Private Debt Collection

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I am not a fan of the idea of private debt collection and have posted about it before.  I mistakenly thought it died off as an idea.  The recent legislation, Protecting Americans from Tax Hikes Act of 2015, Pub. Law 114-113 (Dec. 18, 2015), reinstating private debt collectors came as a disappointment to me because my perception is that it will further degrade IRS collection rather than fix it. I would rather see Congress create more revenue officer and revenue representative jobs in local offices to move away from the remote collection so prevalent as a result of the shift in the last 30 years to Automated Collection Sites (ACS) and away from having individuals embedded in the same community as the taxpayer work on the delinquent account.

Adding non-IRS employees who will contact taxpayers will further confuse taxpayers already receiving calls from scam artist trying to shake them down in the name of the IRS and create other problems as well. The new legislation, however, does suggest that Congress knew the IRS would be reluctant to accept private debt collectors again after the failure of this program so recently.  So, Congress sought to address the problems up front by giving the IRS little leeway in how it will use private debt collectors and placing a carrot in front of the IRS if the private debt collection program works.

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Congress first authorized private debt collectors in 2004 with the passage of the American Jobs Creation Act of 2004, Pub. Law 108-357, § 881 (Oct. 22, 2004).  It codified private debt collection in IRC § 6306.  This initial use of private debt collectors came under heavy criticism from the National Taxpayer Advocate year after year.  As a result of the criticism from the NTA and others as well as a lack of success, Congress allowed the Service to abandon the use of private debt collectors though it did not strike Section 6306 from the Code.  The passage of another bill mandating private debt collectors so soon after the initial failure speaks to the strong interest of Congress in supplementing the IRS collection efforts while it stifles IRS hiring.  In bringing back the private debt collectors, the new legislation tightened the existing statute to provide greater statutory clarity concerning the types of cases on which the private debt collectors could, and could not, work.  With the initial passage of Section 6306 creating private debt collectors, Congress gave the Service more leeway to craft the program.  This time Congress sought to take tighter control over the reins.  Congress also created a new statute this time, Section 6307, to provide an incentive to the Service to make the private debt collection program work by providing that some of the funds collected by this program can go into a special account to allow the Service to hire additional collection personnel.

In the PATH legislation, Congress mandated that the Service implement the “new” private debt collection provisions within three months from passage of the legislation in December, 2015. So, we will see the first aspects of the program next month.   The basic concept places private debt collectors on those cases where the efforts of the IRS have failed or the Service lacks resources to pursue the debt.  The revised Section 6306 provides much detail on precisely the cases that should go to these private debt collectors.  The legislation at 6306(c)(1)(A)(i)-(iii) guides the IRS to a specific use of private debt collectors by providing a definition of “inactive tax receivable.” A debt due to the IRS receives this designation if it meets one of three criteria if:  1) “at any time after assessment, the Internal Revenue Service removes such receivable from the active inventory for lack of resources or inability to locate the taxpayer;” 2) “more than 1/3 of the period of applicable statute of limitations [on collection] has lapsed and such receivable has not been assigned for collection to any employee of the Internal Revenue Service;” or 3) ‘in the case of a receivable which has been assigned for collection, more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection of such receivable.’  The revised statute at 6306(d)(1)-(5) also provides a definition for certain tax receiveables not eligible for referral to the private debt collectors: 1) cases with a pending or active offer or installment agreement; 2) innocent spouse cases; 3) cases in which the taxpayer is deceased, under the age of 18, in a designated combat zone or a victim of identity theft; 4) cases in which the taxpayer is currently under examination, litigation, criminal investigation or levy or 5) cases in which the taxpayer has made a proper request to exercise their right to appeal .

The balance of the 2015 provisions relating to the private debt collectors provides various items designed to carry out the program. Congress needed to expand the disclosure laws to include certain disclosures to the private debt collectors and this required a change to Section 6103.  Congress required the Service to provide periodic reports on the progress of the program, and it allowed the President to exempt individuals in certain areas hit by a disaster.  The tight control Congress keeps on the private debt collection provisions in this second version coupled with the incentive program for the Service created in Section 6307 demonstrates the strong desire Congress has to see this program work and to both tie the hands of the Service in how it implements the program while putting a carrot in front of it if the program goes well.  The carrot comes in Section 6307 which allows the IRS to set up a special account from funds collected by the private debt collectors for use to create a special compliance personnel program.  Under this program the IRS can hire additional collection personnel with the money from the special account.   As I see it, the IRS can hire more revenue officers or ACS call site workers and is not restricted on how it decides to use this money.  Because the money is derived if private debt collection succeeds and goes away if it does not, the IRS must take care in hiring these workers since their source of funding could dry up.

Since 1954 when each state had a political appointee running the Service and the agency gave the appearance of having its employees influenced by the amount of money collected, Congress has resisted any efforts to provide incentives to the Service or to individual employees to collect more. In 1998 Congress even forbid the Service from keeping statistics on matters like how much an employee or a group collected or caused to be assessed.  Section 6307 appears to provide an incentive for the Service to want the private debt collection to succeed so it can have access to unappropriated funds with which to purchase more employees.  Between this program and the significant amount of unappropriated funds the Service now receives each year by charging fees for rulings and other services , Congress seems to be moving the IRS away from public service and integrity based on appropriated funds with no incentive to do anything but reach the correct result to one with monetary incentives for certain performance.  While the shift is small, this does not seem like a good trend.

Comments

  1. Barry Goldwater says:

    Keith

    Are these private collectors required to honor powers of attorney on file and are they subject to all of the rules that revenue officers must follow?

    • Yes. Private debt collectors should honor powers of attorney and the other rules applicable to employees of the service engaged in collection including fair tax collection practices of 6304. Because this is collection, Congress has prohibited, in Section 6304(a)(2) communication directly with the taxpayer when a POA exists unless the representative “fails to respond within a reasonable period of time to a communication from the Secretary or unless such person consents to direct communication with the taxpayer….” It is my understanding that the private collectors are subject to this and other restrictions in the same manner as IRS employees.

  2. Ronald Wiener says:

    We should all have MAJOR concerns about private debt collectors making telephone calls to taxpayers to collect IRS tax debts, at a time when the telephone scammers have ramped up their [often successful] efforts to scare taxpayers into making payments over the phone based on threats of arrest and other phony adverse actions!
    Ron

  3. Barry Goldwater says:

    Keith

    Why did you file this post under Qualified Offer? The 2014 post that you reference is filed under Collection Activity which seems more proper.

  4. Bob Kamman says:

    How are these private debt collectors compensated? Flat fee per case regardless of how much collected, or just a percentage of the blood squeezed from the turnips?

  5. Several federal government departments (e.g. Education, Health and Human Services) utilize private debt collectors. Why should the IRS not utilize them?

    From what I’ve heard, IRS employees object to private debt collectors mainly for two reasons:

    (1) they are not NTEU (National Treasury Employee Union) members;

    (2) their existence embarrasses the IRS because it shows the vaunted federal tax collector cannot even perform one of its main jobs–even with a $12 billion budget.

    If the IRS will not, or cannot, collect certain delinquent tax accounts, then why not give someone else the chance to perform this needful service?

  6. Norman Diamond says:

    If Tax Court orders that the IRS shall not proceed with collection of an asserted penalty, but 13 months later the IRS proceeds with partial collection and the Federal Circuit allows the IRS to keep it, is a statute violated and does section 7433 apply?

    If Tax Court orders that the IRS shall not proceed with collection of an asserted penalty, but 13 months later a private debt collector proceeds with partial collection, is a statute violated? Since the private debt collector isn’t an IRS employee, section 7433 isn’t even a possibility, right?

  7. Norman Diamond says:

    One day I received a telephone call from someone identifying themself as an IRS employee. To confirm my identity, the caller wanted to give the last 4 digits of my social security number and have me give the first 5 digits. This is an immensely suspicious question because US courts other than Tax Court allow the last 4 digits to be disclosed publicly and any scammer could recite those 4 digits[*]. So I asked for the caller’s phone number and said I would call back. My internet provider now provides affordable voice calls to US phone numbers so I accepted this expense. I did a Google search and found that the phone number appeared to be legitimate. I phoned, answered the questions that were asked to confirm identity, and discussed the reason for their call. They gave details that seemed relevant, and then asked if I have an account at a US bank. I answered that I had one but would not give any further details without a court ruling. They did not argue and the conversation ended.

    So it can be very difficult to figure out whether a call is really from the IRS or not. And considering TIGTA’s reports of IRS employees committing stolen identity refund fraud, it can be very difficult to figure out if a call from the IRS is legitimate or not.

    [* Ignoring for the moment exhibits where the government doesn’t redact at all, because in such a case a scammer wouldn’t have to ask for the other 5 digits.]

  8. David Ronquillo, EA says:

    Not only did the NTA oppose private debt collection, the IRS union, NTEU, fought long and hard to oppose it as Jason T points out. There are billions of dollars of uncollected tax in the Collection queue and thousands of dollars lost every month when CSEDs expire. Last time, the private debt collectors were to go after the small dollar cases – low hanging fruit. IRS does lack the personnel to work every delinquent account, whether it be money or tax returns but there are processes they can improve to collect more money and resolve cases quicker, such as: improve assignment of cases to revenue officers to focus on employment tax and large dollar; expand the Fresh Start program to increase the $50K threshhold so more taxpayers qualify; and give all Collection and Appeals personnel flexibility in setting monthly payment amounts to avoid future installment agreement defaults. There are many other things IRS can do to improve collection efficiency but it is a bureaucracy and change comes slowly, if at all.

  9. Norman Diamond says:

    “IRS does lack the personnel to work every delinquent account”

    If IRS would assign more personnel to find out whether accounts are really delinquent in the first place and which party should be collecting from which, they could resolve cases quicker and wouldn’t need as many personnel misperforming in collection appeals and litigation.

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