How to deal with IRS private debt collections



The IRS's history of using Private Debt Collectors


Private debt collection is something the IRS once experimented with, but it quickly realized it was a bad idea. Between 2006 and 2009, with Congressional approval, the IRS tried on their own using private debt collectors to try to collect taxes on cases that were too small to send to revenue officers or otherwise weren’t getting worked. The IRS ended this experiment realizing there was no free money. The program created more headaches than it was worth.


The IRS learned that there was a reason why these cases were uncollectable. The relevent phrase being "you can't get blood from a stone." So the IRS abandoned the idea of using third party private debt collections. There is a reason why every company in the world ends up using an account called 'bad debt.' It is no different for the IRS. 


But Congress intervened and mandated, in the FAST Act of 2015 that the IRS must resume private debt collections. So how has that worked out?


The disaster of IRS private debt collections


Instead of finding extra money, it did the opposite.


The program actually cost taxpayers  $13 million.


The IRS spent $20 million dollars so far to administer the program, but it only brought in $7 million in revenue. That is, the deficit increased by $13 million. So instead of not offsetting the spending like PAYGO demands, it actually increased the deficit.


But it gets worse if you think about it


But what is even worse is when you ask yourself where did that $7 million they did collect come from?  These taxpayers were deemed to be the lowest priority of IRS collections. How did these seriously strapped individuals come up with $7 million.


Well the Taxpayer Advocate Service did some great research. And it found that these taxpayers, if using IRS guidelines would have been placed in a hardship status. A hardship status is where the IRS deems you to be currently not collectible. So they leave you alone, although they will intercept any refunds that you may be entitled to. Under the IRS guidelines these people would not be subject to levies or the threat of levies. Yet many of these people  have been sent out for private collections!


This is something you may not know unless you work in collections or are familiar with the inner lives of people who are in severe financial distress. Very few people have no money coming in each month. They just don’t have enough money. So that means the job of a debt collector is to get the person to pay them before paying someone else.


So in these cases, we have very effective debt collectors convincing destitute taxpayers to pay them and not someone  else. So what kind of things will people strapped for cash not pay for:


  • Car payments
  • Rent payments
  • Life insurance premiums
  • Health insurance
  • Internet
  • Cable
  • Food
  • Clothing
  • Fuel
  • Religious support
  • Education supplies
  • And believe it or not, medicine. Many people will forgo medicine they need to function properly in order to get rid of a very talented debt collector.

So in an effort to make themselves appear as fiscal hawks, Congress mandated that private collection agencies extract money from the most vulnerable Americans, making these suffering people more vulnerable.


Getting help


IRS private debt collectors do not consider your allowable monthly expenses and income. Unlike the IRS, they do not determine what your reasonable collection potential is. The best way forward to a reasonable repayment plan (or no repayments at all) is most likely  to not deal with an IRS  private debt collector, but rather to get in contact with the IRS, or have a firm like ours handle the tax negotiations for you.


Contact us here for help.