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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

Private Collection Agencies & Your Taxes

I'm hoping that you don't fall into the category of someone to whom this applies. But chances are, someone reading this owes some money to the IRS and needs to know what I'm writing about today.

The IRS recently announced that private debt collection companies will start working to collect overdue tax liabilities sometime in spring 2017, and that it has awarded contracts to four companies (a list of which is available on the IRS website) to implement a program to collect inactive federal tax debts as required by a law enacted in 2015.

In December 2015, Congress passed the Fixing America's Surface Transportation (FAST) Act, under which the IRS is required to enter into tax collection contracts with third parties for the collection of select outstanding inactive tax receivables.

The debts that are included under this program are any (1) that have been removed from the IRS's active inventory due to a lack of resources or inability to find the taxpayer debtor; (2) for which more than 1/3 of the applicable limitation period has passed and no IRS employee has been assigned to collect the debt; or (3) that has been assigned for collection, but more than a year has passed without interaction with the taxpayer for purposes of furthering the debt collection.

According to the IRS, the agencies and their employees must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act.

The collection agencies will be able to identify themselves as IRS contractors collecting taxes, and have to be courteous (imagine that).

The IRS will give taxpayers and their representatives written notice that the accounts are being assigned to the private collection agencies. The collection agencies must also send a second, separate letter to the taxpayers and representatives confirming the transfer.

Further, any taxpayer who does not want the account assigned must notify the assigned collection agency in writing of their objection.

The IRS says it will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.

One thing to know for sure, you will NEVER be asked for payment on a prepaid debit card, which is a tactic scammers commonly use.

Instead, if in contact with you, the collection agencies will inform you about electronic payment options on IRS.gov/Pay Your Tax Bill. Additionally, and this is important, check payments should be made payable to the U.S. Treasury and sent directly to the IRS, NOT to the private collection agency.

There are several types of accounts that will not be transferred to private agencies. These include those involving:
*Deceased taxpayers
*Taxpayers under age 18
*Taxpayers in designated combat zones
*Victims of tax-related identity theft
*Taxpayers who currently are under civil examination, litigation, criminal investigation, or levy
*Taxpayers with pending or active offers in compromise
*Taxpayers whose account is subject to an installment agreement
*Taxpayers who have a right to appeal their case
*Taxpayers whose cases are classified as innocent spouse cases
*Taxpayers in presidentially declared disaster areas who are requesting relief from collection

Also, accounts that have been assigned to a private collection agency and subsequently fall into any of the above categories after assignment will be returned to the IRS.

In view of all this, it is doubly important that you stay vigilant against possible scams, particularly scam phone calls or emails from anyone claiming to be collecting on behalf of the IRS or one of the private agencies.

As I've written before, scammers will often call and demand immediate payment. Even with private debt collection, you should not receive unexpected phone calls from the IRS demanding payment.

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