written on behalf of Feigenbaum Law
Earlier this year, the Internal Revenue Service (IRS) launched a new private debt collection program, and outsourced debt collection over certain accounts to four private contractors. More than 500,000 accounts consisting of more than $4.1 billion in outstanding debts were part of the program. Recently, the Treasury Inspector General for Tax Administration (TIGTA) identified a number of issues with the program.
Program Introduced by Congress
The program was authorized under Section 32102 of the Fixing America’s Surface Transportation Act (FAST Act), a federal law enacted by Congress in December 2015, under the Obama administration.
As a condition of obtaining the contract, the four contractors are obligated to respect taxpayer rights and must abide by the consumer protection provisions of the Fair Debt Collection Practices Act.
How the Private Debt Collection Program Functions
The private collection agencies are responsible for collecting debt owed by taxpayers. The accounts assigned to them include older accounts, or those accounts where a lack of resources may prevent the IRS from addressing the debt.
Accounts that will not be transferred are those accounts where taxpayers are:
- Less than 18 years of age;
- In designated combat zones;
- Victims of identity theft (related to taxes);
- Under investigation or subject to litigation;
- Subject to an installment agreement;
- Subject to pending or active offers in compromise;
- Subject to a right of appeal;
- Classified as an “innocent spouse”;
- In a presidentially declared disaster areas and requesting relief from collection.
Accounts that fall into any of the above categories will be returned to the IRS.
Taxpayers whose accounts are transferred to any of these private collection agencies will receive a notice from the IRS indicating that their account is being transferred, and a secondary notice from the private agency itself confirming the transfer.
Potential Issues Identified with the Private Debt Collection Program
A new report from the Treasury Inspector General for Tax Administration (TIGTA) found that this private collection scheme is leaving taxpayers vulnerable to scams, that the private agencies are collecting on only a small fraction of the $4.1 billion debt they have been assigned to collect, and that the agencies are being relied upon to self-report complaints against them.
Since the program’s launch, these private agencies have collected just 1% of that total amount (as compared to the 10% industry average according to the Treasury Inspector General for Tax Administration).
TIGTA proposed that the IRS provide the private collection agencies with newer debts in order to make the collection efforts more effective. The IRS declined to follow this suggestion, noting that the FAST Act permits the transfer of inactive accounts only.
The Complaint Process
TIGTA criticized the program’s complaint process, noting that the private collection agencies were being inappropriately relied on to self-report complaints made against them. According to TIGTA, while the Federal Trade Commission has noted that debt collection is the most complained about industry in the U.S., these private collection agencies have only reported approximately two dozen complaints against them thus far.
TIGTA is in favour of the IRS establishing a referral unit to address complaints, and a panel to investigate claims. This would allow for increased transparency and would assist in standardizing the complaint process.
The IRS has noted that it will not be creating a referral unit or a panel, despite TIGTA noting that the collection agencies were going beyond their jurisdiction and attempting to collect from taxpayers located in disaster zones.
Vulnerability of Taxpayers
TIGTA noted that taxpayers are especially vulnerable these days as identity theft has been on the rise. While the IRS has been telling taxpayers that the IRS would never contact them by phone demanding payment, these private collection agencies have been doing so often (incentivized by the fact that they work on commission and are therefore motivated to contact as many taxpayers are possible).
TIGTA found that the private agencies are putting taxpayers at risk when they make these calls since, as a method of verifying who they are speaking with, they often ask for Social Security numbers. This practice makes it easier for potential scammers to target individuals by claiming they are one of these private agencies and asking for sensitive and confidential information.
The IRS rejected the verification recommendations made by TIGTA.
If you have questions about your tax obligations or about tax litigation (including litigation stemming from collection efforts) contact Feigenbaum Law. We regularly assist business owners with tax returns and complex tax planning, including cross-border planning. We have been leaders in cross-border tax services for many years. Our approach to client issues is always personalized. We carefully consider all administrative solutions available to craft a response that proactively takes into account the policies and best practices of a given tax authority. Contact us at firstname.lastname@example.org, or call us at (416) 777-8433 or toll free at (877) 275-4792 to learn more about how we can help.