In Dec. 2016, Congress authorized a bill allowing private debt collectors to recover unpaid tax debts. The law is part of the Fixing America’s Surface Transportation Act, and it authorizes the IRS to use specific debt agencies to collect inactive receivables. Taxpayers with past due debts might be able to negotiate IRS settlements, for less than the amount of their total balances.
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Types of Tax Debts that Might be Collected by Private Agencies
The IRS may send inactive receivable tax debts to the collection agencies if a) the tax debt was removed from the agency’s active tax debt inventory, b) the IRS is unable to find the taxpayer, or c) the taxpayer has limited resources. Also, older debts without an agent can fall under the inactive umbrella. Plus, debts may be declared inactive if more than a year has passed since the IRS connected with the taxpayer.
What Happens When a Tax Debt is Assigned to a Private Debt Collector?
Debts offloaded by the IRS must comply with requirements outlined in the Fair Debt Collection Practices Act. Note, however, that debt collectors may not request payments via prepaid debit cards. If they do, it could be a scam. So, be careful.
Taxpayers will not have their accounts transferred to private debt collection agencies if they have pending or active offers in compromise or are currently under investigation by the IRS.
Taxpayers who owe substantial amounts of tax debts should not ignore them in the hope that they will go away. It is possible to negotiate an IRS tax settlement that might include paying less than the total amount owed, giving taxpayers fresh starts.