IRS Private Collection Program

On September 11, 2017, the Treasury Inspector General for Tax Administration (TIGTA) issued its final report discussing IRS compliance activities through fiscal year 2016 (the federal government’s fiscal year begins on October 1 and ends on September 30). TIGTA compiles statistical information reported by the IRS and issues the report annually in response to continuing stakeholder interest in the analysis and trends in IRS Collection and Examination function activities. Here are the highlights:

  • IRS Budget Increased, but Staffing Declined. Although the IRS budget increased in 2016, IRS staffing continued to decline. The budget increase was intended to improve customer service, prevent fraud and identity theft, and enhance cybersecurity to safeguard taxpayer data.
  • The Number of Tax Returns Examined Declined. The number of tax returns examined in 2016 decreased approximately nine percent compared to 2015. The number of examinations conducted in 2016 is approximately 32 percent lower than the number conducted during 2012. The report attributes the significant reduction in the number of examinations over that time period to a continued decline in examination staffing, which reached a 20-year low in 2016.

Percentage Change in the Number of Field Examiners and Examinations Since FY 2012

Source: IRS Data Book and Table 37 Examination Program Monitoring

 

  • IRS Issued Fewer Liens and Levies. The number of liens and levies issued continued to decline in 2016. The IRS issued its fewest amount of liens and levies since 2002.
  • Payment Alternatives – Increase in Direct Debit Installment Agreements. The number of direct debit installment agreements (a payment option available to certain taxpayers who cannot fully pay their tax obligations on time) has increased by 128 percent since 2012. The increased use of this payment option is likely attributable to reductions in enforcement personnel and the need to efficiently and effectively collect outstanding tax liabilities.
  • Legislative Initiatives. In December 2015, Congress enacted the Fixing America’s Surface Transportation Act. The law contains two measures designed to assist the IRS in collecting delinquent taxes: (1) authorizing the use of private debt collectors for the collection of outstanding inactive tax receivables, and (2) authorizing the State Department to revoke, or deny, passports to taxpayers with seriously delinquent tax debt. The IRS began assigning cases to private debt collection agencies in April 2017. The IRS also worked to coordinate with the State Department to implement the passport revocation program. You can read more about the passport revocation program here and here.

You can read the full report here.

Earlier this year we wrote that the Internal Revenue Service is moving forward with its controversial “Private Debt Collection” program amid a sharp uptick in instances of fraud by scammers posing as legitimate IRS debt collectors. The new private tax collector program, authorized under a federal law enacted by Congress in December 2015, enables designated private contractors to collect, on behalf of the IRS, unpaid tax debts. Usually, these are unpaid individual tax obligations that are not currently being worked by IRS collection employees and often were assessed several years ago.

Critics of efforts by the IRS to outsource debt collections to private companies have long warned that such programs provide fraudsters with additional opportunities to perpetrate long-running scams where criminals prey on unsuspecting victims by posing as IRS representatives seeking to collect tax debts. According to the Treasury Inspector General for Tax Administration, this widespread fraud scheme has caused taxpayer losses of over $55 million. To date, more than 50 individuals have been criminally charged for their roles in a complex fraud scheme in which individuals from call centers in India impersonated IRS officials in demanding payment of back taxes. Call center operators targeted U.S. victims who were threatened with arrest, imprisonment, fines, and/or deportation if they did not pay money allegedly owed to the IRS. Victims who agreed to pay the scammers were instructed on how to provide payment, such as by purchasing stored value cards or wiring funds.

As the IRS is rolling out its private debt collection program, the tax agency is simultaneously warning taxpayers of a new phone scam that makes use of phony certified letters. In a press release entitled “IRS Warns of New Phone Scam Involving Bogus Certified Letters; Reminds People to Remain Vigilant Against Scams, Schemes this Summer,” the IRS cautioned taxpayers that fraudsters are utilizing new scams to defraud unsuspecting victims:

The Internal Revenue Service today warned people to beware of a new scam linked to the Electronic Federal Tax Payment System (EFTPS), where fraudsters call to demand an immediate tax payment through a prepaid debit card. This scam is being reported across the country, so taxpayers should be alert to the details.

In the latest twist, the scammer claims to be from the IRS and tells the victim about two certified letters purportedly sent to the taxpayer in the mail but returned as undeliverable. The scam artist then threatens arrest if a payment is not made through a prepaid debit card. The scammer also tells the victim that the card is linked to the EFTPS system when, in fact, it is entirely controlled by the scammer. The victim is also warned not to contact their tax preparer, an attorney or their local IRS office until after the tax payment is made.

“This is a new twist to an old scam,” said IRS Commissioner John Koskinen. “Just because tax season is over, scams and schemes do not take the summer off. People should stay vigilant against IRS impersonation scams. People should remember that the first contact they receive from IRS will not be through a random, threatening phone call.”

EFTPS is an automated system for paying federal taxes electronically using the Internet or by phone using the EFTPS Voice Response System. EFTPS is offered free by the U.S. Department of Treasury and does not require the purchase of a prepaid debit card. Since EFTPS is an automated system, taxpayers won’t receive a call from the IRS. In addition, taxpayers have several options for paying a real tax bill and are not required to use a specific one.

Tell Tale Signs of a Scam:

The IRS (and its authorized private collection agencies) will never:

•  Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. The IRS does not use these methods for tax payments. Generally, the IRS will first mail a bill to any taxpayer who owes taxes. All tax payments should only be made payable to the U.S. Treasury and checks should never be made payable to third parties.

•  Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.

•  Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.

•  Ask for credit or debit card numbers over the phone.

For anyone who doesn’t owe taxes and has no reason to think they do:

•  Do not give out any information. Hang up immediately.

•  Contact the Treasury Inspector General for Tax Administration to report the call. Use their IRS Impersonation Scam Reporting web page. Alternatively, call 800-366-4484.

•  Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. Please add “IRS Telephone Scam” in the notes.

For anyone who owes tax or thinks they do:

•  View your tax account information online at IRS.gov to see the actual amount you owe. You can then also review your payment options.

•  Call the number on the billing notice, or

•  Call the IRS at 800-829-1040. IRS workers can help.

The IRS does not use email, text messages or social media to discuss personal tax issues, such as those involving bills or refunds. For more information, visit the “Tax Scams and Consumer Alerts” page on IRS.gov. Additional information about tax scams is available on IRS social media sites, including YouTube videos.

irsThe Internal Revenue Service has released additional guidance about its new and controversial “Private Debt Collection” program — which requires the use of private debt collectors to collect certain delinquent tax debts — while fraudsters continue to scam unsuspecting victims by posing as IRS debt collectors.

According to the new guidance which will be incorporated into the Internal Revenue Manual, “[t]he IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continuing scams where callers impersonate IRS agents and request immediate payment.” To this end, the IRS will utilize the following procedures when a taxpayer’s account is referred to a private collection agency (PCA):

  • The IRS will first send a letter to the taxpayer indicating that their account that the module has been assigned to the PCA.
  • The PCA will also send a letter to the taxpayer to confirm that the module has been assigned to them.
  • Both of these letters to the taxpayer will contain a unique 10-digit identifier, instead of the taxpayer’s SSN.
  • This unique identifier will be used to conduct a two-party verification between the taxpayer and the PCA.
  • Taxpayers can confirm the names of the PCAs under contract with the IRS at this link:   https://www.irs.gov/businesses/small-businesses-self-employed/private-debt-collection.
  • PCAs will not ask for payment on prepaid debit, gift or iTunes cards (a common technique used by fraudsters impersonating IRS representatives).
  • Payment by check will be payable to the “United States Treasury” and sent directly to IRS, not the PCA.

The IRS has entered into collection contracts with only four PCAs: (1) CBE Group in Cedar Falls, Iowa; (2) ConServe in Fairport, New York; (3) Performant in Pleasanton, California; and (4) Pioneer in Horseheads, New York. Each of the PCAs are authorized to identify themselves as contractors of the IRS collecting taxes. Private debt collectors are required to be courteous and respect taxpayers’ rights. They must follow provisions of Internal Revenue Service Private Collection Agency Policy and Procedures Guide and the Fair Debt Collection Practices Act, and are also subject to various provisions of the Internal Revenue Code governing confidentiality of tax returns and return information.

Under the new law requiring the use of PCAs, the IRS must refer the following categories of collection cases to private collection agencies:

  • Cases removed from active IRS inventory because of lack of resources;
  • Cases removed from active IRS inventory due to inability to locate the taxpayer;
  • Cases for which more than one-third of the 10 year statute of limitations for collection has passed and there has been no assignment to an IRS employee for collection; or
  • Cases where 365 days have passed without taxpayer or third party interaction to further collection of the account.

In addition, IRS has the discretion to refer other types of collection cases to PCAs as appropriate.

The following types of collection cases may not be referred to PCAs:

  • Cases involving a taxpayer that is deceased;
  • Cases involving a taxpayer that is under the age of 18;
  • Cases involving a taxpayer located in a designated Combat Zone;
  • Cases involving a taxpayer that is the victim of tax-related identity theft;
  • Cases involving a taxpayer under examination, litigation, criminal investigation or levy;
  • Cases subject to pending or active offers in compromise;
  • Cases subject to a pending or active installment agreement;
  • Cases subject to a statutory right of appeal;
  • Innocent spouse cases; or
  • Cases involving a taxpayer located in a presidentially declared disaster area who requests relief from collection.

Any case assigned to a PCA that subsequently meets any of the above criteria — due to a change in circumstances — will be returned to the IRS.

The IRS guidance also provides direction to IRS employees when contacted by taxpayers whose accounts have been referred to private collection agencies. Such taxpayers are to be advised that they must work directly with the PCA to work out collection issues, including the negotiation of installment agreements. Any taxpayer who says they feel threatened or have reason to believe they are being scammed are to be referred to the Treasury Inspection General for Tax Administration (TIGTA).

Critics of the IRS Private Debt Collection program warn that it will provide fraudsters with additional opportunities to perpetrate a long-running scam where criminals prey on unsuspecting victims by posing as IRS representatives seeking to collect tax debts.  According to the Treasury Inspector General for Tax Administration, this widespread fraud scheme has caused taxpayer losses of over $55 million.  To date, more than 50 individuals have been criminally charged for their roles in a complex fraud scheme in which individuals from call centers in India impersonated IRS officials in demanding payment of back taxes.  Call center operators targeted U.S. victims who were threatened with arrest, imprisonment, fines, and/or deportation if they did not pay money allegedly owed to the IRS.  Victims who agreed to pay the scammers were instructed on how to provide payment, such as by purchasing stored value cards or wiring funds.

In federal court yesterday in Houston, an Indian national pleaded guilty to conspiracy to commit money laundering for his role in liquidating and laundering victim payments generated through various telephone fraud schemes using India-based call centers.  Also yesterday the Justice Department announced the arrest of seven individuals who are alleged to have participated in a nationwide scheme to steal $9 million from unsuspecting taxpayers by impersonating IRS agents.  In this scheme, individuals purporting to be employees of the IRS would call and threaten victims with legal action, arrest, and imprisonment for a supposed debt owed to the IRS.  The callers made these threats and used other methods of intimidation to persuade the victims to wire money utilizing MoneyGram, Walmart-2-Walmart Money Transfer, and other wire transfer services.  IRS investigators have currently identified nearly 8,000 victims of this fraud scheme and total loses approximating $9 million.

The Justice Department press release announcing yesterday’s arrests cautions taxpayer to be wary of telephone calls demanding payment of tax debts:

“No legitimate employee of the United States Treasury Department or the Internal Revenue Service will demand that anyone make payments via MoneyGram, Western Union, Walmart-2-Walmart Money Transfer, or any other money wiring method, for any debt to the IRS or the Department of the Treasury,”  J. Russell George, Treasury Inspector General for Tax Administration, said. “Nor will the Department of the Treasury demand that anyone pay a debt or secure one by using iTunes cards or other prepaid debit cards. If you receive one of these calls, hang up immediately and go to the Treasury Inspector General for Tax Administration (TIGTA) scam reporting page to report the call.”

With private collectors set to start making calls about overdue tax debts, taxpayers must be more vigilant than ever to ensure that they are dealing with legitimate representatives of either the IRS or a duly-authorized private collection agency.

irsThe Internal Revenue Service announced earlier this week that its private debt collection program is starting now.  Beginning this week, the IRS will start sending letters to taxpayers whose overdue federal tax debts are being assigned to one of four private-sector collection agencies. At the same time, the IRS is warning taxpayers that they must be vigilant to guard against scammers posing as legitimate tax collectors.

The new private tax collector program, authorized under a federal law enacted by Congress in December 2015, enables these designated contractors to collect, on behalf of the IRS, unpaid tax debts. Usually, these are unpaid individual tax obligations that are not currently being worked by IRS collection employees and often were assessed several years ago.

According to the IRS, taxpayers whose tax debts are being assigned to private collectors would have had multiple contacts from the IRS in previous years and still have an unpaid tax bill. “The IRS is taking steps throughout this effort to ensure that the private collection firms work responsibly and respect taxpayer rights,” said IRS Commissioner John Koskinen. “The IRS also urges taxpayers to be on the lookout for scammers who might use this program as a cover to trick people. In reality, those taxpayers whose accounts are assigned as part of the private collection effort know they have a tax debt.”

The program will begin this month with a few hundred taxpayers receiving mailings and subsequent phone calls, with the program growing to thousands a week later in the spring and summer. Taxpayers with overdue taxes will always receive multiple contacts, letters and phone calls, first from the IRS, not private debt collectors.

The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA). First, the IRS will send a letter to the taxpayer and his/her tax representative (if any) informing them that their account is being assigned to a PCA and giving the name and contact information for the PCA. (See prior coverage here.) This mailing will include a copy of Publication 4518, entitled “What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.”

There are four private firms that are participating in this collection program: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, Calif.; and Pioneer of Horseheads, N.Y. The taxpayer’s account will only be assigned to one of these agencies, and never to all four. No other private group is authorized to represent the IRS.

Once the IRS letter is sent, the designated private collection firm will send its own letter to the taxpayer and his/her representative (if any) confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the collection firm’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate.

The private collectors will identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies will be required to follow the provisions of the Fair Debt Collection Practices Act, and like IRS employees, must be courteous and must respect taxpayer rights.

The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made, either electronically or by check, to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the “United States Treasury.”

Private firms are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a levy.

The IRS announcement also warned taxpayers to be on the lookout for scammers posing as private collection firms. “Here’s a simple rule to keep in mind. You won’t get a call from a private collection firm unless you have unpaid tax debts going back several years and you’ve already heard from the IRS multiple times,” Koskinen said. “The people included in the private collection program typically already know they have a tax issue. If you get a call from someone saying they’re from one of these groups and you’ve paid your taxes, that’s a sure sign of a scam.” If taxpayers are unsure if they have an unpaid tax debt from a previous year – which is what the private collection firms will handle – they can go to IRS.gov and check their account balance at www.irs.gov/balancedue.

Whether or not a taxpayer’s account is assigned to a private collection agency, the IRS warns taxpayers to beware of scammers pretending to be from the IRS or an IRS contractor. Here are some things the scammers often do but the IRS and its private contractors will never do.

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes, and if a case is assigned to a PCA, both the IRS and the authorized collection agency will send the taxpayer a letter. Payment will always be to the United States Treasury.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand that taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
  • Ask for credit or debit card numbers over the phone.

“Unexpected and threatening calls out of the blue from someone saying they’re representing the IRS to collect a tax debt is a warning sign people should watch out for,” Koskinen said.