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What to Know About IRS’s Private Debt Collection Agencies

What to Know About IRS’s Private Debt Collection Agencies

A couple of years ago, Uncle Sam reached out to four private companies for assistance in debt collection. The implication of this is that any of these four companies could come after you for your tax debt. This article explores what you need to know about these private debt collection agencies and how you can stay safe.

 

What Do Private Debt Collection Agencies Do? (PDCAs)

Towards the end of 2015, Congress enacted an Act known as Fixing America’s Surface Transportation Act (FAST). Even though technically, this was a highway bill, there was a debt collections section included in which Uncle Sam could use PDCA to lay their hands on outstanding tax debt. Since then, Uncle Sam has hired and worked with four private debt collection agencies: CBE Group, ConServe, Pioneer, and Performant Recovery. 

The good news is that Uncle Sam won’t and does not hand over all tax debt to private collectors. Here are categories of debt that the PDCAs do not handle

  • Accounts with an installment agreement or Offer in Compromise

  • Account for the deceased or a minor

  • Innocent spouse case

  • People in specified combat zones

  • Victims of tax ID theft

Based on the Taxpayer’s first Act as well, Uncle Sam is not authorized to use PDC on taxpayers with an AGI below 200% of the federal poverty level. 


Risks with Using PDCs 

In itself, PDCS are neither problematic nor risky, but there are many loopholes in the program, which is the source of the problems. Some dangers associated with PDC are:


Fertile Ground for Scam 

Since PDCs do not have to specify that they are IRS contractors, many scam artists can easily disguise themselves as PDCs. According to records, almost 16 thousand people have fallen victim to tax scams.

As a means of protection, make sure not to give out personal info to someone demanding debt payment over the phone. Also, it is not recommended to engage with someone calling you and claiming to be a representative of the IRS.


Increased Risk for Low-income taxpayers 

A private debt collection comes at you intending to squeeze the debt off you even if you cannot afford it. This could make life unnecessarily hard for people that might qualify for other payment plans from Uncle Sam. 

National Taxpayer’s Advocate discovered in 2017 that 18% of taxpayers’ income were below the federal poverty line, and 28% of people mandated to pay their tax debt by the PDC had less than $20,000. As a result, low-income earners, the elderly and people with limited income were at the receiving end.

 

How to Protect Yourself 

Understand Uncle Sam’s Mode of Operation 

By law, Uncle Sam will never demand payment via call, text, mail, etc. Also, they hardly harass or threaten you to surrender your account information like the credit card number. They will not even threaten to bring the law enforcement agencies to harass the payment out of you. The only contact Uncle Sam will have with you is via the mail. 

Should you be assigned to a PDC, you will be notified via Publication 4518 and Notice CP40. You will not simply be assigned out of the blue to a PDC. Also, the PDC will contact you initially by mail to give you a heads up before calling you via phone.

 

You are not to Pay the Debt Collector Directly.

While Uncle Sam hired the PDC as a debt collector, your payment and check are not to them but to the IRS.

As a result, any PDC should never ask for a direct payment as their primary duty is to work with you to resolve the debt. Also, they will help you with payment options available with Uncle Sam like a check, electronic payment, etc. 


Work with a Licensed Tax Professional 

There are times you might need to reach out for help as well. This makes it essential to work with CPAs or tax lawyers to guide you on the support you need for the tax debt. They are experts trained at negotiating with Uncle Sam for you to help with tax debt.


Conclusion 

Even though the law is yet to establish if it is ideal to use PDC, make sure you are smart about tackling your tax debt and not going by it alone. 


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