Unpaid Federal Taxes Soon Could Be Sent to Private Debt Collectors

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Posted on December 02, 2015

Congress is set to pass legislation that would allow the IRS to send unpaid tax debts to private collection agencies. Photo courtesy of Wikimedia Creative Commons

In recent proposed legislation, both the U.S. House of Representatives and Senate are about to approve extraordinarily controversial tax provisions that would affect taxpayers with unpaid taxes due to the IRS.

Although this legislation is titled Fixing America’s Surface Transportation Act and relates to the federal Highway Trust Fund, it also requires the IRS to use private debt collection agencies to collect unpaid tax liabilities due to the IRS. It also allows the State Department to revoke the passports of Americans that have unpaid taxes due to the IRS.

The bill identifies certain tax liabilities that cannot be collected by a debt collection agency, namely taxpayers with a pending or active Offer in Compromise, taxpayers claiming innocent spouse relief and taxpayers that are the victim of identity theft.  The Illinois Department of Revenue has used debt collection agencies for many years to assist with collecting unpaid taxes due from taxpayers.

In our experience, this was a horrible mistake.  First, debt collection agencies now become privy to private taxpayer information, including Social Security numbers and bank accounts, all of which increases the likelihood of identity theft.  Further, the debt collection agencies add a substantial layer of cost to the tax collection process that must be paid by the taxpayer, not by the Illinois Department of Revenue.  We have seen the debt collection agencies add several thousand dollars in collection fees to unpaid tax liabilities as small as $10,000.

Making matters worse, when a taxpayer’s case is assigned to a debt collection agency, the Illinois Department of Revenue will refuse to talk to the taxpayer to settle the matter, and will even go so far as to refuse payments from the taxpayer, insisting the taxpayer deal directly with the debt collection agency and to make all payments to the debt collection agency.  Not surprisingly, the debt collection agency first applies all payments to its fees and not to the tax debt.

Both the House and Senate are expected to pass the federal measures in the Fixing America’s Surface Transportation Act by December 4, 2015. We are against this legislation.  What do you think?