Back in the 1990s the IRS was extremely aggressive in its collection programs to the point that the public were demanding action. Congress responded, via the IRS Restructuring and Reform Act of 1998, to create a "kinder, gentler" tax agency. Those days are now officially gone.
In part of the FAST Act that recently passed, the IRS is now authorized to revoke passports of those that owe the IRS over $50,000. While most may feel that the threshold makes it a non-factor to them, the $50,000 threshold is not just for the tax due, it includes penalties and interest. When dealing with an old debt, the penalties and interest amounts can build dramatically.
The other huge change in the collections process is the use of outside collection agencies. For some tax bills, the law requires—rather than permits—private collectors.
The law requires that three conditions are met. First, if the tax bill is not being collected because there is a lack of IRS resources or the IRS cannot locate the taxpayer. Second, if the debt is more than 3 years old and there is not an IRS agent assigned. Finally, if the tax bill has been assigned for collection, but more than a year has passed without any interaction.
This tactic of using private collectors is not a new idea. It has been done a couple other times in recent history. Both of the previous times the activity was halted due to the IRS actually losing money from this process. Yet for some reason they feel that the third time will be a charm to unleash the predatory debt collectors to go after taxpayers and keep the 50% bounty of what they are able to collect.
There were several senators that voiced their opposition to this measure, but unfortunately it was left lurking in the recently passed highway funding bill.
The main arguments against this program were (according to the Washington Post) :
- Commission incentives could lead private collection agencies to “jeopardize taxpayer rights” if they “minimize due process in order to maximize profits.”
- The 2006-2009 program resulted in “the Treasury collecting $63.4 million in revenue while accruing total costs of $67.8 million, a loss of $4.4 million to the federal government.”
- Private collection agencies “will unfairly target low-income taxpayers.” The IRS can work with taxpayers by allowing them flexible payment schedules or suspending collection actions or reducing the amount owed. But private collectors’ “sole interest is to collect from a taxpayer the balance due…They cannot provide any advice or use the tools IRS employees have.”
The National Taxpayer Advocate, also opposes the use of private collection agencies. In a May letter to Congress, Advocate Nina E. Olson said the plan “places a bulls-eye on the back of low income taxpayers.” She cited an IRS study that found 79 percent of the cases considered “inactive tax receivables,” which the private collectors would attempt to collect, involve low-income people.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided in this website is not all inclusive and such information should not be relied upon as being all inclusive.