If you owe money on your federal taxes and still haven’t paid, you may hear soon from a new source: a private collection agency.
On Sept. 7, the Internal Revenue Service began outsourcing collection of about 12,500 unpaid tax debts. The IRS is focusing on individuals owing less than $25,000 who don’t dispute their debt but still haven’t paid. The federal agency expects to turn up to 40,000 cases to three private agencies by the end of the year.
If you get a letter from the IRS assigning you to a private collection agency, you can say no—not to paying your tax, but you can have your case bumped back to the IRS for collection rather than dealing with an outside company. Write to the private collection agency mentioned in the IRS letter; indicate you wish to deal directly with the IRS. (A sample letter is available at www.irswatch.org, under Resources for Taxpayers.) If you neglect to respond to that first letter, you can expect to wait about a week before hearing from the private collection agency. Even then, you can tell the collection-agency representative you wish to transfer the case back to the IRS, but you must follow up with a letter to the collection agency repeating your request.
If you choose to work with the private collection agency, read the IRS’s Publication 4518, Publication 1, and Publication 594 for details regarding the collection procedure and your rights. Both can be downloaded from www.irs.gov.
Several government entities, including the National Taxpayer Advocate and the Treasury Inspector General, have expressed concerns about the potential for abuse within the new system. According to the IRS, there are safeguards in place to protect taxpayers from harassment and from identity theft and other breaches of privacy.
For instance, private collection agencies may not call taxpayers at inconvenient times or places, and may not contact third parties such as an employer, bank, or neighbor to ask about a taxpayer’s financial condition. They also can’t use taxpayers’ private information for any reason other than tax collection. If they improperly disclose that information, the taxpayer can sue them.
At the same time, the agency recently warned taxpayers to watch out for individuals posing as private debt collectors and offered advice on identifying such scammers.
For example, the IRS says it never asks for PINs or other secret information needed to access bank and other accounts. If you question the credibility of someone claiming to be from the IRS or working on behalf of the IRS, call the agency’s toll-free help line at 800-829-1040.