, and the collection statute will often expire when the tax case is in their hands.

What If I Can’t Afford to Pay My Tax Debt? If you cannot afford to pay your tax debt, consider the following options:

• Installment Agreement: Set up a payment plan with manageable monthly payments.
• Offer in Compromise: Negotiate a settlement with the IRS for less than the full amount owed.
• Currently Not Collectible Status: If you are facing financial hardship, you may qualify for “currently not collectible” status, temporarily halting collection efforts.

What Should I Do If I Suspect a Scam? Tax scams are prevalent, and it’s important to be vigilant. If you suspect a scam:

• Verify the Caller’s Identity: Contact the IRS or the collection agency using official contact information.
• Report the Scam: Report suspected scams to the Treasury Inspector General for Tax Administration (TIGTA) and the FTC.

How Can Tax Crisis Institute Help?

If you’re feeling overwhelmed by tax debt and the collection process, contacting the Tax Crisis Institute can provide significant relief. We specialize in helping taxpayers resolve their tax issues efficiently and effectively. When you retain our services, you no longer have to communicate directly with tax agencies. Our experienced professionals handle all communications on your behalf, ensuring your rights are protected and your stress is minimized. Contact us today to get started on resolving your tax debt once and for all.

Understanding the IRS’s use of private debt collectors is essential for managing tax debt effectively. By knowing your rights, verifying the legitimacy of collectors, and utilizing available resources, you can navigate the collection process with confidence. Remember, proactive communication and informed decision-making are key to resolving tax debts efficiently. For more detailed information and assistance, visit the IRS website or consult with a tax professional. Stay informed, stay protected, and take control of your tax debt situation.