Private debt collectors are now likely to take a more active role in the collection of federal tax debts. New law recently amended IRC § 6306 to require the use of private debt collectors when: (1) the tax debt is not being collected because of a lack of IRS resources or the IRS cannot locate the taxpayer; (2) More than 1/3 of the statute of limitations has lapsed and no IRS employee has been assigned the collection; and (3) in the case of a collection that has been assigned to an IRS employee, but more than 365 days have passed without interaction with the taxpayer or a third party for furthering the collection.
A private debt collector may not be used when (1) there is a pending or active offer-in-compromise or installment agreement; (2) it is an innocent spouse case; (3) the taxpayer is deceased, under 18, in a combat zone, or a victim of tax-related identity theft; (4) the taxpayer is under examination, litigation, criminal investigation, or levy; or (5) the debt is in the process of an appeal.
Taxpayers should be aware of the procedures and the restrictions on these private debt collectors. If a tax debt is turned over to a private debt collector, the taxpayer will receive a letter notifying them of the outstanding debt and that it is being turned over to the debt collection company. In addition, the debt collection company will not be able to accept payment over the phone as the IRS will continue to process payments. As private debt collectors, these debt collectors will be subject to the Fair Debt Collection Practices Act. The Fair Debt Collocation Practices Act prohibits debt collectors from engaging in certain abusive or deceptive conduct. If the private debt collector violates the Fair Debt Collection Practices Act, the taxpayer may be able to recover damages. Nevertheless, taxpayers should remain vigilant and informed regarding tax scams as the increased involvement of private debt collectors may give rise to new scams or related issues.
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