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IRS Uses Collection Agencies


   The External Wing of the IRS

Privatization is a word that evokes strong feelings among some. Still, in an effort to streamline its processes, the IRS began to shift some routine tasks to the private sector. As of September 7th, the IRS enlisted the help of three private collection agencies to handle certain cases where back taxes are owed.

“Redirecting relatively

The First Private Collection Agencies

    After 33 firms took part in a competitive bidding process, the IRS selected three private agencies that will initially be used for collection of back taxes. They are:

  • The CBE Group Inc., Waterloo, Iowa.
  • Linebarger Goggan Blair & Sampson, LLP,  Austin,  Texas.
  • Pioneer Credit Recovery, Inc., Arcade, N.Y.

In 2008, the IRS intends to contract with up to 10 firms.

simple cases to private firms will permit the IRS to continue to focus its existing collection and enforcement personnel on more complex tax issues,” IRS Commissioner Mark Everson explained. Many states already use private collection agencies for such work. Thanks to the Jobs Creation Act of 2004, the federal government is now authorized to do the same. Over the next ten years, the expected result of using private firms is an additional $1.6 billion in outstanding taxes.

The process is not without controversy. Some critics argue that using outside collectors will cost the government more than handling it in-house, since private agencies get to keep up to 24 percent of what they recover.

Critics also worry that the plan puts taxpayers’ identifying information at risk by taking it out of the hands of the federal government. To reassure the public, the IRS says there is a double level of protection built in.

How the System Works

Employees of private collection agencies will come under the same strict umbrella of taxpayer safeguards and privacy rules that IRS employees must follow. And to maintain that level of control, private collection agencies are not permitted to subcontract IRS work to other companies. The only cases that will be turned over to private agencies are those where the taxpayers are not disputing the liabilities.

A second layer of protection is an extensive set of requirements outlined in IRS guidance. (IRS Announcement 2006-63) These requirements include mandatory background checks for all firm personnel associated with the work and IRS-directed training programs.

Here is the framework of boundaries under which private collection agencies must operate:

The IRS specifies that outsourced work will be limited to three basic areas:

1. Locating and contacting specific taxpayers about specific debts.

Asking for payment in a lump sum, or negotiating an installment agreement providing for full payment over a period of not more than five years.

Securing taxpayer financial information specified by the IRS.

The guidelines also state that private agencies cannot:

  • Take enforcement actions such as filing liens, making levies, or seizing property.
  • Handle technical issues such as offers in compromise, bankruptcies, hardship issues and litigation.
  • Negotiate with a taxpayer to settle for less than the full amount owed.

Private agency employees will not be given copies of a taxpayer's filed tax return, or other information that is not required. They will be given details necessary to locate a taxpayer and establish contact on behalf of the IRS, including:

  • Social Security Number (SSN) or Taxpayer ID number.
  • Last known address.
  • Name and SSN of the taxpayer’s spouse if it involves a joint liability.
  • Tax year, the amount of the debt, and when the statute of limitations expires.
  • Identity, contact information, and level of authority given to a person having the taxpayer's power of attorney.

Private agencies that are negotiating for an installment agreement must first verify with the IRS that the taxpayer has filed all required federal tax returns. The private agency can advise the taxpayer to file the returns and make the appropriate payments to the United States Treasury. If a taxpayer mistakenly sends a return or payment to the private collection agency, the firm must immediately forward the correspondence to the IRS.

Even after a private collector has negotiated an agreement with a taxpayer, the IRS reserves the right to approve or reject the arrangement. If the payment is for $25,000 or more, or requires longer than 36 months to complete, there must be specific prior approval from the IRS. However, private collection agency employees can collect information to facilitate possible agreements, and forward it to the IRS for further action.
Private collectors are generally not permitted to contact third parties (with limited exceptions) to obtain information, such as a taxpayer’s employer, bank, or neighbors, although they can get information from non-IRS Web sites and databases. While trying to establish contact, private collectors can also talk to intermediaries such as the taxpayer’s spouse and they can leave messages on an answering machine. But once the private agency knows how to contact a taxpayer, the collector is then barred from using third parties to establish contact when the taxpayer is in a temporary alternate location.

Regulations are in place, under Internal Revenue Code Section 6103, to penalize private collectors who improperly disclose confidential information received in the scope of their work. Private agencies are also prohibited from attempting to gain access to information not required for the performance of their job duties. If they cross these boundaries, they may be subject to criminal prosecution. And a taxpayer whose information has been improperly disclosed may have a civil cause of action.

What About Scam Artists?

For some time now, the IRS has been warning taxpayers about identity thieves who attempt to pose as IRS agents to steal personal information. Some people wonder if fraudsters will view the use of private collectors as another opportunity to con the public.

“Don’t be fooled by scam artists claiming to be from the IRS,” said Kevin M. Brown, IRS Commissioner of the Small Business / Self-Employed Division. “People selected for the private collection program will be notified in advance from the IRS. There are clear processes in place for this program, so don’t fall victim to fraudsters who are constantly looking for new ways to trick people.”

 Here is what taxpayers whose cases will be part of the private collection program can expect:

Taxpayer notification. The first contact will not be from a private collection agency employee, but from the IRS. 

IRS letter.
 All taxpayers in the program will receive an advance IRS letter, which will include the name of the private collection agency that will contact them.

Agency letter. After the letter from the IRS, participants will receive a letter from the private collection agency, informing the taxpayer that he or she will soon be contacted regarding back taxes.

Payee. Taxpayers should note that authorized collectors will never ask for cash or checks made payable to an individual or to private collection agencies. All checks that settle amounts owed to the IRS must be payable to the United States Treasury. The private agency will provide the taxpayer with the appropriate IRS mailing address.

Call  Us.  If you doubt the legitamacy of the collection agency, or need help fighting them, call us at (856) 665-2121. Ronald J. Cappuccio, J.D., LL.M.(Tax) 1800 Chapel Avenue West Suite 128 Cherry Hill, NJ 08002 Phone:(856) 665-2121      Fax: (856) 665-9005 Email:

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