The Internal Revenue Service (IRS) has decided to outsource overdue tax debts to private debt collectors, attracting public debate. The program is in its early stages, with letters being sent to taxpayers with overdue bills from April.
There have been a wide range of public responses to this initiative. The concerns raised by some leading market commentators include the potential for harassment of financially insecure families who have overdue tax debts. Others have focused on the previous program of private debt collection when the process was used by the IRS in the past.
The law allowing for private collection of tax debts was enacted in December 2015, in Section 32102 of the Fixing America’s Surface Transportation Act (FAST). Prior to this, the IRS had been running its own debt collection since 2009, after it stopped a three-year program using private collectors that was deemed by critics to be unsuccessful.
The question of why, then, the IRS has decided to once again use private companies for debt collection is an interesting one.
The Joint Committee on Taxation estimated that the new collection program could potentially bring in a net $2.4bn for the treasury over 10 years. Some proponents of the program suggest that turning debt collection over to the private sector will boost its efficiency.
Others take a different view, noting that the companies will work on commission, meaning they will earn up to a quarter of the outstanding debt collected. The program of 2006-9, which cost more money than it made, is also cited in arguments against the program.
As the IRS’s website states, it has implemented “a new private collection program of certain overdue federal tax debts selecting four contractors to implement it”.
The companies being used are as follows:
· CBE Group, Cedar Falls, Iowa
· ConServe, Fairport, New York
· Performant, Livermore, California
· Pioneer Credit Recovery, Horseheads, New York.
There are certain accounts which will not be passed on to these agencies. These include the accounts of people under the age of 18, individuals with an installment agreement and those with pending or current offers in compromise.
Regardless of these exceptions, there are well-founded concerns that those likely to be impacted will be financially insecure, many of whom will be unable to pay. The possibility of harassment by private companies is heightened as these agencies do not operate within the same framework as the IRS.
As part of its efforts to monitor the private debt collectors, the IRS has established a hotline to make complaints or report misconduct. The TIGTA hotline is available on 800-366-4484 or on its website.
Many question whether this is a sufficient safeguard against potential wrongdoing. Writing for Business Insider, tax law professor Adam Chodorow writes, “Color me skeptical. The best way to monitor behavior and enhance accountability is to increase control, not cede it.”
The potential increase in scams cannot be overlooked either. Previously, the IRS did its own debt collection and conducted this only through letters. This meant that anybody calling on the phone could be immediately ignored as a scammer.
Now, however, the game has changed. As such, market commentators are warning people to be more vigilant against potential fraudsters.
Adam Levin, co-founder of Credit.com, advises that you hang up if contacted by someone claiming to be from a company not listed above, if they ask you to send money somewhere other than to the IRS, or if the caller requests personal information such as credit or debit card numbers.
The impact for US citizens living abroad has also been highlighted by some organizations. ACA released a letter to the IRS Commissioner on May 8th 2017 noting its concerns, including that the logistics of dealing with US-based agencies would cause an undue burden for Americans living overseas.
The IRS’s decision to outsource its debt collection came as quite a surprise to the market given the closure of the previous attempt. Despite the criticism, the program is now in motion.
If you have any further questions or need further information on the IRS’s new debt collection scheme, please contact the team at American Finance.
Our goal is to deliver an outstanding experience to every client. Discover how to become one.
Information provided on this website is for guidance purposes only and should not be construed or relied upon as formal tax, legal or financial advice.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.