IRS to Revive Private Debt Collection Program This Week

Chris Gaetano
Published Date:
Apr 5, 2017

The IRS announced that it will be formally launching its revived private debt collection program this week when it sends letters to a few hundred taxpayers that their delinquent accounts have been assigned to a private sector agency. This number will grow to thousands over the following weeks. 

This will be the third time since 1996 that the government has tried using private agencies to collect delinquent tax debt, with the other two efforts being shuttered after having been found to have cost more money to maintain than they were bringing in. The new program was authorized through a highway infrastructure bill signed into law December 2015, the FAST Act.

Under the act, the IRS will enter into “one or more qualified tax collection contracts for the collection of all outstanding inactive tax receivables.” In this case, "inactive" means that the IRS lacks the resources or ability to collect it; if one-third of the statute of limitations has elapsed without the case being assigned for collection by any IRS employee; or if the receivable has been assigned for collection, but the taxpayer has not communicated with the IRS in more than one year. Taxpayers being assigned to a private firm would have had multiple contacts from the IRS in previous years and still have an unpaid tax bill.

There are a few exceptions. An inactive receivable is not eligible for private collection if it: 

• * is subject to a pending or active offer-in-compromise or installment agreement;

• * is classified as an innocent spouse case;

• * involves a taxpayer who is dead, a minor, in a designated combat zone or a victim of tax-related identity theft;

• * is currently under examination, litigation, criminal investigation or levy; or 

• * is currently under appeal.

National Taxpayer Advocate Nina E. Olson expressed concern about the program in her recent 2017 report to Congress. She noted that the IRS, under statutory and administrative rules, generally must refrain from trying to collect money from taxpayers experiencing economic hardship yet the law enabling private collectors to be used has no such restriction. This means private debt collectors might end up pursuing taxpayers in financial hardship for tax the IRS itself couldn't even collect. She also pointed out that the IRS has tools to address economic hardship cases, like offers in compromise, that private agencies lack. She also bemoaned the lack of required transparency and oversight in the private companies' procedures, in contrast to even previous private debt collection programs, as well as lack of training and guidance for their employees. She noted that the IRS has no plans to train private collection agencies on things like IRS audit and collection procedures, the role of IRS Appeals, or collection alternatives like offers in compromise or partial payment installment agreements. 

Finally, Olson said that the program's payment structure between the IRS and the collection agencies can lead to inefficiencies. Under the program, agencies are paid based on taxpayer remittances paid 11 days after they receive notice that their accounts are being transferred to a private agency. This can lead to situations, however, where the agency winds up getting commission on payments they played no role in actually collecting. 

"Assume the IRS assigns an account to a PCA [Private Collection Agency] on Day 1 and mails the letter notifying the taxpayer of the assignment on Day 2, which the taxpayer receives on Day 6. Even if the taxpayer takes only until Day 8 to review the letter, locate old records, and decide how to proceed, and on Day 9 sends payment to the IRS by certified mail, the payment would arrive at the IRS around Day 12. The PCA will receive a commission on that payment even though it played no part in collecting the tax," said the report.  

She warned that this same issue with timing could also lead the IRS to assign cases to private agencies even if taxpayers are actively working with the IRS to resolve the issue. 

IRS Commissioner John Koskinen seemed aware of these critiques when announcing the program launch, saying that the service will monitor the program for abuse, as well as for fraudsters posing as private collection agents. 

“The IRS is taking steps throughout this effort to ensure that the private collection firms work responsibly and respect taxpayer rights,” said Koskinen. “The IRS also urges taxpayers to be on the lookout for scammers who might use this program as a cover to trick people. In reality, those taxpayers whose accounts are assigned as part of the private collection effort know they have a tax debt.”

The IRS warned that people should remember these private collection firms will only be calling about a tax debt the person has had – and has been aware of – for years and had been contacted about previously in the past by the IRS.

“Here’s a simple rule to keep in mind. You won’t get a call from a private collection firm unless you have unpaid tax debts going back several years and you’ve already heard from the IRS multiple times,” Koskinen said. “The people included in the private collection program typically already know they have a tax issue. If you get a call from someone saying they’re from one of these groups and you’ve paid your taxes, that’s a sure sign of a scam.”

If taxpayers are unsure if they have an unpaid tax debt from a previous year – which is what the private collection firms will handle – they can go to and check their account balance: If the account balance says zero, that means nothing is due, and you typically wouldn’t be getting a contact from the IRS or the private firm.

The IRS noted that debt collectors, whether in-house or private contractors, will never: 

  • * Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes, and if a case is assigned to a PCA, both the IRS and the authorized collection agency will send the taxpayer a letter. Payment will always be to the United States Treasury.
  • * Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • * Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed; or 
  • * Ask for credit or debit card numbers over the phone.

“Unexpected and threatening calls out of the blue from someone saying they’re representing the IRS to collect a tax debt is a warning sign people should watch out for,” Koskinen said.

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