The IRS spends a considerable amount of time and money trying to collect unpaid tax debts. There has been some thought that private collectors would have better results. Congress recently enacted Section 6306 to allow the IRS to assign certain delinquent tax accounts to private collection agencies. The new law and how it is implemented leave a number of questions unanswered.
The Section 6306 Rules
Section 6306 provides a mechanism for the IRS to use private collectors to assist with tax debt collection.
Section 6306 allows the IRS to contract with private debt collectors to collect delinquent taxes. The private collectors are permitted to receive a fee of up to 25% of the amount collected. However, there are concerns regarding the potential lack of safeguards to protect taxpayers from abusive or harassing behavior by collectors.
Under the law, private collectors are authorized to locate and contact taxpayers to request full payment of outstanding tax debts. If the taxpayer is unable to pay in full, the collector may offer a 5-year installment plan. This raises questions about the collection practices employed by private collectors and the potential for abusive behavior. The private collector cannot enter into an offer in compromise or settle the tax balance.
Additionally, the law requires that the IRS provide certain taxpayer information to the private collector to facilitate collection activities. This includes taxpayer balances, names, and other identifying information. It is important to ensure that appropriate safeguards are in place to protect the confidentiality and non-disclosure of this information.
Private Debt Collector Abuses
And what about the taxpayer’s rights? If there is a problem, can the taxpayer sue the Federal government?
The new law addresses this. Section 6306 says that the “United States shall not be liable for any act or omission of any person performing services under a qualified tax collection contract.
What about the private debt collector? Do taxpayers have any recourse against the private debt collector? Congress amended Section 7433 to allow taxpayers to bring legal action against private debt collectors who engage in illegal collection activities. This means that if a taxpayer believes that a private debt collector has engaged in abusive or harassing behavior in attempting to collect a tax debt, the taxpayer may bring a lawsuit to recover damages.
It is important to note that the ability to bring a lawsuit under Section 7433 does not necessarily limit a taxpayer’s options for seeking relief. Taxpayers may also file complaints with the IRS or other regulatory agencies if they believe that a private debt collector has violated their rights. Additionally, taxpayers may still be able to sue the IRS itself if the agency is found to be responsible for any illegal collection activities.
Limits on Private Debt Collectors
The IRS has recently made some progress in implementing this program. It recently issued Announcement 2006-63 and Publication 4815.
Announcement 2006-63 says that the private collector “must obtain specific IRS approval of any installment agreement involving payment of more than $25,000 or covering a period of more than 36 months.” This severely limits the ability of private collectors to actually collect unpaid tax debts. The announcement goes on to say that in most cases the private collector “will serve only to gather financial information for transmittal to the IRS.”
The announcement also limits the private collector’s efforts to communicate with others about the tax debt:
employees are not permitted to call or write any third party, such as the taxpayer’s employer, bank, or neighbors, to ask about the taxpayer’s financial condition. [Private collector] employees may speak to intermediaries, such as a taxpayer’s spouse, or leave a message on an answering machine, for purposes of trying to contact the taxpayer by phone. Once the [private collector] knows how to reach a taxpayer directly, a [private collector] employee may not contact third parties in an effort to reach the taxpayer at a different temporary location.
But what about multiple contacts with the taxpayer and contacts after the taxpayer asks not to be contacted?
If the Taxpayer Ignores the Private Collector
And what happens if the taxpayer ignores the private collector? It is helpful to consider this in terms of the IRS and what happens when taxpayers ignore the IRS.
The IRS has the ability to levy on the taxpayer’s accounts. It also has the power to summons the taxpayer and/or his records. Private collectors do not have these powers.
Ignoring the IRS can also make it harder to challenge the underlying tax. This is a result of Section 7491, which applies to tax court disputes. Section 7491 specifies that the burden of proof only shifts to the IRS if the taxpayer “cooperated with reasonable requests by the Secretary for witnesses, information, documents, meetings, and interviews.” It does not appear that this law would apply if the taxpayer refuses to deal with the private collector.
Thus, it appears that taxpayers are going to learn very quickly that they can just ignore the third-party tax collector and there is nothing that the third-party debt collector can do about it.
The limitations imposed on collectors are high. And taxpayers with unpaid taxes are some of the most difficult to collect from. This seems to indicate that the private collectors will not be all that successful. It will be interesting to see how the IRS uses these private collectors.
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