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The Internal Revenue Service shocked many people earlier this year when it announced that it would be turning to private debt collectors to help collect delinquent tax debts, which now total over $400 billion.  

While this disbelief makes sense given the vast resources of the federal government, the ongoing concerns over the security of taxpayers' private information and the reputation for unscrupulous conduct in this sector, there is actually precedent for it. Indeed, the IRS turned to private debt collectors for a little over a year back in 1996, and from 2006 to 2009.

During the first campaign, roughly $3 million was collected at a cost of over $1 million, while during the second campaign nearly $98 million was collected at a cost of about $47 million.

In both situations, the IRS decided to abandon the program due to the costs, complaints about harassment and violations of privacy rights, and the revelation that debt collectors weren't always being forthright about all of the payment options available.

It appears the IRS thinks that the third time's the charm, however, as it announced Monday that it had selected four private debt collectors who will commence collection efforts on back taxes starting in the spring of 2017.

Does the IRS have the authority to do this?

The Fixing America's Surface Transportation (FAST) Act, passed in December 2015, expressly stated that the IRS could -- and should -- use private tax debt collectors to help return some much-needed funds to the U.S. Treasury.

What type of tax debts will these private collectors be authorized to recover?

The IRS is turning over old and otherwise uncollectible accounts to the four debt collection agencies. Specifically, they can pursue cases that fit the following criteria:

  • Over a third of the 10 years allocated by the collection statute have passed
  • No IRS agent is currently assigned to the case
  • No contact has been made with the taxpayer in question by the IRS for a year, and no relief or payment alternatives have been requested by the taxpayer

Are there any individuals who will be considered off limits?

Those taxpayers in currently not collectible status, younger than 18 years old, victimized by identity theft, or located in a combat zone or federal disaster area cannot be contacted by the debt collectors.

What has been done to address concerns about the security of taxpayer information and protection of their rights?

The IRS indicated in a released statement that the debt collectors are bound by the Fair Debt Collection Practices Act and otherwise obligated to respect the rights of taxpayers.

Regarding security concerns, the agency has said that it will first mail a letter to affected taxpayers notifying them that their tax debt has been assigned to a private debt collector. This letter will be followed by a second letter sent by the named private debt collector. Collection efforts will commence thereafter.

It will be interesting to see how this unfolds in the coming months. Stay tuned for developments.

As always, if you find yourself at the center of IRS collection efforts, consider speaking with a skilled legal professional as soon as possible.

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