The Internal Revenue Service announced recently that it will authorize specific private collection agencies to collect federal tax debts. The IRS has received authorization to allow designated private debt collectors to collect tax liabilities from taxpayers. As the IRS has struggled to collect taxes aggressively due to budget cuts and procedural constraints, the new program holds the hope of successfully collecting outstanding tax debt from taxpayers whose accounts the Service does not currently have the bandwidth to actively pursue.
Taxpayers with outstanding tax balances in collections should understand the following 5 facts about the new program and how it may affect them:
1. The IRS will allow private debt collection agencies to collect taxes on behalf of the federal government in early 2017. The new program will be implemented quickly and taxpayers with unpaid tax liabilities may be chosen to be pursued by a specified private collection agency next year. The Service has announced the names of the designated private collection agencies on their website.
2. Taxpayers selected to be to be assigned to a private collection agency will be notified by mail, twice. Following a letter from the IRS, these taxpayers will also be notified a second time by the private collection agency confirming the transfer of the account to the agency. The IRS will use a taxpayer’s current address of record to issue these notices. Taxpayers with unfiled tax returns frequently do not have current addresses on record with the IRS and should ensure the IRS has accurate contact information or the contact information of a tax professional hired to help resolve the tax matter.
3. Only taxpayers meeting certain criteria will be exempt from being pursued by a private collection agency. The intent of the program is likely for private debt collectors to make greater gains collecting tax due on accounts that the IRS has not been able to actively pursue for some time. The IRS has however, listed a few scenarios in which a taxpayers account will not be subject to private debt collection. Some of these scenarios involve deceased taxpayers or minors, as well as those serving in designated combat zones. Notably, the IRS will also not assign an account to a private collection agency if the case is in the process of being reviewed or resolved in one manner or another. Taxpayers who have already submitted an Offer in Compromise, IRS Payment Plan, Installment Agreement or Collection Due Process hearing request, among a few other categories, will not be subject to private debt collection. For those who are uneasy about the potential of dealing with a private collection agency under the new program, taking steps to resolve your tax matter now can help prevent or minimize the amount of time a collection agency has authority to collect against you.
4. There are some genuine concerns about the new program. As the program will grant authority to private collection companies to collect federal income tax, there have been some concerns raised about the collection techniques to be utilized by these agencies, efficiency of communication between agencies as well as the privacy of taxpayer information. In addition, scam calls from individuals claiming to be collecting on behalf of the IRS is a growing problem and the new program could make it more difficult for taxpayers and tax professionals to verify the identity of a representative. In its announcement of the new program, the IRS has reminded taxpayers to stay vigilant against scams and never to provide payment information over the phone and will likely continue to offer guidance on how to ensure taxpayers only disclose financial information to authorized parties.
5. All collection alternatives are available with the IRS. Regardless of whether a taxpayer is assigned to a collection agency, the IRS will receive requests for installment agreements, Offers in Compromise and other collection alternatives. Once the taxpayer has formally met the criteria outlined by the IRS, the account will be transferred back to the Internal Revenue Service for resolution.
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