Congress passed legislation in 2015 that allowed the IRS to outsource some of its collection work. Concerns had been voiced by the Inspector General for Tax Administration and the National Taxpayer Advocate, but private collection firms started working with the IRS earlier this year.
Already some accusations are surfacing against one of these outside collection firms. According to reporting by the New York Times, Pioneer Credit Recovery has advised people to take money out of retirement accounts, request an employer loans or increase credit card debt to pay off overdue tax balances. Four U.S. Senators have sent a letter demanding changes in company practices.
What they should and should not be doing
Because of all the tax-related scams and how they are constantly morphing, the IRS has spent some time educating taxpayers on the new program.
The first indication that back taxes will be turned over to a private collection firm is a letter from the IRS. Then the collection agency sends out its own letter that confirms the transfer.
Employees of collection agencies must follow the Fair Debt Collection Practices act and respect taxpayer rights. While these private contractors can discuss the option to set up a payment plan, they should not be recommending raiding retirement savings or taking on additional credit to pay off a balance due.
Payment should only occur via a check made payable to U.S. Treasury.
Options exist to deal with back taxes and mitigate the risk of underpayment of taxes into the future. Depending on your circumstances an 72-month installment agreement can be set up online to break the spread the repayment out into more manageable monthly payments. When a change in circumstances makes it nearly impossible to pay a tax bill consider an Offer in Compromise.