provision in the American Jobs Creation Act of 2004
(AJCA) allows private collection agencies (PCAs) to collect federal
tax debts. The IRS recently announced it expects to award the first
three contracts for private debt collection in February 2006 and begin
implementation in June 2006. The service will enter into “qualified
tax collection contracts” (as defined in IRC section 6306(b)) with
PCAs to locate and contact taxpayers with outstanding tax liabilities
and arrange payment. CPAs whose clients owe taxes should be aware of
this new initiative to privatize federal tax debt collection.
SCOPE
The legislation generally
allows PCAs to collect any type of tax imposed under the code.
However, implementation is expected to focus on taxpayers who (1) have
filed a return showing a balance due, but failed to pay it in full,
and (2) have been assessed additional tax by the IRS and have made
several voluntary payments toward satisfying their obligation, but
have not paid in full.
PROCEDURE
A PCA will first try to contact a taxpayer by letter;
if the letter is undeliverable, it will ascertain a correct address.
If this fails, the PCA will attempt to contact the taxpayer by phone
and request full payment. All payments are to be sent to the IRS, not
to the collector. Taxpayers who cannot pay in full immediately will be
offered installment agreements calling for full payment over no more
than five years. If the taxpayer is unable to pay the outstanding tax
liability in five years, the PCA will obtain financial information
from the taxpayer and provide it to the IRS.
PROTECTING TAXPAYERS
The AJCA enacted provisions to protect taxpayers in
this process. The use of subcontractors by PCAs will be limited;
subcontractors will not be allowed to contact taxpayers, provide
quality assurance services or compose collection notices. Also, direct
contact with taxpayers and access to taxpayer-sensitive information
will be afforded only to PCAs who have accepted all the obligations
imposed under their contracts.
The Fair Debt Collection Practices Act also applies to PCAs, and taxpayer protections statutorily applicable to the IRS were extended to PCAs. PCAs also are required to inform taxpayers that assistance is available from the IRS National Taxpayer Advocate.
LIABILITY/COMPENSATION
Under IRC section 6306(d), the IRS will be exempt
from liability for acts committed by PCAs. However, taxpayers were
granted remedies for PCA acts or omissions under new IRC section
7433A. In addition, the Privacy Act of 1974 and IRC section 6103,
which prevent unlawful disclosure of taxpayer information, also apply
to PCAs, potentially subjecting their employees to civil and criminal
liability.
Moreover, PCAs will be heavily screened before being selected, then given only enough information to contact taxpayers and seek payment. The IRS plans to hire three PCAs initially, gradually expanding to 10. PCAs will earn up to 25% of the amount they collect.
For more information, see Tax Practice & Procedures, “IRS Initiative for Private Debt Collection,” by J. Matthew Yuskewich, in the January 2006 issue of The Tax Adviser.
—Lesli S. Laffie, editor
The Tax Adviser
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