A new law which went into effect this year directs the Internal Revenue Service (IRS) to hand over some unpaid tax bills to private agencies for collections. The law was pushed through despite the failures of past privatization efforts and despite concerns about what privatization efforts might mean for taxpayers (including those recently expressed by Treasury Inspector General for Tax Administration J. Russell George and National Taxpayer Advocate Nina E. Olson).
It appears those concerns were not unfounded. In response to complaints about how private debt collectors are handling taxpayer accounts, Sen. Sherrod Brown (D-OH), Sen. Benjamin Cardin (D-MD), Sen. Jeff Merkley (D-OR), and Sen. Elizabeth Warren (D-MA), have sent a letter Pioneer Credit Recovery, one of the companies which has a debt collection contract with the IRS.
According to the letter, the Senators have concerns that Pioneer may be:
(1) failing to adequately protect taxpayers from criminals posing as IRS agents;
(2) pressuring taxpayers into risky financial transactions;
(3) violating the Fair Debt Collection Practices Act (FDCPA) and provisions of the Internal Revenue Code; and
(4) violating IRS guidelines and provisions of Pioneer’s IRS contract.
The Senators explained that they were particularly concerned about “Pioneer’s contract because of the abuse of federal student loan borrowers by its parent company, Navient, through its Education Department student loan servicing contracts.”
(For more on a recent lawsuit claiming that Navient engaged in improper behavior related to student loan borrowers, allegations the company calls false, click here.)
To investigate the matter, the Senators obtained the call scripts used by Pioneer and other private debt collectors contracting with the IRS. According to the Senators, “[e]ach of the call scripts… raises concerns” about the Fair Debt Collection Practices Act (FDCPA) and will be referred to the Federal Trade Commission. Of those, however, “Pioneer’s call scripts are particularly troubling.”
For example, to prevent scammers from capitalizing on the opportunity to exploit these calls, collections activities are initiated after the taxpayer receives a letter in the mail with a unique identifier that will allow them to verify that the debt collector is legitimate. However, when a taxpayer has not received a letter, Pioneer’s script only allows for a five-day cessation of collection attempts while a new letter is mailed. Having such a short window creates an opportunity for scammer confusion: one of the hallmarks of a scam call has been a very small window to respond.
There are also concerns about the amount of pressure exerted on taxpayers. Previously, NTA Olson reported that a disproportionate number of those taxpayers on private debt collector lists are poor: 80% are taxpayers below 250% of the federal poverty level and the median income is $32,000 (1/3 of taxpayers turned over for collection reported income below $20,000). Despite those numbers, the Senators claim that Pioneer is “unique among IRS contractors in pressuring taxpayers to use financial products that could dramatically increase expenses, or cause them to lose their homes or give up their retirement security” such as shifting debt to credit cards, taking out a second mortgage, or borrowing against an existing 401k. The Senators assert that “[n]o other debt collector makes these demands.”
Pioneer’s call scripts also allegedly make an implied threat that the debt collector will have the means to seize payment involuntarily; that may be a violation of the FDCPA and other laws. Additionally, in keeping with issues raised by Inspector General George last month, Pioneer’s call scripts ask for payment agreements that are longer than authorized. George previously reported to Congress that he had concerns that private collection agencies were extending payment requirements “beyond what the law provides.”
Part of the collection process should involve information that taxpayers have the right to obtain assistance from the Taxpayer Advocate Service (TAS). The Senators found, however, “there is no evidence in the Pioneer call scripts…that the collector intends to provide this information to taxpayers.” At least one other collector, Performant, did have scripts which included instructions on how a taxpayer may contact the TAS.
Finally, private debt collectors are supposed to refer cases back to IRS if the taxpayer describes a significant hardship that would impact repayment. Again, at least one other collector, Performant, offered explicit guidance on this issue but the Pioneer call scripts which were reviewed did not.
As a result of these concerns, Pioneer has been asked to modify the existing call scripts “so they comply with the law, your contract, and IRS policy.”
(You can read the entire letter here.)
Sue Walitsky, Press Secretary for Senator Cardin, added that the Senator “has had significant concerns about the lack of taxpayer protections with any effort to privatize tax debt collection since the most recent version of the program was first proposed.” According to Walitsky, Sen. Cardin “voiced these concerns throughout the legislative process but the program was, unfortunately, enacted in 2015. As the letter details, his concerns were not merely theoretical – now that the program has been implemented, there may be a potential erosion of taxpayer rights.”
Going forward, Senator Cardin plans to continue working with his colleagues to exercise Congress’s oversight role over the program. Ideally, the way this problem would be fixed is would be via legislation repealing the program; that is, halting the private collection of tax debt. In addition to protecting taxpayers, the two times private collection of tax debt was previously attempted, those programs resulted in revenue losses for the federal government. In other words, these programs have historically been a bad economic proposition—all while potential putting a target on the backs of our most vulnerable taxpayers.
Pioneer is one of four contractors authorized to collect unpaid tax debts on behalf of IRS. The other private collection agencies are CBE, ConServe, and Performant.
In response to the story, Pioneer released a statement saying,
Pioneer has followed all IRS protocols in working with the Internal Revenue Service to recover millions of dollars in taxes that have gone unpaid for years. Pioneer has satisfied an extensive list of IRS-conducted audits and tests, encompassing all facets of the program including receiving approval from the IRS on all scripts and procedures.
The company has set up a page “to illustrate what the payment process looks like.”
A spokesman for the IRS said about the concerns:
The IRS is committed to running a balanced program that respects taxpayer rights while collecting the tax debts as intended under the law. The IRS will be closely monitoring the private debt collection program and will be working closely with the firms to ensure the fairness and integrity of the initiative.
While IRS and Congress work to sort out complaints, the calls will continue. Here’s what you need to know to sort out a legitimate call from a scam:
- If your tax account is to be handed over to a private collection agency, the IRS will send you a letter. Your first contact regarding overdue taxes will not come from a private collection agency.
- Private collection agencies are required to follow the provisions of the Fair Debt Collection Practices Act. 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 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 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.
To make a complaint about a private collection agency or report misconduct, you can call the TIGTA hotline at 800-366-4484; visit www.tigta.gov; or write to TIGTA, Hotline, Post Office Box 589, Ben Franklin Station, Washington, DC 20044-0589.
(Author’s note: The story has been updated to reflect a statement from Pioneer and from Sen. Cardin’s office.)