What you need to know about IRS debt collection

The IRS has changed its policy about collecting income tax debt. It will now employ private debt collection firms to collect that debt...and the worry is how many scammers might enter this space and impersonate those collectors. Consumer Action provides helpful information about the debt collection companies, how it works, and how to avoid scams.

Four New Private Debt Collection Companies

The IRS announced that it has authorized four private debt collection companies to send letters and make phone calls to selected delinquent taxpayers. This is a far cry from the years the agency spent warning consumers that it will never call you to collect money for a tax debt. The IRS will only forward a past-due account to private collection if the IRS has tried and failed repeatedly over several years to collect the tax. The four private companies include 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, never to all four.

How it works

1. A letter will be sent to the taxpayer informing them that their delinquent account is being assigned to a private collection agency, along with the company’s contact information. A copy of IRS Publication 4518 will also be included in the mailing.
2. Once a letter has been sent from the IRS, the taxpayer will receive a letter from its assigned private collection agency. To ensure the taxpayer’s privacy and security, both the IRS letter and the collection agency’s letter will contain a unique identifying key that will assure taxpayers that the agency they are dealing with is legitimate. (It is important you recognize whether the letter you received from the IRS is actually from the IRS and not a scam. See below for ways to identify a tax scam.)
3. The private collection agencies are authorized to discuss payment options, including setting up payment agreements with taxpayers. However, all tax payments 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. To find out more about available payment options, visit IRS.gov/Payments.

How to avoid a scam

You will not be hearing about a new tax bill from a legitimate private collection agency. An agency will only be contacting you about tax debt that you have been previously contacted about, for years, by the IRS. 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:  www.irs.gov/balancedue. If the account balance says zero, you owe nothing and you typically wouldn’t be getting a contact from the IRS or the private collection agency.

Here are some things the scammers often do but the IRS and its 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 private collection agency, 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.

Despite these changes, the IRS, along with the Federal Trade Commission, which maintains a long list of possible tax scams, urges consumers to remain on the lookout for, and report, unexpected scam phone calls from anyone claiming to be collecting on behalf of the IRS.

The information in this post is taken directly from Consumer Action's article, "IRS now uses private debt collectors - Stay alert!"

LSS Financial Counseling empowers people to take control of their debt and achieve financial goals. We also educate people about scams and how to avoid them.