Private Collection Agencies Hired by IRS to Find Delinquent Taxpayers

The IRS has recently begun outsourcing tax collections, first authorized by Congress under the American Jobs Creation Act. The actual process works something like this. If a delinquent taxpayer’s case is outsourced to a private debt collection agency (PCA), that taxpayer will receive a letter from the IRS with the name of the collection agency assigned to the debt and the amount that is owed. (The letter should also remind the taxpayer that he or she may request to deal directly with the IRS.) Some time after that, a second letter will arrive from the PCA, including debt information, a payment coupon, and contact information for learning about payment options.

PCAs can only be used in uncomplicated cases—easy cases where the taxpayer has not yet made a payment but somehow acknowledges that the money is owed. Anything more complicated is automatically handled internally by the IRS. Debt collection agencies can be given the right to:

• Track down and contact delinquent taxpayers identified by the IRS
• Obtain taxpayer financial information specified by the IRS
• Request full payment of the taxes owed
• Offer an installment payment option (over no more than five years) for the full amount of the debt

The program was launched when 12,500 accounts with unpaid tax debts were farmed out to three private agencies—CBE Group Inc., Linebarger Goggan Blair & Sampson LLP, and Pioneer Credit Recovery Inc. The program is expected to expand over the next 10 years, ultimately boosting collection of $1.4 billion in outstanding taxes.

Strict taxpayer protection and privacy rules are written into the IRS contracts. Contracted agencies can’t place liens or levies. They can’t take enforcement actions (i.e., seize assets) at all, nor can they discuss offers of compromise. And they are prohibited from using subcontractors.

To ensure that the agencies are not overstepping their bounds, the IRS has also developed its own guidelines, including:

• All employees at the collection agency receive a government background check, fingerprint screening, and IRS training
• US citizens or permanent resident aliens must perform all work
• Any employees who perform IRS-associated activities requires a government-issued photo ID
• Agencies must develop a separate, IRS-approved secure facility • Contractors cannot use any information obtained during a tax collection to pursue other unpaid debts

Not everybody is happy about outsourcing tax receivables. The practice of paying third-party collection companies based on a percentage of money collected might lead to overly aggressive tactics; recovery cost is higher than it would be using IRS employees: and National Treasury Employees Union President Colleen Kelley has “no confidence at all” in the IRS’s ability to prevent the private firms from abuse of their positions or, more to the point, the taxpayers they contact.

In fact, critics of the program see so many drawbacks to the use of private collection agencies that they are urging debtors to insist on negotiating payment directly with the IRS.

The controversy over “contracted collections” is relatively new and heating up. In September, 2005, a bill (S. 3887) co-sponsored by Democratic Senators Byron Dorgan and Patty Murray called for the IRS, according to Murray, “to cease and desist from having private companies harass taxpayers.” Taxpayers are urged to keep an eye on the bill’s progress as its sponsors assume a majority position in the new 110th congress.

Meanwhile, if you are contacted by one of these collection agencies and believe that they are engaging in unauthorized abusive practices or are violating your rights during the collection process, you may want to speak to a professional. A knowledgeable tax attorney can help preserve your rights and fight for any damages you have suffered.

Taxpayers with additional questions can visit the IRS website concerned with private collection agencies.

Related Topics

Tax Liens
Tax Levy
Tax Audits
Time to Partner With a Tax Attorney
You Can Avoid Taxes, Just Don’t Evade or Outright Dodge Them

Case Studies: Private Collection Agencies and Delinquent Taxpayers

Case Study 1: John’s Successful Tax Recovery

John, an individual with outstanding tax liabilities, sought assistance from a private collection agency (PCA) contracted by the IRS. By employing effective communication strategies and offering personalized payment options, the PCA facilitated the collection process, resulting in the successful recovery of John’s unpaid taxes.

Case Study 2: Upholding Sarah’s Rights and Privacy

Sarah’s case highlights the significance of protecting taxpayers’ rights and preserving their privacy, as stipulated in the IRS contracts with PCAs. These contractual guidelines ensured that Sarah’s rights remained intact, as the PCA was explicitly prohibited from imposing liens or levies and engaging in discussions regarding settlement offers.

Case Study 3: Addressing Concerns in Mark’s Case

Mark’s case brings attention to the concerns surrounding the involvement of private collection agencies. The potential for abuse and aggressive tactics is raised, prompting Mark to consider direct negotiations with the IRS to alleviate these concerns and ensure a fair resolution of his tax payment obligations.