PILLA TALKS TAXES - Featured Article
PRIVATE DEBT COLLECTORS MEAN MORE IRS EMPLOYEES
Collectors Revenue to Fund More Collection Action
with section on: Scam Avoidance
The January 2017 issue of Pilla Talks Taxes is a Special Report addressing a new collection tool that will come on-line in April 2017. I’m referring to the use by the IRS of private debt collection agencies to collect certain delinquent tax debts. As I explain in the report, only a certain type of delinquent debt will be handed off to private collection agencies (PCAs).
Very generally, the cases to be assigned are those that are aging within the IRS’s system and have been deemed low priority by the agency for any number of reasons. As such, it is argued that to the extent that PCAs are successful in collecting any money on these accounts, such will be “found” money since the IRS would not likely have worked those files at all. Thus, the fact that the IRS is paying what amounts to a 25% commission to PCAs to collect the debts still leaves the government ahead. For more details on which accounts will be assigned to PCAs, and those that cannot be assigned, see the January 2017 issue of PTT, page 2.
What Will They do With the “Found” Money?
A provision of the Fixing America’s Surface Transportation Act, which authorized the use of PCAs, also contained a section that allows the IRS to retain for itself some of the money collected by PCAs. That is to say, the money will not go into the general revenue of the U.S. Government. Rather, it will stay directly in the coffers of the IRS. Under code §6306(e)(2), the IRS is allowed to retain up to 25% of the amount collected to fund “the special compliance personnel program account.”
That account is described in code §6307. Under that provision, the IRS may use the retained money for “carrying out a program consisting of the hiring, training, and employment of special compliance personnel.” These “special compliance personnel” consist of revenue officers and Automated Collection Service (ACS) employees. This is a highly restricted account in that the IRS is authorized to use the money solely and exclusively for the training and employment of such collection personnel. Thus, to the extent that funds are available in the “special compliance personnel account,” the IRS does not need further congressional approval or a specific appropriation to hire additional collection employees.
Revenue Officers (ROs) are IRS employees responsible for personally working delinquent collection accounts. ROs meet one-on-one with delinquent individuals and businesses to secure delinquent tax returns and collect taxes. They make site visits to inspect property; they review financial statements and supporting documents, evaluate collection potential and establish installment agreements. ROs also personally issue wage and bank levies, execute property seizures and file federal tax liens. ROs are in every sense of the word, the muscle of the IRS.
ACS employees are the people who staff the 1-800 phone lines that appear on the IRS’s collection notices. They field incoming phone calls from delinquent taxpayers who question notices they receive in the mail, wish to set up payment terms, or have other issues regarding their cases. ACS employees also issue wage and bank levies and file federal tax liens. However, ACS personnel do not make in-person contacts with anybody, and in fact, once a case is assigned to an RO, ACS no longer has authority to do anything. For a full analysis of the Collection function in general, and the role played by ROs and ACS personnel in particular, see chapters 4 and 5 of How to Get Tax Amnesty.
According to IRS Commissioner John Koskinen, the IRS is looking to expand its collection force by 600 to 700 new employees. The employees will be specifically designated for training in collection work, both as ROs and ACS personnel, as just described. They are ear-marked to work in high-profile areas such as identify theft, refund fraud, tax return non-filers, and delinquent employment tax cases.
Much of the resources to pay for this expansion I expect will come from the “the special compliance personnel program account.” In this way, the IRS will double down on money it collects from the use of PCAs.
he IRS is now preparing to hand off a number of delinquent accounts to the private collection agencies that have contracted with the government to work the accounts. The IRS announced that sometime in April it will begin sending accounts to the four (so far) PCAs that will do the work. The four companies are:
- CBE Group – Cedar Falls, IA
- ConServe Accounts Receivable Management – Fairport, NY
- Performant Financial Corp. – Livermore, CA
- Pioneer Credit Recovery Inc. – Horseheads, NY
If the program is a success the IRS can be expected to ramp up the use of PCAs over time.
One of the biggest problems with using PCAs to collect delinquent tax debts is the potential for scammers to hold themselves out as authorized collection agents for the IRS, and thereby steal money under the guise of tax collection. This would be a variation of the IRS impersonation scam under which phone-callers pretend to be from the IRS and demand immediate payment of bogus tax bills. I mention this in my analysis of the PCA process in the January Special Report.
The IRS knows this, and has been testing protocols under which they can reduce the potential for fraud. Regardless of what the IRS does, the success of the several scams that are currently afoot makes it clear that people are going to be scammed by robbers disguising themselves as collection agencies working for the IRS. Moreover, cyber-criminals may even target collection agencies for computer attacks, just as they are now doing with tax professionals. If criminals successfully can hack IRS’s computers, any system is at risk. For a discussion of all these issues, see the February 2017 issue of PTT, a Special Report entitled “The Scam Issue.”
Because of the plethora of scams out there (with no end in sight), especially the IRS impersonation scam, it is critical that the public be aware of what I am about to explain here.
Under the system in the works presently, there is a four-step process that will be used to introduce delinquent taxpayers to a PCA.
1. The IRS itself will send the taxpayer (and the taxpayer’s representative if a Power of Attorney is on file) an introductory letter by U.S. Mail saying that the case will be assigned to a PCA. The letter will presumably identify the PCA that’s been assigned to the case, and will give the citizen an IRS phone number if there are questions.
2. The IRS itself will then send a second letter to the taxpayer to confirm that the case has in fact been transferred. This letter will also come by U.S. Mail.
3. The PCA will then contact the taxpayer in writing (not by phone). This will be done through the regular U.S. Mail system, not via e-mail or text message. The PCA will tell the taxpayer that the case has been assigned to them for collection and they will be contacting the taxpayer by phone. The letter used by the PCA will be designed by the IRS, and in fact any communications used by PCAs must be approved by the IRS in advance.
4. The PCA will then attempt to contact the taxpayer by phone to discuss payment terms and options, and otherwise work to get the money.
It bears repeating that at no point in this loop will either the IRS or the PCA use e-mail or text messages to communicate with taxpayers. Moreover, a phone call will never be the initial means of contact, either by the IRS to announce PCA involvement, or by the PCA to initiate collection efforts.
The fact that the IRS is sending two letters is intended to minimize the potential for IRS impersonation fraud, but there’s no way to scrub that possibility from the process. And as I discuss at length in my January Special Report, all of the protections of the Fair Debt Collection Practices Act apply to PCAs in the act of collecting federal taxes. Any marked departure from the standards of contact and behavior that I set out in the Special Report, or any variation of the four-step process outlined above, I would take to be strong indicators of a scam.
Keep your eye on Pilla Talks Taxes for more news and strategies as this element of tax collection takes more shape.
Article taken from March 2017 issue of "Pilla Talks Taxes."
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