This spring, the IRS started to use the services of private debt collectors to obtain unpaid tax debts from U.S. citizens. Unfortunately for taxpayers, previous worries of fraudsters impersonating real IRS debt collectors have now been overshadowed by questionable conduct on behalf of the private debt collectors themselves.

Issues arose after the New York Times revealed the call scripts that these debt collection agencies are currently using. The scripts, which are used as talking points, have collectors suggesting potentially irresponsible financial decisions, such as telling taxpayers to take out money against their homes, raid their 401Ks, borrow money from family or friends and increase their credit card debt just to pay off their taxes.

These practices would seem to violate current IRS policy that dictates when a collection agent cannot collect payment. The IRS manual, I.R.M. 5.16.1.2 states that an account becomes noncollectable in the event that payment would “create a hardship for taxpayers by leaving them unable to meet necessary living expenses” (code 24-32).

Since low-income earners comprise a majority of the cases handled by these agencies, consumer advocates are worried that these aggressive collection tactics may push blue-collar workers to the financial brink. And despite IRS policy, these debt collectors are given monetary incentives in the form of a 25 percent commission to pressure taxpayers into making bad financial decisions.

The controversy doesn’t end there. One of the four collection agencies doesn’t have the best history of ethical collection practices. Pioneer, one of the private debt collection agencies authorized by the IRS, has a record of abusive practices that previously got them in trouble. As a subsidiary of Navient, Pioneer was sued by the Consumer Financial Protection Bureau and also fired by the Department of Education after it was found to be systematically misleading borrowers by giving inaccurate loan information. Despite this history, they are currently working on the IRS’ behalf.

While the IRS and other government officials are eager to reduce the $138 billion deficit from unpaid taxes, advising taxpayers to take out more debt to pay their IRS bills may be counterproductive when these workers are later forced to lean on government programs for help.

In reaction to this news, four Democratic senators, including Sen. Elizabeth Warren, sent a concerned letter that these practices violate congressional provisions that ensured taxpayers would not be put at risk by these agencies. Steven Mnuchin, United States Secretary of the Treasury responded that he was still “supportive” of the private agencies and hoped a balance could be struck between collecting efficiently without “jeopardizing taxpayers”.

If you are worried about your tax debt or have been contacted by a private collection agent, you may wish to consult a tax expert. The tax attorneys at Robinson & Henry can:

• Audit the collector’s ethical practices and even sue the agency if they are found to be violating the Fair Debt Collection Practices Act.
• Act on your behalf, so you don’t have to talk directly with the IRS.
• Negotiate your debt down through an Offer In Compromise or arguing a case of hardship.

Please contact us now for a initial assessment.