The Internal Revenue Service is relaunching the much criticized private debt collection program this month after Congress required it to do so as part of legislation passed at the end of 2015.

The IRS said Tuesday the program will be getting underway this month, starting with a few hundred taxpayers who have owed debts for years and received repeated notices from the agency. Four private debt collection companies have been contracted to help collect debts on behalf of taxpayers, but the IRS said it has put in place protections to safeguard taxpayers from harassment and to avoid confusion with scammers pretending to call from the IRS.

“The IRS is taking steps throughout this effort to ensure that the private collection firms work responsibly and respect taxpayer rights,” said IRS Commissioner John Koskinen in a statement. “The IRS also urges taxpayers to be on the lookout for scammers who might use this program as a cover to trick people. In reality, those taxpayers whose accounts are assigned as part of the private collection effort know they have a tax debt.”

Taxpayers assigned to a private debt collection agency will have had multiple contacts from the IRS in previous years and still owe unpaid taxes.

Image: Bloomberg News

The program will start this week with approximately 400 taxpayers receiving mailings, followed by phone calls. Each of the four debt collection agencies will get around 100 taxpayers to contact initially. Later in the spring and summer, the program is expected to grow to thousands per week, if all goes well. Taxpayers with overdue taxes will continue to receive multiple contacts, letters and phone calls initially from the IRS, but not the private debt collectors.

“Beginning in early April the IRS will begin the program by sending letters to a few hundred taxpayers,” said Mary Beth Murphy, commissioner of the IRS’s Small Business and Self-Employed Division, during a conference call with reporters Tuesday. “We will be letting them know that we have assigned their overdue tax account to one of four firms we have chosen to collect tax debts under this program. The number of letters will gradually increase in the months ahead, eventually reaching several thousand a week by end of summer.”

She emphasized that the private debt collection firms will be handling only a very small portion of overdue tax accounts. “The taxpayers whose accounts have been selected have already been contacted by the IRS multiple times under our normal collection processes, so they’re well aware they have an issue with back taxes,” said Murphy. “Taxpayers with unpaid taxes will continue to first receive letters and phone calls only from IRS employees, not private debt collection firms. I also want to make clear that anyone whose account is turned over to a private company will first be notified by letter from the IRS before they hear from a private collector. When we contact these taxpayers, we will give them the names and contact information for the company along with additional information about what the private debt collection process involves.”

Murphy noted the IRS remains extremely concerned about the many con artists who masquerade as IRS employees or contractors. “They want to trick people into giving them money for sensitive financial information, so we urge everyone to be on the lookout for any scammers who might use this program as a cover to swindle taxpayers,” she said. “We will be watching closely for any such schemes as the private collection program gets underway. This effort will include working with our partners in the tax preparer community and law enforcement agencies to stop emerging scams.”

Past Failures

The National Treasury Employees Union and the National Taxpayer Advocate have long criticized the private debt collection program when it has been tried in the past.

“Every time this has been tried before, it has failed,” said NTEU national president Tony Reardon in a statement Tuesday. “But once again Congress has forced this policy on the IRS, and we expect the results to be the same: collection agents getting paid to harass taxpayers, many of whom need assistance, not threats.”

National Taxpayer Advocate Nina Olson has said the program places “a bulls-eye on the back of low income taxpayers.”

The NTEU pointed out that a 1996 pilot program for IRS private debt collection was so unsuccessful it was canceled after 12 months. The contractors participating in the pilot programs were found to have regularly violated the Fair Debt Collection Practices Act, and the program resulted in a $17 million net loss. The IRS again attempted to use private collection agencies in 2006. The program was projected to bring in $2.2 billion in new revenue, but data from the IRS indicated the program resulted in a net loss of almost $4.5 million to the federal government, after subtracting $86.2 million in program administration costs and more than $16 million in commissions to the PCAs. The Treasury Department and the IRS again decided to cancel the program.

Murphy noted that the IRS has been coordinating with the union, as well as the Taxpayer Advocate Service and the Treasury Inspector General for Tax Administration, on the latest version of the program. “We’ve been working with the National Treasury Employees Union and working with Tony Reardon and his staff, briefing them, as well as providing information to our employees and our bargaining unit members, working closely with the Taxpayer Advocate, Nina Olson, working through some of her concerns, as well as working with the Treasury Inspector General on ensuring we are protecting taxpayer data and taxpayer rights to make this program as successful in implementing the requirements as dictated by Congress,” she said.

If taxpayers or their tax practitioners are unsure there’s an unpaid tax debt from a previous year that might be assigned to a private debt collection firm, they can go to IRS.gov and check the account balance at www.irs.gov/balancedue. If the account balance says zero, it means no money is due, and the taxpayer typically will not be contacted by the IRS or the private debt collection firm.

Bill Banowski, lead executive of the private debt collection program, said the IRS has been taking steps to make the program more successful this time. “The criteria for assigning accounts to the private collection agencies is defined in the law that was passed and it’s outlined according to age and includes also ‘unable to locate taxpayers.’ So any case, regardless of dollar amount, that reaches that age criteria is eligible for assignment to a private collection agency," he said. "We are starting with simpler cases, so some of the cases will be lower dollar, up to $50,000 as we start, but will progress to higher dollars and more complex cases as we go forward. In terms of what’s different, I think we learned some things from the last iteration. One of those was to be more careful about ensuring that taxpayers have confidence that they’re talking to a private collection agency, so we put some things in place to help promote that confidence for taxpayers as they work to resolve their account. We also learned that it is important for us to share enough information with the private debt collection agencies so they can work the case to completion. One of the difficulties we had last time was the back and forth with the PCAs and the approval of things that we can share now with the private collection agencies to help expedite resolution of a taxpayer’s account.”

Debt Collection Procedures

The IRS always plans to notify a taxpayer before transferring their account to a private collection agency. The IRS will initially send a letter to the taxpayer and their tax representative telling them their account is being assigned to a private firm, providing the name and contact information of the private collection agency. The mailing will include a copy of Publication 4518, “What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.”

Only four private businesses have been contracted to participate in the program: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, Calif.; and Pioneer of Horseheads, N.Y. The taxpayer’s account will only be assigned to one of the four agencies, but never to all of them. No other private company is authorized to represent the IRS for debt collection matters.

After the IRS letter has been sent, the designated private company will send a separate letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the collection agency’s letter will include information that will help taxpayers identify the tax amount owed and assure taxpayers that future calls they may receive from the private firm are legitimate.

The private collectors will be able to refer to themselves as contractors of the IRS collecting taxes. However, their employees will be required to follow the provisions of the Fair Debt Collection Practices Act. Like IRS employees, they are required to act courteously and respect taxpayer rights.

The private firms have been authorized by the IRS to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made, either electronically or by check, to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. IRS officials stressed that if payment is demanded through a prepaid debit card or iTunes gift card, that is a sign of a scam. For more information about the available payment options, visit www.IRS.gov/Payments.

The private collection firms are not authorized to take enforcement actions against taxpayers, however. Only IRS employees can take these actions, such as filing a federal tax lien notice or issuing a levy. For more information, visit the Private Debt Collection page on IRS.gov.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access

Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.