New IRS Collection Practices

Heads up! If you owe back taxes to the federal government, the next call asking you to pay may come from a private debt collector.

Within two weeks, the I.R.S. will turn over data on 12,500 taxpayers who owe back taxes, to three collection agencies.

The move represents the first step in a plan to outsource the collection of smaller tax debts to private companies over time. Although I.R.S. officials acknowledge that this will be much more expensive than doing it internally.

Critics point not only to the higher cost but also to what they say is a greater potential for abuse. With private companies in the mix, they say, debtors could more easily be tricked into paying money to scam artists using spoof Web sites or other schemes. So, beware!

However, in an attempt to guard against fraud, the collection agencies will contact taxpayers only by telephone or mail — not the Internet — and will instruct them to send all payments directly to the United States Treasury, not the private collection agency.

There is objection to the privatization program citing that it is more expensive than internal collection. Privatizing government services is often promoted as a way to cut costs. But the government would probably net $1.1 billion from private debt collectors over 10 years, compared with the $87 billion that could be reaped if the agency hired more revenue officers.

Taxpayer rights are at risk with privatization, Nina B. Olson, the I.R.S. taxpayer advocate, warned Congress earlier this year. “Because private collectors will operate under rules of profit maximization rather than the I.R.S.’s customer-service based policy,” she warned, the private collectors may have less incentive to safeguard taxpayer rights.

Al Cleland, a retired I.R.S. tax collector in Minnesota, says “We always told people to get current on their taxes first, so they would not have more penalties added, and then work on paying off their back taxes. A private collection agency has no incentive to tell taxpayers that, so people will pay more penalties.”

The only bright spot in all this is that the program is not to be used for collections from small business owners, whose cases will not be sent to the private agencies. But, be aware that if you file your small business on a Schedule C, you may not fall under this exception.

So, either get current on your taxes or, at least, be very careful if you get contacted to pay up.

Remember, only write your checks to the United States Treasury and send your tax payments to an address for your state listed in the instructions to your Form 1040 or found on the official web site—irs.gov.

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About Maesz

Glenna Mae Hendricks. She is an entrepreneur and income tax consultant, so we get lots of good tax tips from her. She is an oenophile (“look that up in your Funk and Wagnall’s,” she says), and a wine enjoyment teacher/guide who also writes wine notes at the Allen’s Retail Liquors site. Her political thoughts (and occasional outbursts of domesticity) appear at Old Feminist and Wild-eyed Liberal.