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October 16, 2016


Using private contractors to collect tax debt: IRS announces choices

The wheels of government don’t always grind quickly. But when there is enough momentum and legal direction behind an initiative, they do grind.

To be sure, it has taken most of this year for the IRS to organize a program to implement a directive from Congress that private contractors be used for tax debt. In late September, however, the IRS announced the names of the private firms it has chosen to participate in the program.

In this post, we will use a Q & A format update you on that development.

Has the IRS previously tried using private debt collectors?

The IRS has tried twice before to use private contractors to collect tax debt. Neither of those programs ended up actually producing a net increase in tax revenue for the government. In fact, the reverse was true. The programs lost money and led to concerns about harassment of taxpayers.

But last December, Congress included in a large transportation funding bill a provision directing the IRS to use private industry to collect certain types of tax debt.

What types of tax debt will the new program apply to?

In the simplest terms, the program is supposed to be for debts that the IRS is not actively trying to collect. This includes older accounts that are overdue or where the IRS has not assigned a collection agent due to resource limitations.

Does the Fair Debt Collection Practices Act still apply?

Of course. But what the FDCA is honored is another matter.

In addition, commentators are concerned that allowing private debt collectors to start calling people about tax debt could make it more difficult for the IRS to combat tax scams. Many of those scams involve fraudsters claiming to be from the IRS. And so for years the IRS has been trying to get out the message that it does not initiate contact with taxpayers by phone.

Allowing private debt collectors to contact taxpayers directly tends to undermine that message.

Who were the contractors chosen for the program and when will it start?

The IRS announced the choice of four agencies, located in three different states. The plan is for the IRS to send letters to affected taxpayers, notifying them that their account is being transferred to one of these contractors.

The program will get underway in the spring of 2017.

What are the prospects for success of the program this time, after the previous failures?

It is possible that the program could enable a resource-strapped IRS to capture some “low-hanging” tax debt fruit. The enforcement powers of the contractors will be limited, however, in that they will not be allowed to impose liens or levies.

Tax Evasion