Posted by Fletcher Accounting and Tax Service Inc.

Private Debt Collection: How legitimate and safe is it?

Private Debt Collection: How legitimate and safe is it?

The IRS recently revived a program using private debt collectors to collect unpaid taxes from taxpayers who have delinquent tax debts. However, it seems to be having a negative feedback from the public. The National Taxpayer Advocate said that Private Debt Collection (PDC) may cause serious problems to the people.

The assumption of the program’s ineffectiveness started when a recent study showed taxpayers who are assigned to private collection agencies, agreed into having installments that they can barely afford since the income level of 43% of them is lower than their allowance living expenses. The U.S Treasury is also facing a problem with the program because it costs them more than the money the program brings it. One of the main reasons why it’s happening is because the private collection agencies can keep up to 25 percent of the money they collected.

Taxpayers who have inactive tax receivable as identified by the IRS are the ones that are usually contacted by the program’s private debt collectors. In order for a tax debt to be considered as “inactive”, it must have been removed from their active case list for lack of resources or inability to locate the individual. It's also inactive if more than a year has passed since any interaction occurred between the taxpayer and the IRS for the collection of the overdue tax. The full payment of the debt is requested by private collection agencies and if the taxpayer won’t be able to pay, an installment agreement will be offered to the agency.

The Growing Concern Towards Phone Scams

There have been tons of reports regarding phone scams by people who claim to be a representative of the IRS, demanding payment for tax payments. It is, therefore, necessary for everyone to spot the difference between scams and a legitimate transaction done by the IRS collection program.

Collection Agencies authorized by the IRS does not do transactions over the phone with taxpayers. A letter on official IRS letterhead called a Notice CP40 is what the IRS really do. The letter will contain the explanation about your tax debt that is being assigned to one of the private debt collection firms. On the other, the tax case is assigned will be confirmed through a separate letter coming from the private collection agency. The two letters will contain the same unique 10-digit identifier replacing your Social Security number. A two-party authentication between you and the private collection agency happens thanks to the special identifier.

What to Watch Out For

Take a look at the following tips you must follow to make sure that the firms claiming to represent the IRS are legitimate.

  • No fees or owed taxes, or payments are accepted from you by the private debt collectors.
  • You will be advised to make your payments through a check and to be sent directly to the IRS or paid via debit or credit card which can be done by visiting the IRS website.
  • The checks you sent must be payable to “United States Treasury.” The IRS or the private collector will not suggest or take payments in the form of gift cards, prepaid debit cards, or iTunes card. These are usually the ones asked by scammers so beware.
  • If you received a notice from the tax collector, contact the IRS right away to confirm whether or not your debt really was assigned to the private debt collector. The IRs will instruct you to speak with the private collector right away if the case was true.
  • Directions are provided by the IRS only when making payments and making calculations on paying off your tax debts. You will not be forced to agree on something such as issuing a levy or filing a notice of federal tax lien. The private collector is required to follow the rules and observe the Fair Debt Collection Practices Act.

Agencies with IRS authorization

There are only four private debt collection agencies that are allowed by the IRS to run the program and to legitimately contact taxpayers. These agencies are the following:

  • CBE Group in Cedar Falls, IA
  • Conserve in Fairport, NY
  • Performant in Livermore, CA
  • Pioneer in Horseheads, NY

One last important information you need to know is that the IRS cannot assign a tax debt to private collections in cases that involve deceased taxpayer, individuals aging 18 and under, or military in a designated combat zone. If you’re one of those who was unfortunate to be a victim of tax-related identity theft, classified as an innocent spouse, and currently involved in an exam, installment agreement or in compromise, you will be enjoying a tax exemption.

Fletcher Accounting and Tax Service Inc.
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