IRS hires private debt collection agencies to collect on back taxes – Beware

IRS has announced that beginning this month, it will start to send letters to notify “a relatively small group of individuals” with overdue federal tax that their accounts have been assigned to one of four private collection agencies (PCAs). The assignments were authorized by legislation enacted in 2014.

Background. Code Sec. 6306(a) provides that “nothing in any provision of law shall be construed to prevent” IRS from entering into “qualified tax collection contracts” with PCAs to assist in the collection of delinquent federal tax debts. The Fixing America’s Surface Transportation (FAST) Act (P.L. 114-94, signed into law on Dec. 4, 2015) added new Code Sec. 6306(c) which provides, “notwithstanding any other provision of law, IRS shall enter into one more qualified tax collection contracts for the collection of all outstanding inactive tax receivables”.

A tax receivable means any outstanding assessment which IRS includes in potentially collectible inventory. An inactive tax receivable means any tax receivable if:

  • At any time after assessment, IRS removes the receivable from the active inventory for lack of resources or inability to locate the taxpayer;
  • More than 1/3 of the period of the applicable statute of limitation has lapsed, and the receivable has not been assigned for collection to any IRS employee; or
  • In the case of a receivable which has been assigned for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection of the receivable. (Code Sec. 6306(c))

A tax receivable is not eligible for collection under a qualified tax collection contract if the receivable:

  • Is subject to a pending or active offer-in-compromise or installment agreement;
  • Is classified as an innocent spouse case;
  • Involves a taxpayer identified by IRS as being
    1. Deceased,
    2. Under the age of 18,
    3. In a designated combat zone, or
    4. A victim of tax-related identity theft;
  • Is currently under examination, litigation, criminal investigation, or levy; or
  • Is currently subject to a proper exercise of a right of appeal under the Code. (Code Sec. 6306(d))

Last year, IRS announced in IR 2016-125 that it planned to begin private collection of certain overdue federal tax debts in the spring of 2017 and that it had selected four contractors to implement the new program:

  • CBE Group, 1309 Technology Pkwy, Cedar Falls, IA 50613;
  • Conserve, 200 CrossKeys Office Park, Fairport, NY 14450;
  • Performant, 333 N Canyons Pkwy, Livermore, CA 94551; and
  • Pioneer, 325 Daniel Zenker Dr, Horseheads, NY 14845.

Last month, IRS posted to its website a copy of the letter that it will send to taxpayers to notify them that their overdue account has been assigned to a PCA.

Private collection program starts this month. IRS has announced that its private collection program will begin this week with a few hundred taxpayers receiving mailings and subsequent phone calls. The program will grow “to thousands” later in the spring and summer.

Two-step process. IRS revealed that notification of the taxpayer’s inclusion in the program will involve the following steps:

  1. IRS will send a letter to the taxpayer and his tax representative informing them that his account is being assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency. IRS says it will always notify a taxpayer before transferring his account to a PCA.
  2. Once the IRS letter is sent, the designated PCA will send its own letter to the taxpayer and his representative confirming the account transfer. To protect the taxpayer’s privacy and security, both IRS’s letter and the PCA letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate. The PCA will identify itself as a contractor of IRS. IRS says employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act and, like IRS employees, must be courteous and respect taxpayer rights.

PCAs are authorized to discuss payment options, including setting up payment agreements with taxpayers. But, as with cases assigned to IRS employees, any tax payment must be made, either electronically or by check, to IRS. Taxpayers are cautioned never to send a payment to the PCA or anyone besides IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury.

IRS also tells taxpayers that PCAs are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a tax levy.

Phone scam alert. IR 2017-74 also warns taxpayers to be wary of scammers posing as PCAs, and to keep in mind that a legitimate PCA will only be calling about a tax debt that the person has had—and has been aware of—for years and had been contacted about previously in the past by IRS. Taxpayers also are given general tips about how to identify a scammer (e.g., someone who demands immediate payment using a specific method, such as wire transfer or gift card, or threatens to call police or other law enforcement in the event of nonpayment).

Dealing with problems to avoid assignment. IRS also tells taxpayers who are behind on their taxes to either pay what they owe or set up a suitable payment plan. Some taxpayers may be eligible for an up-to-72-month payment plan, while others may be eligible for an offer-in-compromise.

Call us today and get your tax problem resolved once and for all 1-562-204-6700.