For several years, we have been writing about the potential that the IRS would start outsourcing the collection of tax debts to private contractors. Congress stepped in late last year.
Provisions of the Fixing America’s Surface Transportation Act (FAST) Act directed the service to start using third parties to assist with collection of inactive tax receivables. We discussed the details in our March post. It's time for an update.
When will private collection companies start?
The IRS announced recently that it has finalized contracts with four companies. And they will begin collection efforts next spring.
Which accounts will be transferred?
Here are several cases when you might hear from a private collection firm in regards to a tax bill. You moved and the IRS wasn’t able to locate you. If more than one-third of the limitation period has passed (about three years), your tax bill might be turned over to one of the four companies.
Before your tax debt is reassigned the IRS will send you a written letter in the mail. You have the right to request that your account is not transferred. You can send your written objection to the collection agency.
What accounts will stay with the IRS?
When a situation is more complicated, an IRS agent will remain assigned. Examples of these types of cases include:
- Anyone who has been affected by tax-related identity theft
- Taxpayers with an installment agreement or pending offer in compromise
- Those making innocent spouse claims
- Cases where an appeal is pending
This is not a complete list. But it does indicate that if you are working with the IRS to resolve a tax problem, you won’t have to deal with the private collectors.
How will the IRS keep tabs on the private companies?
The companies have agreed to be courteous and comply with the Fair Debt Collection Practices Act. The private companies will not ask for payment with a prepaid debit card, but may explain electronic payment options.
If these agencies go beyond what is allowed (calling before 8 a.m. or after 9 p.m. or making threats that you will be arrested), you can file a complaint with the IRS watchdog, the Treasury Inspector General for Tax Administration.