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IRS To Use Private Debt Collectors Again

December 10, 2015



With the passage of the 5-year infrastructure spending bill, a tool has been forced onto to the IRS--private tax debt collectors. What has essentially changed is that the new law now requires—rather than just permits—the IRS to use private collectors. 


Many people think that having the IRS farm out collection work to private contractors is a bad idea. And it has been tried several times unsuccessfully in the last two decades. In  2014, National Taxpayer Advocate Nina Olson advocated against the idea, saying the most recent program of 2006-2009 using private collectors didn’t even raise revenue. Nevertheless Congress--ever in search of new ways of raising revenue--is demanding the short-handed IRS go back to private collectors again.


The IRS is required to use private collectors where: a) the tax bill is not being collected because of a lack of IRS resources or the IRS’ inability to locate the taxpayer; b) more than 1/3 of the statute of limitations has expired, and no IRS employee has been assigned to collect it; and c) the tax bill has been assigned for collection, but more than a year has passed without any interaction.


Don't panic quite just yet. There are substantial rules the private collectors must follow:


1) First, the private collector usually will contact the taxpayer by letter. If the taxpayer’s last known address is incorrect, the private collector searches for the correct address.


2) Next, the private collector will telephone the taxpayer to request full payment. If the taxpayer cannot pay in full right away, the private collector offers an installment deal for up to five years. If the taxpayer is unable to pay even over five years, the collector asks for taxpayer financial information to see what sort of deal the taxpayer should get (there are controls on financial data, but there is considerable worry about having taxpayer data in private hands).


3) Private collectors cannot accept payments. Do not pay them directly!


4) The Fair Debt Collection Practices Act applies to private collectors. This is the same law that applies to collectors in other circumstances.


5) Some tax bills cannot go to private collectors, as where:  a) There is a pending or active offer-in-compromise or installment agreement; b) It is an innocent spouse case; c) The taxpayer is deceased, under age 18, in a designated combat zone, or is a victim of identity theft; d) The taxpayer is under IRS audit, in litigation, criminal investigation, or levy; or e) The taxpayer has gone to IRS Appeals.


One more thing--if you have a large tax debt, you might also have trouble traveling, because the IRS power to revoke passports was also signed into law at the same time as the private debt collector mandate.

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