It's May, and most taxpayers are thankful they won't need to think about filing and paying their taxes again for roughly 11 months. Other taxpayers, however, will likely be hearing from the IRS as they either knowingly or unknowingly failed to pay the full amount of taxes owed. In fact, the Internal Revenue Service estimates that some 5 million U.S. taxpayers have tax debt.
When it comes to identifying delinquent taxpayers, the IRS has a number of resources at its disposal. Using a sophisticated and complex methodology, the IRS is able to search and cross reference data from numerous sources to ensure an individual taxpayer's tax return is accurate and that he or she pays Uncle Sam the correct amount.
In cases where the IRS discovers a taxpayer is delinquent in payment, attempts are made to contact the taxpayer and recoup payment. Currently matters related to back taxes and tax debt are handled internally by IRS personnel. Passage of a bill that's currently before the U.S. Senate, however, would turn over the duty of collecting tax debt to private debt collectors.
If the bill passes, it wouldn't be the first time the U.S. government hired private debt collection agencies to recoup tax debt. Previous attempts, however, were largely deemed failures and ended up actually costing the IRS money. Proponents of the plan estimate private tax collectors could potentially recover $4.8 billion in tax debt during the next 10 years.
Opponents of the plan, however, contend private collectors lack the authority to negotiate or work out payment plans, both important tactics that are readily employed by IRS agents when recovering tax debt. Additionally, there have been numerous cases in which private debt collection agencies have violated terms of the Fair Debt Collection Practices Act.
Washington insiders believe the bill, in which the provision to use private debt collectors to recover tax debt is included, is likely to pass the Senate and, eventually, be signed by President Obama. Individuals who are notified of outstanding tax debt have options and shouldn’t panic. Depending on the amount owed, it may be wise to seek the advice and counsel of a defense attorney who handles tax matters.
Source: The Washington Post, "Congress moves to turn back taxes over to debt collectors," Lori Montgomery, May 15, 2014