Last month, the Internal Revenue Service announced that private debt collection companies will soon be partnering with the agency to collect tax debts. The effort was authorized by the Fixing America’s Surface Transportation Act, which requires the IRS to use third party contractors to collect certain types of inactive tax debts.
Several types of tax debt are targeted by the law. First, there are debts which have been taken out of the agency’s active inventory because the agency doesn’t have the resources or ability to find the taxpayer. Second, there are those debts for which over one-third of the limitation period has passed with no IRS employee having been assigned for collection. Third, there are debts which have been assigned for collection, but for which more than one year has passed without contact with the taxpayer in furtherance of collection efforts.
As of right now, the IRS has awarded contracts to four companies for participation in the program. Mostly, the debts that will be handled by these companies include tax accounts which are older and for which the agency does not have the resources to handle collections. Certain types of accounts, including those for deceased taxpayers, taxpayers under 18 years of age, and taxpayers with installment agreements, will not be transferred to private collections.
The IRS has reportedly established clear rules for the collection agencies to follow to ensure that taxpayers’ rights are protected. In our next post, we’ll continue looking at this issue and what taxpayers should look out for if they receive notification of transfer of their account.