There are almost 19 million people who owe more than $400 billion in back taxes to the U.S. Treasury. In late 2015, Section 32102 of the Fixing America’s Surface Transportation Act, or FAST Act, was put into law, requiring the IRS to use private debt collectors for delinquent tax debts. The details of how the IRS implements this program will determine how successful it is, and how it will impact taxpayers and their advisors.
This is not the first time the IRS has used Private Collection Agencies (PCAs). In September of 2006, the IRS began using PCAs for taxpayers whose tax cases involved having a balance due for only one tax period and $25,000 or less due from September to December 2006. They also used PCAs for taxpayers whose cases involved having a balance due for one or more tax period and $100,000 or less due from January 2007 to February 2009.
This Private Debt Collection program continued for nearly three years before the IRS ended it. In total, the IRS placed about $1.8 billion of outstanding tax debt with the program for collection. After a two-year study, it was found the IRS was actually more successful in collecting the debt than the PCAs. Ultimately, the IRS ended up losing money on the effort since most of the back taxes owed were from low-income taxpayers and the collection agencies earned large fees on their collection efforts.
The new FAST Act will require the IRS to once again hire collection agencies to collect back taxes. Congress sees this as a way to raise funds for much needed highway repair and construction projects in the U.S.
One of the biggest concerns for taxpayers is the ever growing “IRS phone scammers” that have plagued taxpayers in most recent years. The IRS has listed several simple steps that can provide protections against these scam artist and alert taxpayers if they are part of this new program. These tips can also help other taxpayers from being scammed by IRS impersonators.
Step 1: Taxpayer notification
All taxpayers who will be part of the private debt collection effort will know they are in the program before they are contacted by a private collection agency. Taxpayers whose accounts are being transferred to private debt-collection agencies, along with their representatives, will be notified by the IRS in writing (not by phone). The contractors will then confirm in separate letters that the cases have been transferred from the IRS to the collection agency.
Step 2: IRS letter
The name of the collection company will be included in the IRS notification letter. If you haven’t previously received notice in writing that you’re in the program, be wary of any bill collectors saying they are working on behalf of the IRS.
Step 3: Collection agency letter
All participants will subsequently receive a second letter, this one from the collection agency, informing the taxpayer they will be contacted soon regarding back taxes.
Step 4: Money collected
All checks will still be made payable to the U.S. Treasury — not to an individual or firm. The collection agency will provide the appropriate IRS mailing address for payments. The collection agencies will never ask for cash or checks written to individuals.
Step 5: Contact the IRS
If in doubt, check IRS.gov or call the IRS at 800-829-1040 for more information.
Click here for a complete list of Tax Scams and Consumer Alerts from IRS.gov.
Finally, remember you do have rights with the IRS. The Taxpayer Advocate Service (TAS) is an affiliated, but separately run entity from the IRS whose purpose is to be the taxpayer’s voice before the IRS. You can read more about this at edarcpa.com/blogs.