In April the IRS started handing over “inactive” tax accounts to private contractors for collection. These include accounts that are no longer being worked by the IRS primarily because of their age and due to the lack of available IRS resources.
The program is a redo of at least two similar programs attempted in the past decades. These programs failed primarily because recovery totals by the private contractors were disappointing, and the cost per delinquent dollar collected was far greater for contractor employees than for IRS employees. Additionally, they were plagued by taxpayer complaints of threats, misinformation, and other underhanded tactics by the private contractors.
Nevertheless, Congress is giving it another try. Beginning this April, delinquent taxpayers may start receiving collection calls and letters from one of these four contractors chosen by the IRS – CBEGroup of Cedar Falls, Iowa; Performant Financial Corp. of Livermore, California; ConServe of Fairport, N.Y.; or Pioneer Credit Recovery of Horseheads, N.Y. The contractors will receive commission-based payments for collections on the accounts – up to 25% in some cases.
So, that Saturday morning phone call from an unlisted number may not necessarily be a scam – it might actually be someone calling on behalf of the IRS! But, how will you know you’re not being scammed? And, what are your options?
Here are some helpful tips:
- Make sure you have received the required notices from the IRS and the contractor before continuing with the call. Before the private collectors can call two notices must be sent to the taxpayer – one from the IRS advising of the transfer and a second from the private contractor confirming the assignment. The IRS notice will come first, then the second from the contractor will come within several days. If you are being contacted by phone by someone who says they’re acting on behalf of the IRS and you haven’t received both of these notices you have good reason to be concerned!
- You may opt out! You are not required to deal with the private collection contractors. You may opt out by submitting a written request to the private company directly stating that you do not wish to work with the contractor, and requesting to have your accounts returned to the IRS. (We recommend sending it via certified mail, return receipt requested so you have proof of the request and receipt thereof.)
- Confirm that the caller works with one of the four private contractors! The IRS regulations allow the private collectors to identify themselves as IRS contractors and do not require the private collectors to identify themselves. However, it’s perfectly okay (and prudent) to ask directly which company the caller works for so you may verify it is one of the four listed above. If it’s not one of these you have good reason to be worried!
- Make payments only to the IRS (U.S. Dept. Treasury) with a check or online. Only two methods of payment are allowed under the IRS arrangement with the private contractors – checks made payable to U.S. Department of Treasury or electronically at https://www.irs.gov/payments. So, you should not be asked to pay the contractor or anyone else directly, and you should not be asked to pay with a prepaid debit card, gift cards or any other forms of payment. Either of these types of requests should cause you to become alarmed!
- Only some taxpayers will be affected. The IRS will not assign accounts involving the following taxpayers to the private collectors:
- Under the age of 18
- In designated combat zones
- Victims of tax-related identity theft
- Currently under examination, in litigation, under criminal investigation or under levy
- Subject to pending or active offers in compromise
- Subject to an installment agreement
- Subject to a right to appeal
- Classified as innocent spouse cases
- In presidentially declared disaster areas and requesting relief from collection.
There are some other relevant fairness considerations in play here. Current rules provide that the IRS may not pursue taxpayers who are experiencing “economic hardship”. So, taxpayer accounts that are in Currently Not Collectible (CNC) or “hardship” status with the IRS will not be assigned to a collector.
But, there are numerous taxpayers who could qualify for CNC status but do not yet have that formal designation with the IRS because they haven’t asked for it. These taxpayers will be at a disadvantage when dealing with the private contractors because they have not been given the authority to place accounts in CNC status. (And, frankly even if they did they would have little motivation to do so since they are working on commission.) Instead, they will be more inclined to persuade struggling taxpayers to pay and/or set up installment agreements – especially in situations where the taxpayers do not know that they can opt out of the program to explore other options that only an IRS employee can offer them.
Additionally, the private contractors are required to follow provisions of the Fair Debt Collection Practices Act. This means they should be courteous and respect taxpayer rights. However, there are no provisions made for IRS oversight of the way the contractors conduct their collections to ensure they follow the rules. The contractors are only required to provide the IRS with the scripts they will use for telephone calls, operation plans, strategies, and call recordings are not reviewed.
Finally, the contractors are not being trained properly about IRS audit and collection procedures, IRS appeals, collection alternatives (such as OIC and partial pay installment agreements), penalty abatements, and compliance. While taxpayers may be treated with kindness, the private contractors will not be equipped to inform them of their rights moving forward, and possible alternative resolution options.
All-in-all outsourcing of IRS collections to private contractors still appears to be a bad idea. Congress did not even remedy the problems encountered during the last two attempts to outsource collections work to private contractors. And, the current risks to taxpayers now appear to be even greater due to the frequent IRS hacks and scams.