Despite many years of assuring taxpayers that the IRS would never cold call individual taxpayers to collect outstanding tax debts, the IRS has recently shifted their practices and has called on the help of the private sector to issue collection notices.
The IRS currently enlists the help of private collection agencies to follow up with taxpayers about overdue tax balances. The 2015 program authorized under Section 32102 of the Fixing America’s Surface Transportation Act (“FAST Act”) effectively empowered designated collection agencies to requisition delinquent tax receivables on the government’s behalf. In essence, the IRS has every right to outsource collection functions to private agencies, and actively utilizes this sanction to recoup taxpayer debts.
Because this change in practice is so recent, it’s only fair for taxpayers like you to be confused about what to expect. Using this guide, we’ll walk you through everything you need to know about IRS-authorized collection agencies.
- What is Debt Collection?
- How Does Debt Collection Work?
- Does the IRS Use Collection Agencies: The History
- What Are the Risks Associated With the IRS Employing Private Debt Collectors?
- Which Private Collection Agencies Are Contracted by the IRS
- What Types of Tax Debts do IRS Private Collectors Handle?
- What Should I Do if an IRS Collection Agency Contacts Me?
What is Debt Collection?
Debt collection is when a collection agency contacts an individual to collect delinquent funds on behalf of a contracted creditor—or, in this case, the IRS. Individuals and businesses are both subject to debt collection if severely overdue payments require immediate remediation.
How Does Debt Collection Work?
As third-party companies, private debt collection agencies essentially act as middlemen, collecting delinquent debts—which are typically at least 60 days past due—and forwarding them to the original creditor. Creditors, like the IRS, pay a percentage of the remitted funds to their contracted collection agency.
Debt collection agencies collect a number of delinquent debt types including:
- Credit card
- Medical loans
- Car loans
- Personal loans
- Business loans
- Student loans
In the case of IRS-contracted collection agencies, there are a specified selection of tax debts they can collect. More on that later.
Debt collectors reach out to delinquent borrowers by phone or by mail to demand immediate action in repaying outstanding debts. They may even have you fill out Form 433-F, which gives the government your personal information so they can better understand your financial status. When collectors are unable to reach debtors with the contact information provided by the creditor, they dig deeper, using high-tech software and private investigators to track them down.
Debt collectors can even pursue elaborate searches to look into a debtor’s assets to accurately determine the debtor’s capacity to repay. This means they can examine everything from bank accounts to brokerage accounts to assess the debtor’s financial standing. Collectors can report delinquent debts to credit bureaus to further encourage debtors to pay.
Does the IRS Use Collection Agencies: The History
2015’s passing of the FAST Act reauthorized the IRS to use third-party debt collectors. However, this reintroduction comes after several previous stints of IRS enlisting the help of private collectors.
In both 1996-1997 and 2006-2009, the U.S. Internal Revenue Service called on private debt collectors to help track down taxpayers with unresolved federal debts. However, each of these attempts to outsource collections functions resulted in failure, yielding fewer collections than initially projected, wasting money, and contributing to large-scale inequities in the U.S. tax collection system.
Congress passed Fixing America’s Surface Transportation Act (FAST Act) in December of 2015. Though the bill was technically a highway bill, the FAST Act included a debt-collection section that essentially granted the IRS the ability to once again use private debt collectors for recouping outstanding tax debts from citizens. Since the passing of the FAST Act, the IRS has since hired a total of four private debt collection agencies: ConServe, Performant Recovery, CBE Group, and Pioneer.
Thus far, reports have shown that in 2019 alone, the IRS was able to collect nearly $213 million in debt through use of their contracted collection agencies. This marked the largest amount of money recovered since the program’s 2015 inception.
What Are the Risks Associated With the IRS Employing Private Debt Collectors?
There’s a very good reason why the IRS has been historically discouraged from using private debt collection agencies. While private collectors themselves aren’t inherently risky or problematic, there are a myriad of associated dangers that come with enlisting their help, especially on a federal scale. Let’s take a closer look at some of the most common and alarming risks.
Potential for scam calls
Since the FAST Act’s implementation, there have been a multitude of reports of telephone scams carried out by individuals claiming to represent the IRS and demanding immediate payment on outstanding tax debts. In fact, the Treasury Inspector General for Tax Administration found that 15,780 people had fallen victim to tax scams, resulting in upwards of $79.7 million in collective losses as of a September 2019 report.
Unfortunately, these scams are very easy to fall prey to because traditional private debt collectors do contact by phone. However, IRS contracted private collection agencies will never contact you by phone unless you have received Notice CP40 and a letter from the collection agency that confirms the assignment of your unpaid tax liability.
Both of these official letters will display the same unique 10-digit identifier number in place of your Social Security number. This unique number is designed to ensure two-party authentication between you and the private collection agency.
As a general rule of thumb, do not disclose any personal information to anyone randomly demanding payment over the phone. Do not engage with any callers that claim to be IRS employees. Instead, hang up and call the IRS directly at 800-829-1040 to speak with a representative who can speak to you about any outstanding tax debts. Always err on the side of safety to protect yourself from falling for a malicious scam.
Heightened risk for low-income taxpayers
Private collectors have a single agenda: pushing people to make tax payments, even if the taxpayer or business can not afford it. Forcing those who are unable to pay can create great economic hardship for people who might otherwise qualify for alternative payment plans by the IRS.
A 2017 National Taxpayer Advocate report found that 19% of taxpayers contacted by IRS-contracted debt collectors had incomes below the federal poverty line. The report also revealed that 28% of people assigned to an IRS-contracted collector earned less than $20,000 annually. Low-income, elderly, and income-restricted individuals found themselves steeped in unpayable debt, spawning an entirely new sector of financial complications for at-risk American citizens.
Fortunately, the Taxpayer First Act — a bipartisan law passed by Congress in 2019— barred the IRS from sending contracted collectors after taxpayers with an adjusted gross income (AGI) of less than 200% of the federal poverty level.
Lack of consumer awareness
Because this program is still relatively new, public awareness has not quite caught up with the IRS’ newly reinstated capacity to outsource debt collection. This is in part due to a drastic cut in IRS funding that only perpetuates low levels of consumer cognizance. As a result, American citizens are left in the dark and become even more vulnerable to scams.
Which Private Collection Agencies Are Contracted by the IRS?
As of 2020, the IRS currently contracts the four following private collection agencies:
P.O. Box 2217
Waterloo, IA 50704
P.O. Box 307
Fairport, NY 14450
P.O. Box 9045
Pleasanton, CA 94566
PO Box 500
Horseheads, NY 14845
What Types of Tax Debts do IRS Private Collectors Handle?
As mentioned before, IRS-contracted private debt collectors are only allowed to collect on certain types of federal tax debts. According to IRS Commissioner John Koskinen, “you won’t get a call from a private collection firm unless you have unpaid tax debts going back several years and you’ve already heard from the IRS multiple times.”
There are a number of ineligible back taxes that IRS-contracted collectors are not authorized to requisition, including:
- Accounts with an Offer in Compromise agreement
- Accounts with an IRS installment agreement
- Innocent Spouse cases
- Victims of tax-related identity theft
- Accounts for minors
- Accounts for the deceased
- Taxpayers in designated combat zones
- Taxpayers in federally-declared disaster areas who have requested relief
If you fail to pay your taxes, the IRS can even lay claim to your personal assets to satisfy your repayments with a tax lien. In this case, you can file IRS Form 12153 to appeal the decision.
What Should I Do if an IRS Collection Agency Contacts Me?
Step 1: Verify the caller
Before taking any next steps upon receiving a call from someone who claims to be an IRS-contracted agency, you need to first verify that they are indeed who they say they are.
According to the IRS, if a private collection agency has been assigned to you, the following will happen:
- You will receive an initial contact letter (Notice CP40) before any attempts to collect
- The caller will identify themselves as IRS contractors
You can also request a copy of your account transcript through the IRS Get Transcript tool to certify that a debt collection company has been assigned your account. This transcript will include a code, an explanation of transaction, a date, and an amount.
Step 2: Make payment arrangements
An IRS collection agency will never ask you to pay them directly. They will simply present you with your payment options and help you set up payment arrangements that will allow you to pay your debts in full within a five-year period of the collection expiration date.
Payment options include:
- IRS Direct Pay
- Electronic Federal Tax Payment System
- Debit or credit card
- Check or money order, made payable to the United States Treasury
- Preauthorized Direct Debit
Dealing with Uncle Sam is no walk in the park, but with the right knowledge, you can tackle and resolve your tax debts while staying in the IRS’ good graces. In the event the IRS sends a private collection agency after your debts, consider consulting with one of our professional tax advisors to find the best solution for your situation.