Slideshow 7 Things You Need to Know About Private Tax Collectors

Published
  • September 21 2016, 4:15pm EDT
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Third time's a charm?

For the third time, the IRS is being required by Congress to use private debt collectors for delinquent tax debts.

Both previous attempts -- in 1996 and 2006-2009 -- were scrapped as failures, but the new attempt is set to begin shortly, and Jim Buttonow, who directs tax practice and procedure product development for H&R Block, has put together the following list of seven facts tax practitioners will need to know before their clients start calling them in a panic.

You can also read a text version of the list here.

1. It’s coming soon.

The IRS plans to select its authorized private debt collectors in the next two months and then begin using them in early 2017. The IRS will publish the names of these collectors on IRS.gov.

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2. Private debt collectors will try to pursue the old, uncollectible accounts.

The IRS wants private debt collectors to go after cases the IRS would never pursue -- that is, outstanding, inactive receivables. The case criteria for private debt collectors are:

--More than one-third of the 10-year collection statute has expired;

--No IRS employee is assigned to collect the debt; and,

--The IRS hasn’t contacted the taxpayer in a year, and the taxpayer isn’t requesting a payment alternative or relief (such as innocent spouse relief, a collection due process hearing, an offer in compromise, an installment agreement, etc).

Private debt collectors won’t pursue taxpayers younger than 18, those who have been a victim of tax identity theft, or taxpayers in a federally declared disaster area or combat zone.

3. The private debt collectors will try to locate “missing” taxpayers.

When the IRS can’t locate taxpayers, it removes them from active collection. In the FAST Act, private debt collectors will pursue those accounts. As the National Taxpayer Advocate has pointed out, the methods these collectors might use to find and collect from these taxpayers could conjure up fears about how the IRS will protect taxpayer rights, information, and privacy.

4. Private debt collectors won’t have enforcement authority.

Private debt collectors won’t be able to file liens or issue levies. Keep in mind, however, that the IRS may have already filed a tax lien on some taxpayers before the private debt collector ever calls. Collectors also won’t be able to help taxpayers get liens removed. To address enforcement actions, taxpayers or their advisors will need to contact the IRS directly.

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5. Collection alternatives are still available through the IRS.

If taxpayers need a payment alternative, such as an installment agreement, currently not collectible status, or an offer in compromise, they should contact the IRS.

6. The IRS will notify taxpayers if a private debt collector is assigned to their case.

Before starting the private collection process, the IRS and the collector will send two letters:

--First, the IRS will send a letter notifying the taxpayer that the IRS has assigned their case to a private debt collector.

--Second, after assignment and before contacting the taxpayer, the private debt collector will send a letter.

According to the IRS, these notices will also go to the taxpayer’s representative on file, if any.

7. Taxpayers experiencing economic hardship aren’t included.

Taxpayers who are experiencing severe economic hardship and have an outstanding tax debt can apply for a special status that suspends their obligation to pay (referred to as currently not collectible status). Taxpayers who have negotiated this status with the IRS appear to be excluded from the private debt collection program. The IRS has not finalized this exclusion, but it appears likely that these taxpayers would be treated similarly to those who have requested a payment agreement with the IRS on their outstanding debt.