A new bill was approved through Congress and the Senate and then signed by President Obama called the “FAST Act”. FAST standing for Fixing America’s Surface Transportation. So what does this have to do with taxes you ask? Alas, once again, it is the not so obvious parts of this bill that are a concern to me as a tax professional. Specifically Section 32102 of this act. This bill requires the IRS to utilize third party collection agencies to collect on certain outstanding tax debts that are being classified as ‘inactive tax receivables’. This is concerning as this same part of the bill has been passed by the Government TWICE before with disastrous results. However, in those cases, the IRS had the discretion to use or not use these collection companies. This is a game changer for taxpayers who have outstanding tax debt with the IRS.
So what is an ‘inactive tax receivable’? These are the tax debts that have been removed from the active inventory for lack of resources or the inability to locate the taxpayer, debts for which the collection limitation period has lapsed on more than 1/3 of outstanding debts and no employee has been assigned to collect the debt, debts which exceed 365 days of active collection attempts without any interaction with the taxpayer to establish arrangements to pay the debt back.
Certain debts are not subject to third-party collections activity. If you have a pending Offer in Compromise (OIC) or Installment Agreement, then you will be excluded from going to collections. Innocent spouse cases will not be assigned to third parties for collections either. And the last group are going to be cases with an examination, litigation, criminal investigation, currently under levy or in an appeal status.
The language used in regards to disclosure is extremely vague. Private debt collection companies “MAY”, not must, identify themselves as IRS contracted companies and disclose the subject and reason for the call. The biggest concern here…. FRAUD! How many scams are out there currently with calls going out to taxpayers demanding payment to be made immediately? How many thousands of dollars have been stolen from taxpayers via this very method? And now we are going to mandate these outbound calls from parties that are not IRS employees? This opens up a whole new arena for scam artists as now we are no longer able to tell taxpayers that the IRS generally does not initiate contact by phone, but private collectors do.
Debt collectors are not held to the same standards that Federal employees are when dealing with taxpayers and how to collect the debt. Debt collection companies receive more complaints to the Federal Trade Commission than any other industry. In 2013 alone, there were over 200,000 complaints filed with respect to collection practices as quoted from Kelly Phillips Erb with Forbes. This will no doubt cause much confusion for taxpayers and an abundant amount of opportunities for scammers.
So what does this ultimately mean for taxpayers with outstanding debts? It means you need to move much quicker and get ahead of the IRS in resolving your tax debt. You need to be aware of the correspondence you are receiving and make sure you are not ignoring the IRS if and when they reach out to you. My thought is it is going to be much more difficult to resolve your case once it is assigned to a collection agency, so deal with it before it gets to that point. Get professional, qualified help if you are not comfortable handling things on your own, especially if you are with a collection agency. A tax professional, can file a Power of Attorney that will extend out to these collection agencies and allow them to speak with the debt collectors on your behalf, and despite the fact that in most cases they won’t follow the exact same rules the IRS does, you still have your rights as a taxpayer that you are entitled to and ensuring that happens is going to be a challenge to say the least with debt collectors. Make sure your tax professional has experience in resolving outstanding tax debts; if you are with a collection agency, you do not want someone who is ‘trying their hand’ at resolving cases with the IRS if you are with a debt collection agency.
Remember- stay a step ahead of the IRS now more than ever!