Those pesky phone calls advising that you might owe taxes could be legit. A new law which goes into effect this year directs the Internal Revenue Service (IRS) to hand over some unpaid tax bills to private agencies for collections. And while the IRS might not call you directly (remember, they’ve spent the better part of the past few years advising taxpayers that they won’t initiate contact by phone to collect past due taxes), those private collection agencies will – and that’s raising concerns about taxpayer privacy and increased scams. At a recent hearing of the House Appropriations Financial Services Subcommittee with the Treasury Inspector General for Tax Administration J. Russell George and National Taxpayer Advocate Nina E. Olson, the use of private collections agencies to hunt down delinquent taxpayers was one of the items on the agenda.
(You can access the written remarks from George here and Olson here.)
In response to a question from Rep. Mike Quigley (D-IL) about the program, Inspector General George noted that there has historically been a lot of negatives associated with farming out tax debts. George highlighted a few potential problems including reports that private collection agencies were extending payment requirements for taxpayers “beyond what the law provides.” George also stressed that authenticating the agencies was “very concerning” since the IRS has, over the years, put so much emphasis on the idea that tax collections would not be initiated by phone. While the IRS has implemented a policy of sending a letter to taxpayers who have been farmed out to the private collection agencies, it is, says George only “a matter of time before the bad guys adapt.” Scammers are, he noted, particularly agile in response to IRS efforts to stay out in front.
Olson echoed concerns about the program, noting among other things that the IRS has not yet created a “referral unit” to work with taxpayers who should be referred back to IRS, including those are not currently collectible. Olson also expressed dismay that taxpayers who are poor and elderly – among the most vulnerable to those phone scams – were not excluded from the program.
Olson stressed that a disproportionate number of the poor are those on the list to be turned over to the private collection agencies. She says that, of those accounts turned over to private collection agencies, 80% are taxpayers below 250% of the federal poverty level (often used to determine financial eligibility for certain federal programs). The median income for taxpayers turned over for collection is $32,000, she reported, while 1/3 of taxpayers turned over for collection reported income below $20,000. There is, she clarified, no economic threshold for turnover: the law requires the IRS to turn over taxpayers by the age of the account, not the amount due.
Certain accounts are exempt from being turned over to private collection agencies. Those are not limited by dollars but include taxpayers who are:
- Under age 18
- In designated combat zones
- Victims of tax-related identity theft
- Currently under examination, litigation, criminal investigation or levy
- Subject to pending or active offers in compromise (OIC)
- Under an installment agreement
- Subject to an appeal
- Innocent spouse cases
- In presidentially declared disaster areas and requesting relief from collection
Olson advised that the IRS has not agreed to let her staff listen in on phone calls made from the private collection agencies to taxpayers. Her office did do so during previous debt collection efforts. The fact that her staff is not allowed to monitor calls during this most recent effort, she said, “concerns me greatly.”
Despite concerns about the program, it’s moving ahead (thanks, Congress!). Here’s what you need to know to sort out a legitimate call from a scam:
If you are one of the taxpayers slated to be handed over to one of the private collection agency, the IRS will first send you a letter. Your first contact regarding an overdue bill will not come from a private collection agency.
You’ll be advised that your account has been turned over to one of the following four private collection agencies:
Only these four contractors are authorized to collect unpaid tax debts on behalf of IRS.
The private collection agencies 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.
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.
The most recent iteration of the debt collection program only started recently, so there’s not a lot of data available for review. However, TIGTA is auditing the program and plans to release additional information in the fall. In the meantime, to make a complaint about a private collection agency or report misconduct by its employee, you can:
- Call the TIGTA hotline at 800-366-4484;
- Visit www.tigta.gov; or
- Write to: Treasury Inspector General for Tax Administration, Hotline, Post Office Box 589, Ben Franklin Station, Washington, DC 20044-0589