They’re back! The IRS use of private debt collection agencies

June 16, 2017 by Jean Lee Scherkey, EA
Pencil pointing to the words Amount You Owe on tax form

For some taxpayers, Spring not only brings longer days and the smells of fragrant blooms warming in the sun. It may bring a phone call from a private debt collection agency. Just when it seemed safer to answer the phone, Congress reauthorized the IRS to use private debt collection agencies, or PDC (also known as private collection agencies or PCA) to collect outstanding tax liabilities. This change to the IRS’s collection procedures was contained in the Fixing America’s Surface Transportation Act, or FAST Act, signed into law on December 4, 2015. This program was attempted in 1996 and 2006, only to come to unsuccessful and costly ends each time. PDC agencies are compensated by receiving up to 25% of the amount of delinquent tax they collect. To help fund this program, the IRS is permitted to keep up to 25% of the gross collected by the PDC agencies. This means only 50% of what is collected will fund government programs.

The new law requires the IRS to use PDC agencies to collect on delinquent tax accounts that meet the following specific requirements:
 

  • Accounts that were removed from the active current case inventory or accounts where the IRS have not been able to locate the taxpayer.
  • Accounts where over 1/3 of the applicable statute of limitations period has lapsed without contact from the taxpayer, and there is no IRS representative currently assigned to the case.
  • Accounts that have been assigned to the Office of Collections, but there has been no interaction with the taxpayer for over 365 days.

The IRS started implementing this program in April 2017. Although there is no specific dollar amount set as a criterion for accounts to be transferred to a PDC agency, the IRS plans to start transferring cases where taxpayers owe $50,000 or less. Some debts are not permitted to be turned over to a PDC agency, and included in this list are the following:
 

  • Any delinquent tax case where an innocent spouse claim is involved.
  • Any debt where there is a pending or active offer-in-compromise or installment agreement.
  • Where the taxpayer is deceased, under age 18, serving in a designated combat zone, or the victim of tax-related identity theft.
  • Where the return is under tax examination, litigation, criminal investigation, or levy.
  • A taxpayer who has requested a collection appeal.
  • A taxpayer who lives in a presidentially declared disaster area and has requested relief from collection.

If a PDC agency receives an account with any of the above situations, the agency is instructed to notify the IRS and return the account to them.
 

Generally, before a taxpayer will receive a call from a PDC agency, a letter from the IRS will be sent to the most recent address the IRS has on file for the taxpayer. After the IRS sends this letter, the collection agency will send their own letter to the taxpayer, confirming they have been assigned by the IRS to attempt to facilitate in the collection of the past due tax. Both letters will contain a unique taxpayer authentication number that the PDC agency representative should confirm with the taxpayer when contacting them by phone. The IRS posted on their website a copy of the notice taxpayers will receive when their account has been assigned to a PDC agency. A copy of this letter may be viewed by clicking HERE.
 

Taxpayers will be assigned to only one collection agency. The four collection agencies the IRS have contracted with are CBE, Conserve, Performant and Pioneer. On its website, the IRS lists the address and telephone numbers of each agency, which can be accessed HERE. If a taxpayer prefers not to work with the PDC agency assigned to their case, the taxpayer may request, in writing, for their account to be transferred from that agency. Per IRS Publication 4518 What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency, this letter is to be sent to the assigned collection agency.
 

These PDC agencies are required to follow the consumer protection provisions contained in the Fair Debt Collection Practice Act. The Federal Trade Commission website provides a copy of this Act that can be accessed by clicking HERE. Despite this, consumer protection agencies, the Office of the Taxpayer Advocate (an independent organization within in the IRS that helps taxpayers and protects their rights), and the Treasury Inspector General for Tax Administration (TIGTA) office are concerned about scammers pretending to be from a PDC agency, only to steal a taxpayer’s identity and financial resources. It is vital to protect yourself from these predators. Here are some important things to remember:
 

  • Generally, it should not be a surprise if your IRS tax debt has been assigned to a collection agency. If you do not have any outstanding tax debt, or the tax debt owed is from a recently filed return, chances are the person contacting you is a scammer.
  • Representatives working on behalf of the PDC agencies are not permitted to write debt collection notices or directly receive payments. If the person on the other end of the line asks for your credit or debit card number, it is a scam.
  • All payments are to be sent directly to the IRS, not the PDC agency. Additionally, all checks and money orders are to be made out to the U.S. Treasury, and not to the IRS or name of the PDC agency.
  • No PDC agency will ask for payment via a prepaid debit or credit card, iTunes or other gift cards. Agencies are instructed to tell taxpayers they may pay their debt electronically at the IRS.gov website.
  • PDC agencies may discuss payment options, which include setting up specific payment plans. They are not authorized to take enforcement actions against taxpayers.

If a taxpayer feels they are being mistreated by a PDC agency representative and/or concerned they may have been contacted by identity thieves, taxpayers are encouraged to file a complaint with TIGTA at 1-800-366-4484 and with the Consumer Financial Protection Bureau at 1-855-411-2372.
 

If you are not sure if you have an outstanding debt with the IRS, you may contact the IRS by phone at 1-800-829-1040, or go online to the IRS website to check your account balance at www.irs.gov/balancedue.

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Jean Lee Scherkey, EA
Learning Content Developer

 

Jean Lee Scherkey began her career at TaxAudit in 2015, and her current title is Learning Content Developer. She became an Enrolled Agent in 2005. For several years, Jean owned a successful tax practice that specialized in individual, California and trust taxation, and assisting those impacted by tax identity theft. With over fifteen years of varied experience in the field of taxation, Jean has worked at different private tax firms as a Staff Practitioner, Tax Analyst, and Researcher. Before coming to TaxAudit, she worked over two years for TurboTax as an “Ask the Tax Expert.” In addition to her work in TaxAudit’s Learning and Development Department, Jean is actively involved in the company’s ENGAGE Volunteer Program, which provides opportunities for employees to help and serve the local community.  


 

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This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties. TaxAudit does not warrant or guarantee the accuracy, reliability, and completeness of the content of this blog. Content may become out of date as tax laws change. TaxAudit may, but has no obligation to monitor or respond to comments.