One of the good things about owing money to the IRS has been that the agency is so overburdened that it has not had the resources to actively engage in collection of outstanding inactive tax receivables. These receivables are currently estimated to be in the amount of $458 billion.
This is about to change. On Dec. 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, or “FAST Act,” which included a provision requiring the IRS to turn over some unpaid tax accounts to private collectors. The program is expected to go into effect in the spring of 2017.
While the IRS is very pleased about being allowed to engage this assistance, this is not the first time a program like this has been attempted. In 1996, and again in 2006, the IRS experimented with using private debt collectors. Both times the programs were unsuccessful because the program’s costs offset the amount of the revenue collected and the taxpayers complained of abusive and underhanded tactics by the collection companies.
In this new program, the IRS has awarded contracts to four collection agencies – Conserve, Pioneer, Performant and CBE Group. The IRS will give taxpayers written notice that the accounts are being transferred to one of these agencies and if a taxpayer does not wish to work with the assigned private collection agency to settle the overdue tax account, they must submit a request in writing to the agency.
There is no question that a collection agency is going to engage in more aggressive collection efforts than the IRS because that is what they are designed to do. If they can keep their costs down, then there is little doubt that they will collect significantly more than if the IRS were working on its own.
One concern is that there has been a recent surge in phone scams in which callers impersonate IRS agents and swindle victims into paying tax debts that are not real. This is one of the main reasons why the IRS will notify taxpayers that their tax debt has been assigned to a particular collection agency.
There are certain categories of delinquent taxpayers that the IRS is not assigning to private collection agencies. These include taxpayers that are:
- Under the age of 18;
- In designated combat zones;
- Victims of tax-related identity theft;
- Currently working out a payment arrangement;
- Classified as an innocent spouse case;
- In a presidentially declared disaster area and requesting relief from collection.
The president of the National Treasury Employees Union, Tony Reardon, is not happy with this decision because he believes that the IRS should not be using private debt collectors and instead should keep employees who are set to lose their positions at sites that process paper tax returns.
He has stated that “There’s absolutely no need for Congress to outsource this important work to the most complained about industry in America when there’s more than enough in-house talent available.” However, the IRS has said that it just doesn’t have the resources to handle this itself.
One of the conditions of receiving the contract to work on these IRS delinquent accounts was that the four chosen collection agencies must abide by the consumer protection provisions of the Fair Debt Collection Practices Act. Also, the private collection agencies cannot ask for payment on a prepaid debit card and all payments must be paid directly to the IRS and not to the private collection agency.
As a collection attorney and as a proponent of the privatization of government agencies that are financially compromised, I believe this program is a terrific idea and I applaud Congress for passing this legislation. Clearly, with $458 billion being owed by delinquent taxpayers, the IRS is not getting the job done. Collection agencies are absolutely more aggressive when it comes to collecting money because that is what it takes to be effective. Being kind and gentle and asking politely does not work.
Lisa Spiwak is an attorney at Spiwak & Iezza LLP in Thousand Oaks.