IRS Using Private Debt Collection Firms to Collect Tax Debts

In Dec. 2016, Congress authorized a bill allowing the Internal Revenue Service to use private debt collectors to collect on some types of unpaid tax debts, and the program started in the spring of 2017. The law was passed as a part of the Fixing America’s Surface Transportation Act, and it authorizes the IRS to use specific debt collection agencies to collect on inactive receivables. When taxpayers owe old tax debts, they might be able to negotiate an IRS tax settlement for less than the amount of their total balances with the help of a tax attorney.

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Types of Tax Debts that Might be Collected by Private Agencies

The IRS may send inactive receivable tax debts to the collection agencies if one of three things apply. It may do so if the tax debt was removed from the agency’s active tax debt inventory if the IRS is unable to find the taxpayer or has limited resources. A taxpayer’s tax debt may also be considered to be inactive if more than one-third of the allowed statute of limitations has passed, and the debt has not been assigned to an IRS agent. Finally, debts that have been assigned for collection within the IRS may be declared to be inactive if more than one year has passed since the IRS had any contact with the taxpayer.

What Happens When a Tax Debt is Assigned to a Private Debt Collector?

If a tax debt is sent to one of the four debt collection agencies that have been awarded contracts, the collectors must comply with the requirements of the Fair Debt Collection Practices Act. Taxpayers whose accounts are being transferred to a private debt collector will be notified by the IRS. The debt collectors may not request that payments are made using prepaid debit cards because of the problem of tax scams that have happened in the past. Taxpayers who owe tax debts will not have their accounts transferred to private debt collection agencies if they have pending or active offers-in-compromise in an effort to secure an IRS tax settlement, installment plans or are currently under investigation by the IRS.

Taxpayers who owe substantial amounts of tax debts should not ignore them in the hope that they will go away. It is possible to negotiate an IRS tax settlement that might include paying less than the total amount owed, allowing the taxpayer to have a fresh start.