If the IRS is bugging you about your unpaid taxes, what if it is a private debt collector collecting for the IRS? When President Obama signed the 5-year infrastructure spending Bill. It added private IRS collectors as part of H.R. 22 – Fixing America’s Surface Transportation Act, the “FAST Act.” What does a private IRS have to do with highway funding, you might ask? The answer is money.
Congress wants more of it collected from taxpayers, especially what the IRS considers to be hard to collect tax bills. In fact, for some hard to collect bills, the law now requires—rather than just permits—the IRS to use private collectors. Many people think that having the IRS farm out collection work to private contractors is a bad idea. Last year, National Taxpayer Advocate Nina Olson advocated against it in a letter. She said the 2006-2009 program using private collectors didn’t even raise revenue.
The IRS has gone in for private collectors twice over the last 18 years. And although those programs were not especially successful, Congress has gone back to it in a big way. Congress included it in the FAST Act, and the President signed it into law. Here are 10 things you should know:
1. First, the private collector usually will contact the taxpayer by letter.
2. If the taxpayer’s last known address is incorrect, the private collector searches for the correct address. Next, the private collector will telephone the taxpayer to request full payment.
3. If the taxpayer cannot pay in full right away, the private collector offers an installment deal for up to five years.
4. If the taxpayer is unable to pay even over five years, the collector asks for taxpayer financial information to see what sort of deal the taxpayer should get. There are controls on financial data, but there is considerable worry about having taxpayer data in private hands.
5. Private collectors cannot accept payments. Do not pay them directly!
6. The Fair Debt Collection Practices Act applies to private collectors. This is the same law that applies to collectors in other circumstances.
7. There are many reports required under the law. Congress and the Treasury Department are trying to determine if private collection is efficient and how well it works.
8. In some cases, the IRS is actually required to use private collectors, where:
• The tax bill is not being collected because of a lack of IRS resources or the IRS’ inability to locate the taxpayer.
• More than 1/3 of the statute of limitations has expired, and no IRS employee has been assigned to collect it; and
• The tax bill has been assigned for collection, but more than a year has passed without any interaction.
9. Some tax bills cannot go to private collectors, as where:
• There is a pending or active offer-in-compromise or installment agreement.
• It is an innocent spouse case.
Comments of National Taxpayer Advocate
DEBT COLLECTION (PDC): The IRS Is Implementing a PDC Program in a Manner That Is Arguably Inconsistent With the Law and That Unnecessarily Burdens Taxpayers, Especially Those Experiencing Economic Hardship
In 2015, Congress enacted legislation requiring the IRS to assign certain tax receivables to private collection agencies (PCAs). Under the law, PCAs are permitted to offer taxpayers installment agreements (IAs) not to exceed five years. The IRS plans to implement the PDC program in ways that are arguably inconsistent with the law and plans to assign to PCAs the accounts of taxpayers the IRS itself would not subject to Federal Payment Levy Program (FPLP) levies.
Fair Debt Collection Practices Act Prohibited Conduct
The Act prohibits certain types of "abusive and deceptive" conduct when attempting to collect debts, including the following:
• Hours for phone contact: contacting consumers by telephone outside of the hours of 8:00 a.m. to 9:00 p.m. local time. Additionally, if certain hours are inconvenient for consumers during the allowable time (those who work at night and sleep during the day) they may not be contacted during those times.
• Failure to cease communication upon request: communicating with consumers in any way (other than litigation) after receiving written notice that said consumer wishes no further communication or refuses to pay the alleged debt, with certain exceptions, including advising that collection efforts are being terminated or that the collector intends to file a lawsuit or pursue other remedies where permitted
• Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously: with intent to annoy, abuse, or harass any person at the called number.
• Communicating with consumers at their place of employment after having been advised that this is unacceptable or prohibited by the employer
• Contacting consumer known to be represented by an attorney
• Communicating with consumer after request for validation has been made: communicating with the consumer or the pursuing collection efforts by the debt collector after receipt of a consumer's written request for verification of a debt made within the 30-day validation period (or for the name and address of the original consumer on a debt) and before the debt collector mails the consumer the requested verification or original creditor's name and address
• Misrepresentation or deceit: misrepresenting the debt or using deception to collect the debt, including a debt collector's misrepresentation that he or she is an attorney or law enforcement officer
• Publishing the consumer’s name or address on a "bad debt" list
• Seeking unjustified amounts, which would include demanding any amounts not permitted under an applicable contract or as provided under applicable law
• Threatening arrest or legal action that is either not permitted or not actually contemplated • Abusive or profane language used in the course of communication related to the debt
• Communication with third parties: revealing or discussing the nature of debts with third parties (other than the consumer's spouse or attorney) (Collection agencies are allowed to contact neighbors or co-workers but only to obtain location information; disreputable agencies often harass debtors with a "block party" or "office party" where they contact multiple neighbors or co-workers telling them they need to reach the debtor on an urgent matter.)
• Contact by embarrassing media, such as communicating with a consumer regarding a debt by post card, or using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of mail or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business • Reporting false information on a consumer's credit report or threatening to do so in the process of collection
The Act requires debt collectors to do the following (among other requirements):
• Identify themselves and notify the consumer, in every communication, that the communication is from a debt collector, and in the initial communication that any information obtained will be used to effect collection of the debt.
• Give the name and address of the original creditor (company to which the debt was originally payable) upon the consumer's written request made within 30 days of receipt of the §1692g notice.
• Notify the consumer of their right to dispute the debt (Section 809), in part or in full, with the debt collector. The 30-day "§1692g" notice is required to be sent by debt collectors within five days of the initial communication with the consumer, though in 2006 the definition of "initial communication" was amended to exclude "a formal pleading in a civil action" for purposes of triggering the §1692g notice, complicating the matter where the debt collector is an attorney or law firm. The consumer's receipt of this notice starts the clock running on the 30-day right to demand verification of the debt from the debt collector.
• Provide verification of the debt. If a consumer sends a written dispute or request for verification within 30 days of receiving the §1692g notice, then the debt collector must either mail the consumer the requested verification information or cease collection efforts altogether. Such asserted disputes must also be reported by the creditor to any credit bureau that reports the debt. Verification should include at a minimum the amount owed and the name and address of the original creditor.
• File a lawsuit in a proper venue. If a debt collector chooses to file a lawsuit, it may only be in a place where the consumer lives or signed the contract. Note, however, that this does not prevent the debt collector from being sued in other venues for violating the Act, such as when the consumer moves outside the venue and a letter demanding payment is forwarded to the new address, even if the debt collector is unaware of such a change in residence.
Enforcement of the FDCPA
The Federal Trade Commission originally had the authority to administratively enforce the FDCPA using its powers under the Federal Trade Commission Act. However, under the sweeping reforms of the 2010 Dodd-Frank Act, the FDCPA is enforced primarily by the Consumer Financial Protection Bureau.
Aggrieved consumers may also file a private lawsuit in a state or federal court to collect damages (actual, statutory, attorney's fees, and court costs) from third-party debt collectors. The FDCPA is a strict liability law, which means that a consumer need not prove actual damages in order to claim statutory damages of up to $1,000 plus reasonable attorney fees if a debt collector is proven to have violated the FDCPA. The collector may, however, escape penalty if it shows that the violation (or violations) was unintentional and the result of a "bona fide error" that occurred despite procedures designed to avoid the error at issue.
Alternatively, if the consumer loses the lawsuit and the court determines that the consumer filed the case in bad faith and for the purposes of harassment, the court may then award attorney's fees to the debt collector.
Robert E. McKenzie of the law firm of Arnstein & Lehr LLP of Chicago, Illinois, concentrates his practice in representation before the Internal Revenue Service and state tax agencies. He previously served as a member of the IRS Advisory Council (IRSAC) which is a group appointed by the IRS Commissioner from 2009 to 2011.