Owing the IRS money isn’t an unusual situation, millions of Americans run into issues with tax debt and that number keeps rising. It’s almost impossible to accurately assess just how much money the IRS are owed due to the ever increasing cost of penalties, interest and fines but at last count a conservative estimate was put at $138 billion by the New York Times back in 2017, but some estimates have been as high as $400 billion. It’s no surprise that the costs, manpower and time involved in recouping even a fraction of this colossal amount is a incredibly tall order, even for the Federal government with their almost limitless resources – imposing interest and penalties is one thing but the act of collection involves a lot of man hours that have stretched the IRS budget to its limits.

 

In an effort to relieve the strain, the IRS have previously sought to employ outside debt collection agencies to act on their behalf in 1996 and 2006 – both attempts ended in failure due to spiraling costs, poor collection figures and concerns about abusive tactics by the agencies. Reports about illegal and exploitative collection methods plus underhand psychological techniques brought a damning New York Times article that set out how collection agencies pushed hundreds of thousands of Americans into financial ruin. Unfortunately, the IRS is having another throw of the dice at collecting tax debt using these private collection agencies and unsurprisingly many reports are already worryingly familiar.

 

In 2017, the IRS appointed four debt collection agencies to pursue $920 million of tax debt with a goal of recouping $2.4 billion over the next decade through external collection agencies. On purely financial terms, the first year of the program has been a financial disaster for the IRS – of the $920 million only $6.7 million was collected. What’s worse is that it cost the IRS $20 million in payments to these companies, a loss of $13.3 million. In a further twist it was revealed that in several cases the IRS paid these collection agencies 25% commission on collections the IRS made without their help. In spite of these staggering figures the IRS have announced their attention to press on with the program regardless of the losses.

 

Leading you into financial ruin

This isn’t just a bad deal for the IRS, it’s a terrible deal for anyone struggling with tax debt and now facing the prospect of having to deal with these collection agencies. It wasn’t long from the launch of this program that alarming stories started to appear about the tactics employed by the agencies.

Firstly, it has become evident from the figures released that agencies disproportionally targeted those least able to pay. 44% of collected debt came from people who live below the federal poverty level, many of whom are living off Social Security benefits. Aside from pushing these families into ruin this tactic has a knock-on effect as these families are pushed further into government programs – if these cases were overseen by an IRS agent then for the most part they would qualify for hardship status and be declared CNC (Currently Not Collectable)

 

Secondly, and perhaps the biggest cause for concern for every single person struggling with tax debt, is the ruinous advice these debt-collection agencies are providing in an effort to maximize their collections. In a New York Times investigation it was uncovered that the four agencies used by the IRS had been encouraging illegal and high-risk financial strategies to pay back taxes debt. Some of these strategies include

  • Encouraging people to dip into a 401k or IRA to pay off their tax debt – even though doing so would certainly increase their tax liability.
  • Advising people to take out a home loan or borrow
  • Pressuring people to charge their tax debt to a credit card
  • Advising people to borrow money from family or friends to make payments.
  • Pushing people to liquidate assets.

Not only is this terrible advice, it is also illegal and in clear violation of the tax code.

 

Know your rights

Owing money to the IRS does not strip you of your rights and with third party agencies now involved it’s essential that you know where you stand and your rights.

If your debt is assigned to a private debt collection agency the IRS will inform you by letter – if you are approached by a third party claiming to be working on behalf of the IRS without having received notice you must contact the IRS immediately (it’s important to remember that this may well be a scam)

Under law, collection agents are not permitted to harass you regarding your tax debt; they must follow your instructions not to contact you at your place of work if you have requested this.

They must refrain from threatening you to make a payment.

Most importantly, you have the right to refuse any dealings with a third party tax collection agency and have your case dealt with by the IRS directly.

 

For the millions of Americans who are dealing with IRS attorney, the introduction of external debt collection agencies is a worrying development. It has never been so imperative that you arm yourself with the very best possible advocacy. Defense Tax Group works for you; we don’t stop until we secure you the very best financial outcome.

So if you are looking for tax help then you are at right place.