Volume 16 Issue 6 -- November/ December 2004
Unbeknownst to many Americans, they may now be contacted by non-Internal Revenue Service (“IRS”) employees about unpaid federal tax liabilities. A recent article in The Wall Street Journal described this Congressionally approved process as a “dramatic shift” in the IRS’s pursuit of “deadbeats.” In reality, it is an example of Congress showing limited mental abilities about a major asset of the Country, an account receivable of $120 BILLION (Billion, not Million).
How did this massive amount become due? It certainly did not appear overnight. Where was Congress and the IRS when the debt was growing? The simple answer is Congress has long been intent on financially strangling the IRS and many other agencies.
Now Congress intends to reward ten large tax collection agencies with 25% of what they collect. In theory, if all of the $120 billion were collected, these ten collection agencies would receive $30 billion. While no one expects all of this debt to be collected, it is likely that these major collection agencies will be handsomely rewarded for going after the “easy pickings,” leaving the hard cases for the IRS anyway.
It does not make economic sense for the government to pay this large amount of money to agencies that will probably not do a very good job. Why do I say “not a very good job”?
The State of
If your client gets a call from one of these hired tax collectors, the collection agency will usually not be able to provide information about the underlying tax liability. These collection agencies typically receive computer generated lists and begin calling whoever is shown as the taxpayer. Experience has indicated that such lists can be, and often are, wrong.
While dealing with a Federal or State collection agency is seldom pleasant, at least one can get underlying tax information. Collection agencies will not likely provide such information.
So, you may ask, why do tax cheats need such information? While it is easy to say that everyone who owes tax debts is a tax cheat, this is not always true.
Several years ago, a client’s husband died unexpectedly of a heart attack, and our client, an immigrant with little knowledge of taxation, found all sorts of tax bills and other information under the sofa cushions. The secretive and now dead husband had told her nothing about the family’s tax filing practices.
It is extremely difficult to try to represent someone who allegedly owes tax debts and has no knowledge of the underlying details. Private collection personnel are hard wired to do one thing — call and collect the debts. The chances of having a dialogue about underlying tax issues with such collection agencies is nil.
While the private debt collectors will be subject to federal laws on fair credit practices, it is a safe bet that since the callers will be on a commission basis, as is their employer, the underlings will be pushed to collect as much as possible. For most clients, such calls can be extremely irritating.
As indicated in several of our past newsletters, the IRS supervisors and the supervision they provide to IRS personnel are, far too often, woefully inadequate. How can one expect the same IRS personnel to do as good a job supervising an independent debt collector? A safe bet is the IRS won’t provide any meaningful oversight. If the IRS cannot supervise its own employees, how can it be expected that they can monitor outside debt collection personnel?
You as a practitioner may be in the unfortunate situation of having a client in one of these predicaments. It will be a daunting task to obtain meaningful information from an outside collection agency. At this point, it is unknown how collection cases will be referred back to the IRS. Since the outside collectors will not have any IRS powers, other than the right to call, it is likely that in some cases there will be a referral back to a collection officer. For those trying to get information, this might be a blessing.
The possibility of losing sensitive tax information through these private agencies is probably considerable. It is likely that the information will not be protected and that personnel who have worked for an agency for only a short period and then leave the agency might communicate the existence of tax debt to others outside of the IRS.
The bottom line is this – if you think you have had trouble dealing with IRS personnel that you believe are poorly trained, you have not seen anything yet.
Copyright 2004
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
(800) 553-6613
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
Redistribution or other commercial use of the material contained in Tax & Business Insights is expressly prohibited without the written permission of Tax and Business Professionals, Inc.
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