You know the drill: things aren’t working out – again – and you declare that this time it’s over. Really, really over. But just like always, they beg to come back. This time, they promise, it will be different. This time, it will be better. They’ll promise you that they’ve learned their lesson, that they’ll change (!) and that this time, things will work out. And you take them back even though know better, even though you know that you’ve heard it all before. And you know in your heart that this time won’t be much different than the last time.
You know who I’m talking about, right? Those private debt collectors that will begin collecting old tax debts this month.
The initiative is part of a new law passed by Congress in 2015 which directs the Internal Revenue Service (IRS) to hand over certain unpaid tax bills to private agencies for collections.
It’s not a new idea. About 20 years ago, the IRS tried their hand at using private debt collectors. That lasted a year amid complaints about unfair practices and harassment. They made another go during the George W. Bush administration. Same result. So it’s perfectly logical that Congress would try it again, right?
I know what you’re thinking. Clearly, someone presented a carefully thought out argument in favor of private debt collectors that showed how the initiative could work. Nope. Just the opposite. In 2014, the National Taxpayer Advocate, Nina Olson, voiced her concerns about the proposal (letter downloads as a pdf). After analyzing collections data, Olson noted that 79% of the cases that fell into the “inactive tax receivables” (those required to be turned over to private collections) involved taxpayers with incomes below the poverty limit. Simple math would bear out that if the money isn’t there, it’s not there. No amount of nasty phone calls and collections notices will produce a different result.
Commenting on the previous efforts of private collection agencies, Olson wrote, “Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue. Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program ended up losing money. We have no reason to believe the result would be any different this time.”
Olson – and others – concluded that the program was bad for taxpayers and it lost money. Clearly a terrible idea. So of course, Congress green-lighted it. Starting this month, the IRS will begin sending letters to taxpayers whose overdue federal tax accounts are being assigned to one of four debt collection agencies: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, Calif.; and Pioneer of Horseheads, N.Y. (I’ll leave it to you to wonder whether it’s a coincidence that two of the four are from New York, since one of the most forceful proponents of the bill was the Empire State’s own Senator Charles E. Schumer (D-NY).)
Only those four contractors are authorized to collect unpaid tax debts on behalf of IRS. Taxpayers who are assigned to one of these agencies would have been contacted by the IRS previously and still have an unpaid tax bill. A taxpayer’s first contact regarding an overdue bill will not come from a private collection agency.
Here’s how the new program will work: the IRS will notify a taxpayer by letter before transferring the account to one of the agencies. The letter will indicate the name and contact information of the specific collection agency assigned to the taxpayer: only one agency will be assigned to a taxpayer. The mailing will also include a copy of IRS Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency (downloads as a pdf).
After the IRS sends a letter, the debt collector will send its own letter to the taxpayer. To protect the taxpayer’s privacy and security, both the IRS letter and the debt collector’s letter stating the amount of tax owed and assure taxpayers that future collection agency calls they may receive are legitimate.
According to the IRS, the debt collectors will be able to identify themselves as contractors of the IRS collecting taxes (the language in the law is curious because it says those contractors “may” – not must – identify themselves to taxpayers as IRS contractors). The debt collectors are required to follow the provisions of the Fair Debt Collection Practices Act and “must be courteous and must respect taxpayer rights.” That includes following the law with respect to time and frequency of communication: among other things, debt collectors may not contact a taxpayer at “any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer.” Typically, this means that calls should only be made between 8:00 a.m. and 9:00 p.m., local time.
The debt collectors are authorized to discuss payment options, including setting up payment agreements, with taxpayers. However, any payment of tax must be sent to the IRS, and not to the debt collector or any other person. Checks should only be made payable to the United States Treasury and not to the debt collector. Taxpayers will never be asked by a legitimate debt collector to pay in gift cards, including iTunes cards, or wire transfer. Additionally, payments of tax made by credit or debit cards should be made through the IRS payment options online: never give out your credit or debit numbers over the phone to satisfy an alleged tax obligation.
Debt collectors are not authorized to take enforcement actions against taxpayers, including placing a lien or issuing a levy. Further, debt collectors cannot threaten a taxpayer with arrest or deportation.
Understanding what private collectors can and cannot do is important because of the potential for scammers to take advantage of the new procedures. The IRS says that it will be watching for these schemes as the collection program begins, and this effort will include working with partners in the tax community and law enforcement about emerging scams.
“The IRS is taking steps throughout this effort to ensure that the private collection firms work responsibly and respect taxpayer rights,” said IRS Commissioner John 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.”
According to the IRS, initially, each debt collection agency will be assigned 100 taxpayers or 400 taxpayers in all. The debt collectors will continue to work 100 taxpayers per week for four weeks. After that time, each debt collection agency will be assigned 1,000 per week or 4,000 taxpayers in all.
If you are unsure if you have an unpaid tax debt from a previous year, you can check your account balance online at If your account balance is zero, that means nothing is due, and you typically wouldn’t be getting a contact from the IRS or the private firm.
“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.”
The IRS is going out of its way to warn taxpayers about the potential for scams – largely because they’ve spent the better part of the past few years advising taxpayers that the IRS will not contact you by phone to collect past due taxes. Now, however, private collectors acting on the IRS’ behalf will be contacting taxpayers by phone to collect past due taxes. This risky strategy – at the behest of Congress – is moving forward despite the fact that the program has not proven to be cost-effective or good for taxpayers. What could possibly go wrong?

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Kelly Erb is a tax attorney, tax writer and podcaster.

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