In April of last year, the Internal Revenue Service revived its private debt collection program. Under this program, authorized by 26 U.S.C. § 6306, the IRS can give certain taxpayer accounts to private contractors for collection and can pay them commissions of up to 25% of the amount collected. Taxpayers can be sent to private contractors to collect the tax debt when their accounts are in collections but are not being pursued due to a lack of resources, they can’t be found, or they have had no contact with the IRS for over a year.
The IRS is not allowed to transfer it to a private debt collector if a taxpayer’s account falls under one of the categories below:
- has a pending or active offer-in-compromise or installment agreement,
- is classified as an innocent spouse case,
- involves a taxpayer who is deceased, under the age of 18, in a designated combat zone, or a victim of tax-related identity theft,
- is currently under examination, litigation, criminal investigation, or the IRS has issued a levy, or
- has submitted an appeal to IRS Appeals (such as a Collection Due Process Appeal)
If your account is transferred to a private debt collection agency (“PCA”), they can call you directly (unless you are represented). However, PCAs must follow certain procedures before they contact you. First, the IRS must send a Notice CP40 to you which lets you know, “We assigned your overdue tax account to a private collection agency.” Then, the PCA must send an Initial Contact letter. This letter gives you thirty days to dispute the debt. You could dispute the debt if the amount listed is higher than what you think you really owe, or the debt may be more than ten years old and collection may be barred by the collection statute of limitations. The PCA may follow-up with a phone call after sending the initial letter.
If you are contacted by a PCA, they will ask you a series of questions to confirm your identity. You should also confirm their identity. The IRS suggests that you validate that the caller is representing one of the private collection agencies (CBE Group in Iowa, Performant Financial Corp. in California, ConServe in New York and Pioneer Credit Recovery in New York). Also, the IRS notice and the initial contact letter will contain a taxpayer authentication number. When the PCA calls, they will ask for the first five digits of the number, and then they will confirm by giving you the five remaining digits of the number.
The PCAs must respect your rights. They are not allowed to do anything that the IRS could not do, and they must follow the Fair Debt Collection Practices Act. They cannot communicate at an inconvenient time or place, call you at work if they know your employer does not allow personal calls, threaten you, or (with certain exceptions) contact someone who is represented.
Since there are imposters out there who may pretend to be the IRS, you should know that a PCA can only accept two forms of payment, checks made payable to the “United States Treasury” or electronic payments at www.irs.gov/payments. If a person on the phone asks you to pay with a gift card, it is probably a scam. Hang up on them immediately!
If you cannot fully pay your tax debt within 120 days, the PCA can offer you a payment plan (also known as an installment agreement) which allows you to pay your tax debt in full with monthly payments over 5 years or less. If they get IRS approval, the payment plan can last up to 6 or 7 years. PCA may also now set up a preauthorized direct debit for someone to make one payment or a series of payments toward their federal tax debt. There have been some reports of more aggressive behavior by PCAs. They may make unreasonable demands to obtain the funds to pay your taxes such as requesting that you pay with your credit card, take out a second mortgage or borrow against your 401(k).
The options a PCA offer are limited. A PCA may not grant currently-no-collectible status when payment of the taxes will leave someone unable to pay their basic living expenses. A PCA also can’t approve a partial payment installment agreement, wherein the monthly payment amount is based on one’s ability to pay. Furthermore, a PCA can’t grant an offer-in-compromise either. They must send these cases back to the IRS. If you think you may qualify for one of these alternatives, you may request that your case be sent back to allow you to negotiate a resolution with the IRS.
Also, a PCA may not take action to collect your taxes. They can locate a taxpayer and request payment. They cannot file a lien, levy your bank account, or garnish your wages, or issue a summons. The IRS generally has ten years to collect a tax and this period of limitations on collections continues to run while a case is with a PCA. Because PCAs can’t take action to enforce collection, one strategy may be to simply wait for the limitations period to expire.
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