IRS Private Debt Collectors Fail

You may remember my article last year, “IRS Tries Private Debt Collectors … Again“, where I predicted three times would not be a charm. Yes, the idea has failed not once, not twice, but thrice.

The program started last year and the results are in. The private agencies collected $6.7 million in back taxes, which is less than 1% of the total assigned to them. The cost to the IRS was $20 million. Maybe they will make it up in volume.

Don’t put the total blame on the IRS. It was Congress who passed the law in 2015 requiring the IRS to use outside contractors to make a dent in the $138 billion debt that is owed by taxpayers. The program finally began last October.

According to the National Taxpayer Advocate, “The IRS has implemented the program in a manner that causes excessive financial harm to taxpayers in trouble which constitutes an end run around taxpayer rights protection”. Their study showed that 45% of the collections by private contractors were with taxpayers whose income fell below the minimum threshold, including those who were receiving Social Security disability benefits.

If you owe the IRS money and your case is turned over to a private debt collection agency, they will not make first contact by telephone. You will get a letter from the IRS, followed by a letter from the agency, before they call you. This is done so that they will not be mistaken for the scam artists who call threatening to put you in jail if you do not pay your debt.

Last week, I received a telephone call from a prospective client who owes the IRS about $4000 that she cannot pay. They have now assigned a private debt collector to harass her, even though they previously placed her account in currently not collectible status. My strategy on this case is simple. I will tell the collection agency that she cannot pay and to leave her alone. I will not give them any financial information and I will not cooperate. The reason for this is that I know that they do not have any power to levy my client’s bank account or paycheck I also know that when they return the case to the IRS, nothing will happen because the IRS is only giving them cases that they have already given up on. Ultimately, the ten year Statute of Limitations will run and the taxpayer will no longer owe the debt.

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