We have all heard that the definition of insanity is to repeatedly do the same thing expecting different results. Using that definition, the U.S. Congress can now be considered officially insane. Seven years after it proved to be a disaster, the use of outside debt collectors has again been approved by Congress for use by the IRS. You may be asking yourself, “Haven’t we been here before?” Sadly, you would be right.
In September of 2006, the IRS decided to use private debt collection agencies to collect on its inventory of past due accounts. I was an opponent of this practice and I was not alone. Our opposition rallied around the fact that the IRS would be handing over personal information to debt collection agencies who were being paid a percentage of what they collected, about 25 percent.
Our concern at the time was that these agencies would use their infamous tactics of collecting debt by intimidation and other methods because the amount that they could potentially receive would be astronomical. At the time, IRS spokesman Terry Lemons responded to our claims saying the new system “is a sound, balanced program that respects taxpayers’ rights and taxpayer privacy.”
The practice of using private debt collectors was a complete catastrophe and, in 2009, the IRS ended it entirely, and instead beefed up its own collections staff.
In December 2015, the President signed into law the FAST Act. The bill was known as the Highway Bill but embedded inside it was a requirement for the IRS to use private agencies to collect tax debts. The Commissioner of the IRS has put off this change for as long as possible, but beginning in the spring of 2017, the IRS will begin using private debt collectors for the second time.
According to last month’s announcement:
“As a condition of receiving a contract, these agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act.
“These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working them. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.
“The IRS will give taxpayers and their representative written notice that the accounts are being transferred to the private collection agencies. The agencies will send a second, separate letter to the taxpayer and their representative confirming this transfer.”
The IRS has selected these four collection agencies to carry out its debt collection:
- Conserve, Fairport, New York
- Pioneer, Horseheads, New York
- Performant, Livermore, California
- CBE Group, Cedar Falls, Iowa
Per the announcement, the IRS will not use debt collectors to collect from the following individuals:
- Deceased
- Under the age of 18
- In designated combat zones
- Victims of tax-related identity theft
- Currently under examination, litigation, criminal investigation or levy
- Subject to pending or active offers in compromise
- Subject to an installment agreement
- Subject to a right of appeal
- Classified as innocent spouse cases
- In presidentially declared disaster areas and requesting relief from collection
The problem that I see with the use of collection agencies is the number of brazen scammers who are already calling taxpayers, making up amounts of taxes owed and fleecing innocent people.
This is an issue that has grown in scale since the first time the IRS outsourced debt collection (although recent arrests in India and the U.S. of dozens of call center scammers appear to be curbing reports of this crime in the last few weeks). We are on the front lines of this because our clients see us as trusted advisors. If they receive a suspicious call, we are able to at least inform them of the telltale signs that it’s a scammer on the other end of the phone.
For starters, the IRS doesn’t usually call taxpayers out of the blue. The debt collectors will. Secondly, they will state they are a contractor for the IRS. Finally, they will be demanding payment with their aggressive schemes. How are we supposed to discern if these calls are legitimate or not? If we are reading this announcement, I can assure you that the scammers are reading it as well and may even be devising new scams as a result.
The IRS has included a provision requiring that taxpayers and their listed representatives be notified by official letter that an outside collector will be contacting them to collect debt. However, given the antiquity of the collection inventory, it’s highly doubtful that all address changes will be up to date. While this is a step in the right direction, it by no means provides an accurate way to protect taxpayers from scammers.
We haven’t yet discussed that the taxpayer has rights. Will the collection companies be aware of those rights? In 1997, taxpayers testified before Congress about the aggressive nature of IRS debt collectors. Out of that came the Taxpayer Bill of Rights and the “kinder, gentler” IRS. Now we are doing a complete 360-degree turn and allowing these collection agencies with their notorious tactics to take over these accounts. Will the Taxpayer Advocate be able to stop these companies when they are out of line like they do with the IRS?
We were told in high school that we studied history because “those that don’t know history are doomed to repeat it.” Here we are doing the same thing that we did once before and expecting it to go differently. Last time this was just a policy of the IRS so it could easily be reined in. Now, it will literally take an act of Congress to reverse this lunacy.
Craig W. Smalley, MST, EA, has been admitted to practice before the Internal Revenue Service. He has a Masters in Taxation from UCLA, and is the founder and CEO of CWSEAPA, LLP, and Tax Crisis Center, LLC, with locations in Florida, Delaware, and Nevada. He has been in practice for 22 years.