If some Democrats in Congress get their way, the IRS won’t be able to keep using private firms to collect tax debts.
On April 26, Rep. John Lewis (D-GA), the ranking Democrat on the House Ways and Means Oversight Subcommittee, introduced the Taxpayer Protection Act of 2017 into legislation. The bill was co-sponsored by Reps. Suzan DelBene (D-WA), Earl Blumenauer (D-OR), and Danny Davis (D-IL).
Under the new program, private collection firms may be used only when:
A tax bill hasn’t been collected due to a lack of IRS resources or its inability to locate the delinquent taxpayer.
More than one-third of the statute of limitations has expired and no IRS employee has been assigned to collect the debt.
The tax bill has been assigned for collection, but more than a year has passed without any action.
Conversely, the IRS is barred from using private debt collectors in certain cases, including when there’s a pending or active offer in compromise or installment agreement, or innocent spouse relief is involved.
Taxpayers with overdue taxes will always receive multiple contacts, letters, and phone calls first from the IRS, the agency said in April. The IRS will notify taxpayers before transferring their accounts to one of the private collection firms.
The private collection firm employees must identify themselves as working on behalf of the IRS. In addition, they must follow fair debt collection laws, act in a courteous fashion, and respect taxpayer rights.
Supporters of the program say it could bring an additional $2.4 billion in tax revenue to Uncle Sam’s treasure trove over the next 10 years. But the two prior efforts were unsuccessful amidst accusations of taxpayer abuse. The programs, implemented a decade apart – one in 1996 and the other in 2006 – reportedly lost millions of dollars.
Furthermore, detractors of this approach have another rallying cry: Due to the recent proliferation of identity theft scams and other criminal schemes, they are worried that the program will open the door to even more con artists.
Accordingly, the bill completely repeals the IRS’s authority to contract with private companies to collect federal tax debts. It also excludes from the gross income up to $10,000 of income from the discharge of a debt over an individual’s lifetime. Finally, the bill:
Requires the statute of limitations for a taxpayer’s case to continue to run during a pending application for assistance from the National Taxpayer Advocate.
Establishes limitations on IRS levies of retirement accounts.
Suspends the time limit for returning wrongfully levied property if a taxpayer is financially disabled.
Increases the grace period for withdrawing a frivolous return.
Repeals the requirement to submit a partial payment with an offer in compromise to settle a tax liability.
In remarks made prior to the introduction of the new legislation, Lewis voiced his concerns about the private debt collection program.
“For the record, I want to be crystal clear – in today’s world, private debt collection will only make a bad situation much worse,” he said. “We have been down this road before. It has been tried and tried again. Each and every single time, private debt collection fails. It creates confusion and wastes taxpayer dollars. Most importantly, the program does not help or serve the American people.”
The Treasury Inspector General for Tax Administration (TIGTA) also has reservations about the private collection process. Specifically, TIGTA reiterated the possibility that criminals will use the program as a calling card for impersonating IRS agents. And other organizations, including the National Treasury Employees Union, are backing the proposed legislation.
We’ll keep our eye on this bill as it wends its way through Congress.
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a...