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collections

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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:

  • Deceased
  • 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:

  • CBE
    1-800-910-5837
  • ConServe
    1-844-853-4875
  • Performant
    1-844-807-9367
  • Pioneer
    1-800-448-3531

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

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 www.irs.gov/balancedue. 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?

If you’re like me, your calendar is already filling up – and it’s just January. If those plans include travel, you need to be aware of a new law which could affect your future plans.
On December 4, 2015, the Fixing America’s Surface Transportation Act, or “FAST Act,”  became law. The purpose of the law was to provide long-term funding for transportation projects, including new highways. However, the Act also included a significant new provision which allows the Department of State (sometimes just called “State Department”) to yank passports from delinquent taxpayers.
Here’s how it works. The Internal Revenue Service (IRS) doesn’t have control over passports: that’s the purview of the State Department. Tax debts are assessed by the IRS: the State Department doesn’t generally have access to taxpayer information because of privacy laws.
To bridge the two, the law now requires the IRS to advise the State Department about seriously delinquent taxpayers. The State Department may then refuse to issue or renew a passport for a seriously delinquent taxpayer; the Secretary of State is also permitted to revoke any passport previously issued to a seriously delinquent taxpayer.
For purposes of the new law, a “seriously delinquent” tax debt is defined as “an unpaid, legally enforceable federal tax liability” greater than $50,000, including interest and penalties. The $50,000 limit will be adjusted each year for inflation and cost of living. The limit is not per year but cumulative, meaning that it’s the total tax debt that matters.
There are some exceptions under the law. Tax debt which is being paid on time as part of an installment agreement or under an Offer In Compromise doesn’t count. It also doesn’t include any tax debt for which a Collection Due Process hearing is timely requested in connection with a levy or a debt where the collection has been suspended due to an innocent spouse claim.
If you’re seriously delinquent under the new law, the IRS is required to notify you in writing at the time that it certifies the debt to the State Department. The State Department will then hold your passport application or renewal for 90 days to allow you to resolve any errors, make full payment, or enter into a satisfactory payment plan. There is no grace period for resolving your debt before the State Department revokes an existing passport.
To get off the list, you must prove that the debt is fully satisfied, is legally unenforceable or is not seriously delinquent tax debt under the statute (in case you’re wondering, that does not include debt that dips below $50,000 – once you’ve hit that threshold, you must either pay it down or meet one of the other criteria).
That feels like the end of the story. You might be thinking if you have some tax debt, maybe you’ll just decide not to vacation in Belize for a bit.
But what if just you want to go to Nashville? Or Boston? That’s where things get tricky. Under another law – this one from 2005, the REAL ID Act – federal agencies cannot accept driver’s licenses and identification cards issued by states that do not meet certain standards.
As of January 22, 2018, all travelers with a driver’s license or identification card issued by a state that does not meet those standards must present an alternative form of identification acceptable to the Transportation Security Administration (TSA) unless that state has an extension. The list of acceptable identification includes a passport.
The rules tighten up even more in a few years. As of October 1, 2020, every air traveler will need a REAL ID-compliant license, or another acceptable form of identification, such as a passport, for domestic air travel.
So what does all of this have to do with taxes? This is where the new tax law matters. Not paying your taxes may affect your ability to fly in the future since your passport may be yanked for noncompliance. Depending on where you live, a lack of a passport could translate into being grounded – literally – by the government.

If you have a tax debt and don’t have the cash to pay in full, consider these steps before it affects your ability to travel (as well as your credit and more). For more tips on getting out of the tax debt doghouse, check out this prior article.
As for the timing of that tax debt list? Here’s what the IRS said most recently:

The IRS has not yet started certifying tax debt to the State Department. Certifications to the State Department will begin in early 2017, and this webpage will be updated to indicate when this process has been implemented.

Stay tuned.

Are you in tax trouble? There are still a few hours left in National Get Out Of the Doghouse Day. Why not take advantage of the opportunity to clean up your finances and tidy up your tax bill? It will get out of the doghouse with Uncle Sam and probably, your spouse/significant other/business person/other person nagging you about it.
If you’re not sure where to start, consider these nine quick tips:
1. Open your mail. This remains at the top of the list of what I consider to be my best tax advice ever. As I’ve said before, while I understand that facing a stack of mail from the Internal Revenue Service (IRS) or your state or local tax authority can be daunting, letting that mail sit is the single worst thing you can do when it comes to tax matters. Open your mail. It’s rarely as bad as you think – and opening the mail can’t make it worse.
2. File. At least nine out of ten taxpayers who walk through my door and have not timely filed their returns have one thing in common: they believe that they won’t be able to pay what they owe. That may be true. But it shouldn’t be a reason not to file. While it’s true that you should file on time, filing late is better than not filing at all. Similarly, filing without paying is better than not filing at all. Here’s why: there are penalties for failure to file and failure to pay so filing as soon as possible will stop some of the bleeding. Penalties are based on the amount that you owe and the length of time that passes from the due date. That means that the sooner that you file, the better – even if you can’t pay. Filing also helps you assess the damage (it may be less terrible than you think) and gets the statute of limitations rolling.
3. Pay over time. If you can’t pay your tax debt all at once, don’t buy into the whole “if I can’t pay it all, I shouldn’t even try” idea. You can help ward off liens, levies, and other collections activities by working something out with tax authorities. You can apply for an installment agreement with the IRS online – without even speaking to a real person – if you owe $50,000 or less in combined individual income tax, penalties and interest, and you’ve filed all of your tax returns (if you don’t want to file online, you can apply by mail using federal form 9465-FS, Installment Agreement Request). There’s also nothing to stop you from sending a check or two while you work to resolve your outstanding tax liabilities. Something is better than nothing. For more options when you can’t pay your tax bill in full, click here.
4. Keep an eye out for tax amnesty programs. These programs may help reduce your overall tax due, shorten the statute of limitations or mitigate penalties and interest. Alabama has an amnesty program in progress and Arizona’s amnesty program kicks off beginning September 1, 2016. Some other states, including Georgia and Kansas, have proposed upcoming tax amnesty programs so be on the lookout. Note that relief isn’t restricted to states: IRS has an offshore voluntary disclosure program which allows you to come clean for overseas income and accounts. Amnesty programs like these can help you dig out of trouble and make a fresh start (typically, you have to promise to remain compliant). If an opportunity exists for you to participate in an amnesty program, check out the details, and see how it might benefit you.
5. Figure out what you’re doing wrong – and make a change. I know this sounds obvious, but you’d be surprised at how many taxpayers repeat the same mistakes over and over. It may be the case that making a few small changes results in a more favorable result going forward. For example, double-check your withholding and make sure that you’re claiming the correct number of exemptions; review your filing status and make sure that it’s best for your circumstances; don’t overlook deductions or try to claim the wrong deductions; be sure that you’re on track to withdraw the correct amounts from your retirement plans; make sure that you’ve reported all of your income (including foreign income) and do a quick calculation to make sure that your estimated payments make sense. Don’t keep making the same mistakes over and over – they’ll just land you in the same place each time.
6. Contact your tax authorities. You can’t resolve your tax obligations by ignoring them. Help is available. To contact the IRS about your tax account, start with your notice or letter. Generally, there is an address on the top left-hand corner and a contact name and phone number in the top right-hand corner. That’s the best contact to use because the folks at that number will understand what’s going on with your account. But if you’ve lost the notice or you have another issue related to your individual tax account, try calling the IRS at 1.800.829.1040, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time (Alaska & Hawaii follow Pacific Time). If you’re calling about your business tax account, call 1.800.829.4933, Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time (Alaska & Hawaii follow Pacific Time). If you’re calling and you have a hearing impairment, call toll free, 1.800.829.4059 (TDD), Monday – Friday, 7:00 a.m. – 7:00 p.m. your local time (Alaska & Hawaii follow Pacific Time). If you live outside the United States, call 267.941.1000, Monday through Friday, from 6:00 a.m. to 11:00 p.m. (Eastern Time).
7. Reach out to the Taxpayer Advocate Service (TAS). If you haven’t been able to resolve your tax issues directly with the IRS, consider the TAS. The TAS is an independent organization within the IRS which works to help taxpayers resolve issues that taxpayers haven’t been able to fix on their own.
8. Remember that this is your problem. It’s tempting when you find yourself in a bad situation to lash out. When it doesn’t feel fair that you have to pay, you may want to draw in others: your terrible boss, your lousy ex, your good-for-nothing brother-in-law or the business partner who screwed you. Don’t. Wasting your energy – and perhaps your money – to get someone else in trouble and exact your revenge isn’t going to help you and often, it can make a bad situation worse by taking away the focus from your own issues. Leave the other messes for someone else to clean up.
9. Find a great tax advisor. I can’t emphasize enough that the importance of seeking out a responsive, competent tax advisor. Even if you do your own taxes, you may need someone to help you out if you run into trouble. Don’t rely on someone who will disappear after April 15: the IRS doesn’t typically seek you out during tax season but may have questions once processing heats up (in the tax world, we call the post-filing season “correspondence season” since that’s when those IRS letters go out). You want someone who understands both the tax issues and your personal situation and can communicate well with the taxing authorities to resolve your tax matters. Do your research, ask for referrals and have a list of questions to ask your potential tax advisor: remember, it should be a good fit for you both.
Nobody wants to be in the doghouse, especially when it comes to taxes. Why not take steps to get out of the doghouse and off to a fresh tax start today?

For months, the Internal Revenue Service (IRS) has been warning taxpayers to be vigilant and not fall victim to IRS impersonation scams. Thousands of victims have collectively paid tens of millions of dollars to scammers calling taxpayers and posing as IRS officials while phone scams remain on the IRS’ “Dirty Dozen” List of Tax Schemes and Scams for 2016.
The message to taxpayers? Remain alert. Last year, J. Russell George, Treasury Inspector General for Tax Administration (TIGTA) reminded taxpayers, “Even after the tax filing season has ended, it is critical that all taxpayers continue to be wary of unsolicited telephone calls from individuals claiming to be IRS employees.”
The message is out there. So, why are reports now surfacing that IRS is actually calling taxpayers?
According to Tax Notes (subscription required), the IRS has been initiating some audits by phone. The issue was raised at one of a series of Taxpayer Advocate Service public forums, this one held in Iowa. At the forum, Robert McHugh, an Enrolled Agent (EA) in Kimballton, Iowa, told National Taxpayer Advocate Nina Olson that his client, an elderly taxpayer, was contacted by phone from an IRS auditor. There had been no prior contact with the taxpayer, including any letter. Another tax professional added, “It happens all the time.”
(I’ve reached out to Mr. McHugh for more details.)
The comments caught Olson by surprise and she responded that she was not aware of audits being initiated by phone. Later, she said that she was told that the Internal Revenue Manual did instruct revenue agents that the preferred method for initiating taxpayer contact for an audit was by phone.
I contacted IRS to ask about the questionable policy, noting the huge potential for taxpayer confusion. I reminded IRS that they had been warning taxpayers for months not to talk to those who contact them first by phone claiming to be IRS. This sentiment has been echoed time and time again, from the Colorado Division of Homeland Security and Emergency Management who warned taxpayers, “Always remember the IRS will NEVER demand immediate payment or call about taxes owed without having mailed you a bill first” to the Indiana Attorney General’s office which advised “Know that most government entities, including the IRS, will not initiate contact over the phone.”
The IRS confirmed that protecting taxpayers from identity theft remains a priority. In response to concerns about IRS phone calls, the IRS released the following statement, reflecting a change in policy:

Phone scams from con artists are one of the biggest challenges facing taxpayers. Generally, phone scam callers are focused on masquerading as an IRS collection agent and demanding immediate payment of money.
While the vast majority of initial audit contacts are handled by sending a letter first, in some of our in-person field audits, a small percentage of our overall audits, the IRS may contact the taxpayer or their representative by phone to schedule an appointment to begin the audit. This phone contact is followed up with an appointment letter confirming the appointment. This has been a longstanding policy at the IRS and we have no indication that criminals claiming to represent the IRS on the phone have said they were calling to set up an appointment for a meeting.
However, in an abundance of caution and in light of pervasive phone scams seeking to extort money from taxpayers, the IRS has decided to adjust this policy for in-person field exams. The IRS will implement a policy to notify taxpayers in this smaller exam category first via mail that their return has been selected for audit and then contact them to schedule an appointment.
The protection of taxpayers and their rights remains a top priority for the IRS. We are committed to working with our partners across government and the private sector to stop these scammers from preying on taxpayers.

(Emphasis added.)
That’s definitely reassuring and we’ll see how it plays out in the coming weeks. I’m continuing to monitor concerns over identity theft and scams targeted to taxpayers and will update as more information becomes available.
In the meantime, if you’re still worried going forward, there’s a good rule of thumb: when in doubt, assume it’s a scam. If you receive a call and you genuinely believe that you might owe taxes or that you might be the target of an audit but you’re still worried about the potential for fraud, here’s my best tip: rather than answer questions via email or phone related to your finances, call back on a trusted number (1.800.829.1040 for IRS) and ask to speak with an IRS representative. Even better? Have your tax professional do it for you.
Here are more tips on how to protect yourself from identity theft and scams.
 

There’s good news for delinquent taxpayers hoping to use their driver’s licenses to fly domestic: the Department of Homeland Security (DHS) Secretary Jeh C. Johnson has announced an extension for states and territories to implement the REAL ID Act.
The key date to know is January 22, 2018. That’s the date on which air travelers with a driver’s license or identification card issued by a state that does not meet the requirements of the REAL ID Act (unless that state has been granted an extension to comply with the Act) must present an alternative form of identification acceptable to the Transportation Security Administration (TSA) in order to fly domestic. Acceptable identification would include a passport or passport card, Global Entry card, U.S. military ID, airline or airport-issued ID, federally recognized tribal-issued photo ID.
The REAL ID Act was enacted in 2005 in response to 9/11 and concerns about terrorism. Under the law, federal agencies are barred from accepting driver’s licenses and identification cards issued by states that do not meet certain standards for secure issuance and production. Bits of the law were phased in over time with the final phase – commercial flight restrictions – to be effective in 2016. There was just one big problem: as of today, only 23 states are fully compliant with the REAL ID Act. According to Secretary Johnson, 27 states and territories have been granted extensions for a period of time to become compliant. Six states and territories – Illinois, Minnesota, Missouri, New Mexico, Washington, and American Samoa – are noncompliant and do not currently have extensions. To find out if your state or territory is in compliance, click here.

Image courtesy of DHS. For more information, updates or a larger image, visit http://www.dhs.gov/real-id-and-you-rumor-control#
Image courtesy of DHS. For more information, updates or a larger image, click on the image to be redirected to the DHS site.

To give states more time to comply, DHS has extended the timeframe for implementation of the new rules at airports (the rules still apply to other federal agencies according to the DHS timeline). That means that effective January 22, 2018, airline passengers with a driver’s license issued by a state that is still not compliant with the REAL ID Act (and has not been granted an extension) will need to show an alternative form of acceptable identification for domestic air travel to board their flight. Starting October 1, 2020, every air traveler will need a REAL ID-compliant license, or another acceptable form of identification, for domestic air travel.
How does that affect taxpayers? Under a recent law passed by Congress in December, the Secretary of State is required to deny a passport or turn down the renewal of a passport to a seriously delinquent taxpayer; the Secretary of State is also permitted to revoke any passport previously issued to a seriously delinquent taxpayer. For purposes of the new law, a “seriously delinquent tax debt” is defined as “an unpaid, legally enforceable federal tax liability” greater than $50,000, including interest and penalties.
Procedurally, the new tax law is a little tricky. The Internal Revenue Service (IRS) doesn’t have control over passports: that’s the purview of the Department of State. Similarly, tax debts are assessed by the Internal Revenue Service (IRS) and the Secretary of State doesn’t generally have access to taxpayer information because of privacy laws. To bridge the two, the names of affected taxpayers will be placed on a list compiled by IRS and provided to the Secretary of State. Any names on that list are ineligible for a passport. If your name is on the list, you will also be separately notified.
(You can read more about how the law works – and the appeals process – here.)

The most recent extension for the application of REAL ID to domestic travel gives taxpayers a breather until 2018 – and plenty of time to get compliant. However, under the REAL ID Act, you may need a valid federal ID – like a passport – for other reasons, including visiting a military base. However, although REAL ID applies to federal agencies, federal identification is not required for the following:

  • Entering federal facilities (like post offices) that do not require a person to present identification
  • Voting or registering to vote
  • Applying for or receiving federal benefits
  • Being licensed by a state to drive
  • Accessing health or life-preserving services (including hospitals and health clinics), law enforcement, or constitutionally protected activities (including a defendant’s access to court proceedings)
  • Participating in law enforcement proceedings or investigations

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, or “FAST Act.” It provides long-term funding for transportation projects, including new highways, over a period of ten years. And as you would expect in a bill targeting highways and infrastructure, it also requires Internal Revenue Service (IRS) to use private debt collection companies.
Wait? You didn’t expect that? Of course not. Because tax policy has no business being stuffed into an already bloated bill (1,300+ pages) ostensibly focused on highways. But when has that ever stopped Congress before?
But there it is, at Section 32102: Reform of rules relating to qualified tax collection contracts.
Why reform? Under current law, IRS already has the authority to use private debt collection companies to locate and contact taxpayers owing outstanding tax liabilities and to arrange payment of those taxes. Historically, farming out collection hasn’t worked out for IRS.
Under the new law, there’s little in the way of discretion: IRS is required to use private debt collection companies to collect “inactive tax receivables.” Inactive tax receivables are defined as any tax debt that has been:

  • removed from the active inventory for lack of resources or inability to locate the taxpayer;
  • for which more than 1/3 of the applicable limitations period has lapsed and no IRS employee has
    been assigned to collect the receivable; or
  • for which, a receivable has been assigned for collection, but more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection.

For purposes of the law, a tax receivable is any outstanding assessment which IRS includes in potentially collectible inventory.
Debts which are not eligible for collections from private debt collection companies include those that are subject to a pending or active Offer-in-compromise (OIC) or installment agreement as well as innocent spouse cases. Also excluded are cases currently under examination, litigation, criminal investigation, or levy and those subject to appeal as well as any taxpayer who has been identified as deceased, a minor under the age of 18, in a designated combat zone, or a victim of identity theft. The bill also allows for procedural discretion for matters involving taxpayers in presidentially declared disaster areas.
The language regarding disclosure is sufficiently vague. Private debt collection companies “may” – not must – identify themselves to taxpayers as IRS contractors, as well as the subject and reason for the contact. Disclosures are “permitted only in situations and under conditions approved by the Secretary.”
And since IRS doesn’t have enough to do, the law requires IRS (although the letter of the law says Secretary of the Treasury) to prepare two reports for the House Committee on Ways and Means and the Senate Committee on Finance: one is an annual report including, among other things, the total number and amount of tax receivables provided to each contractor together with the total amounts collected by and installment agreements resulting from the collection efforts together with collection costs incurred by the IRS. The second report is required biannually and will include an independent evaluation of each private debt collection performance and a measurement plan that includes a comparison of the best practices used by private debt collectors to those used by the IRS as well as how they identify and capture information.
Criticisms of the plan to outsource collections – which have been unsuccessful in the past – include the costs to IRS to administer and oversee such outsourcing. The 1996-1997 pilot program resulted in a $17 million net loss to the government. A second effort in the mid-2000s resulted in a loss of $4.5 million. Those aren’t costs. They’re losses. In terms of costs, the government paid out $16 million in commissions to private collectors in the mid-2000s. An additional $86 million was paid out simply to administer the program – in other words, the cost of producing the result. That result was a net loss.
Concerns were also raised in previous years about tactics used by private debt collectors. Year after year, the Federal Trade Commission receives more complaints about debt collectors than any other industry. In 2013 alone, there were over 200,000 complaints filed with respect to collection practices (you can see a list of collectors banned from the industry here).
Additional concerns about taxpayer privacy and fraud should not have been ignored. Last year, J. Russell George, the Inspector General Treasury Inspector General for Tax Administration (TIGTA), referred to a scheme where fraudsters called up taxpayers as “the largest scam of its kind that we have ever seen.” TIGTA, IRS and Treasury have all warned taxpayers to be on guard against scammers, reminding them that “It’s worth noting that the IRS doesn’t generally initiate contact by phone.” But private debt collectors do. Outsourcing collections will no doubt cause potential confusion for taxpayers and create new opportunities for scammers.
There are a number of reasons to be concerned about the consequences of outsourcing tax collections to private debt collections. When it was still in the early stages, the proposal was labeled “wrongheaded,” “the wrong approach,” “misguided,” and “a recipe for taxpayer abuse” (downloads as pdf). Nevertheless, Congress signed it into law, ordering IRS to “implement the proposal without delay.”
You can read the text of the law here (downloads as a pdf). Settle in first. It’s a lengthy read.
For other tax proposals currently under consideration, check out this post.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, or “FAST Act.” The purpose of the bill was to provide long-term funding for transportation projects, including new highways. Also tucked into the bill were a few new tax laws: one, a requirement that the Internal Revenue Service (IRS) to use private debt collection companies and another that requires the Department of State to deny a passport (or renewal of a passport) to a seriously delinquent taxpayer or revoke any passport previously issued to a seriously delinquent taxpayer.
To be clear, the IRS has not been tasked with revoking passports. That’s not their purview: the administration of passports has been and remains the responsibility of the Department of State.
Currently, the Secretary of State may refuse to issue or renew a passport for a number of reasons, including delinquent child support obligations. Procedurally, the names of noncustodial parents who owe more than $2,500 in back child support are submitted to the Department of State from an individual state; the Department will then deny the applicant a U.S. passport until the debt is satisfied. There was no similar rule which applied to delinquent federal taxes – until now.
Under the new law, the Secretary of State is required to deny a passport or turn down the renewal of a passport to a seriously delinquent taxpayer; the Secretary of State is also permitted to revoke any passport previously issued to a seriously delinquent taxpayer. The new law also authorizes the Secretary of State to deny a passport if the passport applicant fails to provide a Social Security Number (SSN) or provides an incorrect or invalid SSN (but only if the wrong SSN was provided “willfully, intentionally, recklessly or negligently”). Exceptions are permitted for emergency or humanitarian circumstances, such as if there’s a need for the applicant to return to the United States.
For purposes of the new law, a “seriously delinquent tax debt” is defined as “an unpaid, legally enforceable federal tax liability” when a debt greater than $50,000, including interest and penalties, has been assessed and a notice of lien or a notice of levy has been filed. The $50,000 limit will be adjusted each year for inflation and cost of living – but still, it’s a pretty low threshold in the grand scheme of things. The limit is not a per year limit but a cumulative total: if you’ve ever worked a tax case or owed money to IRS, you know that with penalties and interest, the amount you owe can escalate pretty quickly. The real result? This has the potential to affect a lot of taxpayers. Fortunately, exceptions will apply if the tax debt is subject to an Offer-in-Compromise (OIC) or an installment agreement or if collection action has been suspended because the taxpayer has requested a collection due process (CDP) hearing or has made an application for innocent spouse relief. However, just how effective IRS will be in ensuring that taxpayers on the list aren’t subject to any of those exceptions remains to be seen.
Since the Department of State doesn’t have access to an individual’s tax records, how exactly will the Secretary know which taxpayers are subject to the new law? As with child support delinquencies, the names of the affected taxpayers have to be turned over. In this case, because of the way that privacy laws work, the Commissioner of Internal Revenue must certify to the Secretary of the Treasury a list of names that meet the criteria; the Secretary of the Treasury is then authorized to transmit that information to the Secretary of State. Any names on that list are ineligible for a passport. If your name is on the list, you will also be separately notified.
What if there’s a mistake? There is a provision for “reversal of certification” under the new law. The IRS is required to notify the Secretary of the Treasury who will then notify Secretary of State (hey, I didn’t say it was efficient) if the original certification was made in error or if the tax debt is fully satisfied or ceases to be “a seriously delinquent tax debt.” And because the potential for a lengthy reversal process exists, the law also provides a limited right to seek injunctive relief by a taxpayer who is wrongly certified.
Since disclosure and process are so key here, the new law insists that IRS follow its normal examination and collection procedures and allow taxpayers the chance to exercise their full administrative rights. To alert taxpayers, there’s also a provision that additional notice of the potential loss of a passport is included in collections communications. In theory, this is a good idea – but if you’ve ever received a letter from IRS, you know that it’s chock full of notices. Most taxpayers can’t decipher all of the information and generally tend to ignore them. Hopefully, the additional notice requirements will be sufficient.
This isn’t the first time Congress has considered such a proposal. Two years ago, the House introduced a similar bill: it never got anywhere. But tucked away in the 1,300+ page highway bill? It sailed through with virtually no amendments. The new law is effective immediately.
You can read the text of the law here (downloads as a pdf). You’ll find the passport provision at Section 32101: Revocation Or Denial Of Passport In Case Of Certain Unpaid Taxes.
For other tax proposals under consideration, check out this post.

As concerns mount over the recent proposal to turn over delinquent tax accounts to private debt collectors, Ways and Means Oversight Subcommittee Ranking Member John Lewis (D-GA), Ways and Means Committee Ranking Member Sander Levin (D-MI), and Budget Committee Ranking Member Chris Van Hollen (D-MD) have issued the following statement:

It is misguided and harmful to taxpayers to use private debt collectors to collect outstanding tax liabilities. When the IRS most recently used private debt collectors in 2006, the program actually lost money. After hearing numerous complaints from a wide variety of taxpayers, many of whom were subjected to harassment and other inappropriate collection techniques, this costly program was terminated. We agree that it is vitally important that we fully finance a robust investment in our nation’s infrastructure. However, we should not pay for that investment by subjecting our taxpayers to these abusive practices. This provision must be removed.

(For more information about the proposal, click here.)
But be careful: just because the latest concerns were voiced from top-ranking Democratic members of the Ways & Means and Budget Committees, don’t be fooled into believing this is a partisan issue. Last year, Sen. Charles E. Schumer (D-NY) was the driver in a similar provision requiring IRS to turn over delinquent tax accounts to private debt collectors; that provision was wedged into the 82 page Tax Extenders Bill (the Extenders Bill eventually passed without the provision).
The Highway Trust Fund Bill (HR 22), as introduced earlier this year, was originally titled the Hire More Heroes Act – and I’m not kidding – was “An Act to amend the Internal Revenue Code of 1986 to exempt employees with health coverage under TRICARE or the Veterans Administration from being taken into account for purposes of determining the employers to which the employer mandate applies under the Patient Protection and Affordable Care Act.” Now, the act, according to the text of the bill may be called “Developing a Reliable and Innovative Vision for the Economy Act” or the “DRIVE Act.” You can read the text of the bill here.
Yesterday, a flurry of amendments to tweak the bill were considered. You can view the roll call summaries here.
Discussion on the bill and related provisions will resume today.

Those who fail to learn from history are doomed to repeat it.
– Winston Churchill

Sometimes it feels like the government does this best. Failed policies are often recycled – often many times – in some sort of desperate attempt to make them work. Or to spend taxpayer dollars to promote self-serving agendas. Sometimes it’s hard to tell the two apart.
The latest attempt to recycle failed policies is the outsourcing of tax debts to private collectors, an item which has re-appeared as part of the Highway Trust Fund Bill. Yes, you read that right. And no, the two really have nothing to do with each other. But this is, as you know, something that Congress loves to do (Remember those credit card reporting requirements that found their way into the Housing and Economic Recovery Act? Or last year’s Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 that changed tax return due dates?). So, as Congress moves to slap another band-aid on the wounded Highway Trust Fund (we technically ran out of highway money on October 29), they decided to toss in a handful of other provisions in an effort to sneak them by taxpayers make it look like they were getting something done move things forward.
One of the provisions buried inside the Highway Trust Fund is a requirement that IRS use private collectors to collect existing tax debts. Brilliant, right? Only not so much. It’s been tried and failed before (more on that in a bit) so it’s perplexing that Congress would re-introduce the policy except for well, politics. The House is not a big fan of the Internal Revenue Service right now – a cynic might view this as a move to systemically take down the IRS.
I know, big cheers, right? Nobody is a fan of IRS. But here’s the thing. You might not be a fan of the IRS but I’m guessing you’re likewise not a fan of government waste. And empirically, when it comes to collections, the IRS is surprisingly very good at what it does.
The tax gap in the United States is estimated to be $385 billion. The tax gap is the difference between what IRS expects to collect in taxes and what they actually collect. This takes into consideration not only uncollected tax debts but also includes non-filers and those who underreport. The latter, according to IRS, is the biggest contributing factor to the tax gap. So while that number represents a lot of uncollected tax dollars, don’t be fooled into thinking it’s a big pile of IOUs sitting in a corner: it’s not.
Those folks that aren’t paying the right amount on time may do so for a variety of reasons. Yes, there are cheaters and evaders but there are also those that don’t have the resources to pay or that may not understand their tax burden. As a tax attorney, I’ve seen more than my share of taxpayers who fall into a hole and just can’t figure out how to climb out. The use of private debt collectors won’t change that – and could make it worse. In fact, an analysis found that 79% of the cases which would be required to be outsourced to private debt collectors under this new provision “involve taxpayers with incomes below 250 percent of the federal poverty level.” In other words, those debts are attached to folks who wouldn’t be able to pay up anyway (downloads as a pdf).
But let’s assume that those private debt collectors just attack – with vigor – the 21% that might be able to pay. That’s something, right?
Not really. About 20 years ago, the IRS tried their hand at using private debt collectors. That lasted a year and was canned amid complaints about unfair practices and harassment. Congress made another go at private tax debt collectors during the George W. Bush administration as part of the American Jobs Creation Act. It didn’t end happily. That program “resulted in a number of complaints, including one case in which a private debt collector made 150 calls to the elderly parents of a taxpayer” even after the collection agency discovered the taxpayer was no longer at the address. That’s right, 150 calls to the elderly parents of a taxpayer when they knew the taxpayer wasn’t there. On your dime. Three of the companies that won bids to chase your tax dollars were eventually dropped due to complaints about collections practices and thousands of dollars in penalties were paid out for violations of taxpayer rights.
But that’s all good if they are successful, right? The whole “end justifies the means” bit?
Only those private debt collectors weren’t successful. The 1996-1997 program resulted in a $17 million net loss to the government. That second go in the mid-2000s? Another loss of $4.5 million. Those aren’t costs. They’re losses. In terms of costs, the government paid out $16 million in commissions to private collectors in the mid-2000s. An additional $86 million was paid out simply to administer the program – in other words, the cost of producing the result. That result was a net loss.
A 2013 study by the National Taxpayer Advocate (NTA) found that “the IRS was significantly more effective than the PCAs [private collection agencies] in collecting tax liabilities in all but the first six months after case receipt, collecting about twice as much as a percent of the dollars available for collection.” Those first six months? The NTA attributes that statistic to the fact that private collectors worked the easy cases first – the ones where IRS employees had already done all of the legwork. After that time, the NTA found, the amount collected by those debt collectors “falls precipitously.” Cases that were more than one and a half years old, for example, resulted in a ratio of about 1:5 in favor of IRS for collections.
You can read the study here (downloads as a pdf).
When Nina Olson, the Taxpayer Advocate, reached out to Congress about the program last year, she 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.

Let’s assume for a second, however, that it might be different. What else is there to consider? Your privacy. Remember those costs dedicated to the 2006 program? Some of those costs were an effort to make sure that private data stayed private. That’s right. Your data. Your address. Your Social Security number. Your date of birth. Your banking information. Your retirement accounts. Where your kids go to daycare. How much you spend on medical care. Your tax preparer. Your employer. Your income. The IRS has strict protections in place to safeguard taxpayer data – even though clearly it needs work. But third-party debt collectors? Not so much.
You may not completely trust the IRS but do you trust debt collectors more? Year after year, the Federal Trade Commission receives more complaints about debt collectors than any other industry. In 2013 alone, there were over 200,000 complaints filed with respect to collection practices (you can see a list of collectors banned from the industry here). Likewise, the Consumer Financial Protection Bureau (CFPB) reports that over the past two years, the top complaint in the financial product or service industry is attributable to debt collection, constituting nearly one-third of all complaints. Included in that number? Numerous complaints against The CBE Group, one of the private collectors used as part of the last program to outsource the collection of IRS debts, including one man who testified in front of Congress that the company’s attempts to collect a tax debt were “incredibly annoying and frightening.”
And what about efforts to resolve cases that might not be legitimate tax debts? That’s not even in the purview of private debt collectors. Their job is simply to collect, not to resolve cases or mitigate damages. The IRS will work with you to fix those mistakes while a private collector has no incentive to help you resolve your issue. A 2014 Government Accountability Office (GAO) report noted that “private collectors gave inaccurate or misleading information about borrowers’ rights and options.” In fact, sometimes they brazenly look the other way. That was clear to me in my own practice when a private collection agency for the City of Philadelphia (and one which had been retained by IRS in 2006 and released shortly thereafter) informed my client, who had written evidence that the debt was not owed, “That’s not my problem.”
There’s one more giant elephant in the room: fraud. Over the past two years, nearly 4,550 victims have collectively paid over $23 million to scammers posing as IRS officials. Since October 2013, the Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 736,000 contacts made to taxpayers demanding that they send them cash via prepaid debit cards. Last year, J. Russell George, the Inspector General called it “the largest scam of its kind that we have ever seen” – and new variations on the scheme are popping up all of the time.
TIGTA, IRS and Treasury have all warned taxpayers to be on guard against scammers, reminding them that “It’s worth noting that the IRS doesn’t generally initiate contact by phone.” But private debt collectors do. Can you imagine the confusion that will be had by taxpayers when you add in one more collections opportunity? If you think taxpayers, especially older and vulnerable taxpayers, are being cheated now, just think of the opportunity this now creates for scammers.
The reality is that outsourcing tax debt collections is filled with potential traps for taxpayers with very little in the way of reward. It’s been tried and failed not once, but twice, in the past twenty years. Yet, Congress keeps pushing forward.
There’s another chance for sanity later today: the House Rules Committee will review the bill and amendments today.
You can read the entire Highway Funding Bill here (downloads as a pdf).