As we’ve discussed on this blog before, the IRS’s enforcement budget has been slashed by a quarter since 2011. That has meant fewer audits and collection activities overall, and it has focused those efforts on working people more than on the wealthy. In 2017, Congress directed the IRS to allow private collection agencies (PCAs) to collect unpaid taxes.
In the past, past-due taxes or tax debts were paid directly to the IRS. Now, the agency has announced that it will allow taxpayers to pay PCAs directly via preauthorized direct debit. That is to say, the PCA obtains the taxpayer’s written permission to charge a debit card, often on a schedule. The PCA receives the money and writes a check to the IRS.
Before you get excited, be aware that there could be confusion, misunderstandings and even unfair debt collection using this new option, according to some experts.
The IRS already allows electronic payments, in the form of direct pay from your bank account or payment via debit or credit card. It also allows payments through:
- The Electronic Federal Tax Payment System
- Electronic withdrawal of funds during e-filing
- Same-day wire service (although bank fees may apply)
- Check or money order
- Cash (at an IRS retail partner)
It also already allows payment in installments, when an installment plan has been approved by the IRS.
There have been problems with some PCAs
According to an Accounting Today contributor, concerns have already been raised about the IRS’s private collection programs. For example, in 2017 several senators sent a letter to one private collector, Pioneer Credit Recovery.
The senators examined collection call scripts that Pioneer and other PCAs use. They found troubling issues with the scripts, including the fact that all but one PCA was failing to notify delinquent taxpayers of their right to ask for help from the Taxpayer Advocate Service.
Moreover, Pioneer’s scripts implied that the company could involuntarily seize payment, which it cannot. And, Pioneer appeared to be setting up some payment plans for longer terms than were allowed by law.
Furthermore, Treasury Inspector General for Tax Administration and former National Taxpayer Advocate Nina Olson has called PCAs one of the most serious problems encountered by the U.S. taxpayer. One reason is that the PCA program’s revenues surpassed its costs largely because it focuses on financially vulnerable taxpayers who end up paying more than the law requires — or defaulting on installment agreements arranged by PCAs.
If you owe a significant amount in back taxes or tax debt, don’t take your changes with a private debt collector. Contact a tax attorney who can work directly with the IRS to resolve the situation as favorably as possible.