Bad for Taxpayers – Good for Practitioners

Last week, on December 4th President Obama signed into law the Fixing America’s Surface Transportation Act. Among other things, the new law requires the IRS to use private debt collectors. While the IRS always had discretion to use outside contractors, the new law makes it mandatory in some circumstances. The IRS must hand over accounts for collection if the statute of limitations, generally 10 years from the date a return was filed (not the “due date’), is close to running out or if the IRS has been unable to collect the debt. The bottom line is that you’ll see a lot more debt collectors going after Americans who owe taxes. Now, that’s a comforting thought right? – NOT!

The IRS already has the reputation of being the most brutal collection agency on the planet and is not exactly one of America’s most popular agencies to receive a letter from. This law will make the IRS look “civil” in comparison. At least right now the IRS must adhere to a set of codified taxpayer’s rights when dealing with consumers. There are rules and procedures for interacting with taxpayers. Private debt collectors do not have to abide by these. Look at the consumer complaints at your state consumer protection agency, the Better Business Bureau, or the Federal Trade Commission. Debt collectors have more complaints than any other industry. Taxpayers will be placing the blame for aggressive debt collectors at IRS’s doorstep. For an already troubled agency like the IRS, that can’t be good.

But there are other problems too. Traditionally, the use of private tax collectors has never worked well. The IRS has failed at this twice before. It has been an inefficient and expensive way to collect tax debt. The IRS will spend a lot of money managing this and paying the collectors a large commission percentage of the “take”. Adding insult to injury — will be the even more instances of criminals calling taxpayers impersonating the IRS, engaging in phone scams and trying to extract money on the spot. This is already a huge problem for the Agency. The IRS generally does not harass people over the phone. Private debt collectors do. Expect a sharp increase in complaints and con artist schemes.

The reason the IRS has to resort to debt collectors is its inability to collect what is owed. But that is a resource issue. Since 2010, Congress has slashed IRS’s budget by more than $1.2 billion. This has resulted in 17,000 less IRS employees available to go after taxes owed to it. The IRS knows that for every dollar spent on enforcement activities they receive $7 in return. Not a bad investment! I don’t know about you, but if I knew I could get $7 bucks back for every dollar invested, I’m in!

Although troubling news for consumers, it’s good news for CPAs, tax attorneys and Enrolled Agents that specialize in representing taxpayers before the IRS. Under the IRS’s Fresh Start Initiative program enacted a few years ago, more taxpayers than ever before may be able eligible to significantly reduce their IRS debt. To find out if you qualify, consult with a professional who deals with the IRS for a living.

More Americans will need the help of tax problem resolution experts when they’re contacted by these debt collectors.

Taxpayers will require someone with the skillset and experience who can not only navigate the IRS collection maze, but also be able to deal with the insertion now of 3rd party debt collectors.


Roz Strategies

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