Due to a law passed by the United States Congress in 2015, the Internal Revenue Service must hire third party IRS private debt collectors for tax debt collection when they have unpaid taxpayer tax accounts that are not being worked on by the regular IRS collection group. IRS Private Debt Collectors typically do not have enforcement powers (levys) but can hire a law firm to create a judgement and file a lien. These private collection companies are hired to either create tax payment plan with the taxpayer, or to gather financial information of the taxpayer to assist with collection activities (levies, liens, etc.). Therefore, you need a tax defense to their actions. The payment plan through a private vendor would be similar to the payment plans that the IRS enters into, and as such would either be tailored to the financial issues facing the taxpayer, or be a payment that is spread over a certain term, such as a sixty or eighty four months’ time period.
The inactive tax accounts subject to these rules include taxpayer accounts that have 1) been removed from active IRS collection inventory (for instance, they cannot locate the taxpayer), 2) where there is no IRS employee assigned to the collection case, or 3) at least one year has passed since the IRS collection group obtained the case, and it was not assigned to a revenue officer or other field collection person (for cases over $250,000).
If you have filed an offer in compromise, or some other collection alternative, your account will not be transferred to a third-party collection firm. Therefore, innocent spouse claims, deceased taxpayers’ debts, or cases that are being litigated or part of an exam, will be excluded from these rules, and only be subject to the normal IRS collection rules.
IRS Private Debt Collectors
The debt collection companies need to comply with normal debt collection legal rules related to treating the taxpayer fairly and following normal debt collection protocol. Therefore, the private debt collectors are not allowed to keep harassing and calling you just to extort you, since you can complain to the IRS that they are being unreasonable. The collection companies also need to listen to the IRS Taxpayer Advocates office if you complain to them about the treatment that you are receiving.
From my experience, if your accounts is transferred to a private collection firm, it maybe be a missed opportunity to try to settle your tax debt for less than what you owe. In the offer in compromise scenario, the IRS will examine your financial ability to pay them over the remaining collection statute. The typical collection statute runs for ten years from the date the taxes were assessed. The IRS examines two factors. The first is your disposable income available for paying the unpaid back taxes, and 2) your available assets to pay the tax debt. The income analysis subtracts from your income certain standardized expense items (food, housing, etc.) and determines the net you can pay them. The asset analysis examines the after-tax value of the assets you own, and subtracts any liabilities, such as mortgages on real estate. Since there are many complications with analyzing this data, it is helpful to be extra careful and spend the time to correctly calculate the numbers.