True or false: only Internal Revenue Service employees can collect tax debts? Granted, the headline is a bit of a giveaway. A proposal to allow the IRS to use private debt collection services to handle the collection of unpaid taxes was among the many unrelated items placed in the recent transportation-funding bill.
Have we now reached the point where the government is so dysfunctional it cannot even collect its own taxes? Congress seems to think so. Senator Charles “Chuck” Grassley (R, Iowa) is one of the main supporters of this effort, claiming that these companies can help bring in some of the billions in overdue taxes owed by Americans. At $380 billion (as of mid-2015), it’s a substantial amount.
This may bring visions of Vito and Louie knocking on your door on April 20th looking for, shall we say, a substantial payment toward your debt. (Insert your own stereotypical Mafia accent here.) To the contrary, this program is intended to go after clear-cut cases of overdue taxes.
You may be surprised to find out that the IRS has always had the option to use private firms for debt collection, and they have done so in the past. Episodes in 1996 to 1997 and 2006 to 2009 resulted in collections improvement during the first few months as the private companies picked low-hanging fruit. However, beyond that point, IRS agents were considerably more effective in collecting taxes.
Congress evidently thinks that the previous programs needed more time to establish private collection as a normal practice. This time around, the law requires that private collectors be used in cases where the debt is nearing the statute of limitations or the IRS simply has not been able to collect on the funds. Exactly how this will be defined and executed is something to be worked out between Congress and IRS rule-writers.
How can you be sure that any private collection service really does have a connection with the IRS? First, check the IRS website to verify that the collection program has even started. The legislation requires the IRS to acquire signed contracts with the private debt collection services by early March, so anyone attempting to pass himself or herself off as a private tax collector for the IRS before then is clearly scamming.
The IRS never initiates contact over the phone without any prior written contact, and private debt collectors are not supposed to be calling anyone before IRS contact. (Surely, the IRS will construct these new rules to maintain that philosophy.) Be skeptical of first contact by a third-party collector.
Third party requests for sensitive personal information are sure signs of a scam. The private debt collectors cannot process payments directly over the phone and therefore should have no need to ask for credit card or bank account information. The IRS must process all payments.
In essence, if you are contacted by a private debt collector regarding overdue tax debts, your best bet is to check with the IRS to verify your tax status. Understand the red flags of scamming — direct unsolicited contact without prior IRS contact, threats of jail and/or immediate confiscation of funds, asking for personal information such as Social Security number and payment information, and refusal to give names or other information — but during this transition period it is best to verify with the IRS before doing anything. The IRS still has to write the rules for the private collectors to follow, and if the rule makers leave any loophole, the private debt collectors are sure to find it.