Four Senate Democrats have written a letter to one of the companies hired by the Internal Revenue Service to collect tax debts after complaints that some of its employees encouraged people to use money from their 401(k) retirement funds or take out a second mortgage to pay off their tax debts.

Sen. Elizabeth Warren, D-Mass., Sherrod Brown, D-Ohio, Jeff Merkley, D-Ore., and Benjamin Cardin, D-Md., sent a letter Friday to the heads of Pioneer Credit Recovery and its parent company Navient questioning them about their employees pressuring taxpayers into making risky financial transactions and violating the Fair Debt Collection Practices Act and provisions of the tax code. They also said they are concerned that Pioneer may be failing to adequately protect customers from criminals posing as IRS agents, and may be violating IRS guidelines and provisions of Pioneer’s IRS contract.

In December 2015, Congress passed highway repair legislation that included a provision ordering the IRS to hire private debt collectors for some of its uncollected tax receivables. The IRS had previously tried using private debt collection agencies twice before, only to discontinue the programs after finding the debt collectors failed to pull in the amount of revenue anticipated and prompted complaints of taxpayer harassment. But after Congress required it to give the private debt collection program another try, the IRS selected four private contractors last September: Pioneer, CBE Group, Conserve and Performant, to collect these tax debts (see IRS picks private debt collection contractors). In April, the IRS began assigning accounts to Pioneer (see IRS revives private debt collection program).

Senator Elizabeth Warren
Senator Elizabeth Warren Zach Gibson/Bloomberg

“Pioneer is unique among IRS contractors in pressuring taxpayers to use financial products that could dramatically increase expenses, or cause them to lose their homes or give up their retirement security,” Warren and the other senators wrote. “Pioneer’s ‘Initial Demand’ script advises its agents to ‘Give the Taxpayer ideas on where/how to borrow’ to pay their debts. As ‘Money Sources,’ Pioneer suggests that agents list traditional sources such as banks, stocks, and CDs when indicating to taxpayers how they might resolve the debt. But Pioneer’s script also includes three options that are extraordinarily dangerous for taxpayers’ financial security: ‘Credit Card,’ ‘2nd Mortgage,’ and ‘Borrow against 401K.’ Similarly, the Pioneer ‘Resolution Script’ advises Pioneer employees to ‘suggest that liquidating assets or borrowing money may be advantageous,’ and also suggests a second mortgage or 401K loan. No other debt collector makes these demands.”

The senators are worried that taxpayers might fall prey to scammers pretending to be IRS employees if Pioneer continues to follow the same call script it has been using. “One way to protect taxpayers from IRS impersonators is to ensure adequate time for a taxpayer to verify the identity of a debt collector and—if needed—receive a new copy of the unique authentication number by mail if the original notice has been discarded or was not received,” the lawmakers wrote in the letter, posted by The New York Times. “Because scammers will not provide taxpayers with reasonable timelines, this is also one way taxpayers can distinguish between scammers and IRS contractors. Other contractors used by IRS adhere to this practice, discontinuing contact and placing an account on hold for a 60 day period ‘if the taxpayer indicates that there is doubt as to the liability’ or waiting for the taxpayer to call them back if the collector needs to resend the authentication letter. But Pioneer does not adhere to this practice. In cases where taxpayers have not received the initial contact letter from Pioneer, the call script directs Pioneer employees to ‘update the account, request a certified letter, and suspend the collection activities’ only ‘for 5 calendar days’ to allow the taxpayer to receive the letter. This brief five-day period would allow Pioneer to call taxpayers twice in the same week, even if the taxpayer has not been able to authenticate the caller. Pioneer’s failure to allow taxpayers adequate time to receive authentication materials by mail may prevent taxpayers from distinguishing IRS impersonators from Pioneer’s own debt collectors.”

The National Treasury Employees Union, the union representing IRS employees, along with consumer watchdog groups, National Taxpayer Advocate Nina Olson, and Treasury Inspector General for Tax Administration J. Russell George have all previously expressed concerns about the potential for impersonation scams with the revived IRS private debt collection program.

The NTEU reiterated its concerns Friday. “This program is only a few weeks old, and already there is proof that one of the companies hired by the IRS is breaking the rules and treating taxpayers atrociously,” said NTEU national president Tony Reardon in a statement. “This company has a poor record and previously lost its contract with the U.S. Department of Education, a fact that the Treasury Secretary recently testified that he was not aware of when the company was hired by the IRS. Instead, NTEU has urged Congress and the IRS to leave the collection work to the public servants of the IRS. These professional federal employees have a variety of legal tools available to assist taxpayers that don’t involve threatening them or forcing them into unwise financial decisions.”

Navient defended Pioneer's practices. “Pioneer has followed all IRS protocols in working with the Internal Revenue Service to recover millions of dollars in taxes that have gone unpaid for years,” said an email from Navient spokesperson Nikki Lavoie. “Pioneer has satisfied an extensive list of IRS-conducted audits and tests, encompassing all facets of the program including receiving approval from the IRS on all scripts and procedures.”

Pioneer has published some consumer tips and FAQs on its website to help taxpayers who may be contacted learn more about the IRS program, she noted.

The IRS plans to monitor the new program closely. An IRS spokesperson emailed a statement, saying, “The IRS is committed to running a balanced program that respects taxpayer rights while collecting the tax debts as intended under the law. The IRS will be closely monitoring the private debt collection program and will be working closely with the firms to ensure the fairness and integrity of the initiative.”

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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.