Private Collectors May Still Go After Tax Debt, Advocate Warns

By Stephen K. Cooper
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Law360 (April 10, 2020, 7:34 PM EDT) -- Although the IRS suspended collection activities on new cases of hard-to-settle unpaid tax liabilities during the novel coronavirus pandemic, taxpayers already targeted by the agency's private debt collection agencies may not get a break, a taxpayer rights advocate said Friday.

The Internal Revenue Service pledged not to transfer any new cases to its network of private debt collectors until July 15 as part of its People First Initiative announced in March. However, the agency's failure to clearly address the status of existing cases in the pipeline has drawn attention from tax lawyers and taxpayer advocates. 

Nina Olson, executive director of the Center for Taxpayer Rights, said the IRS should make it clear that low-income, elderly and disabled taxpayers will not face collection activities by IRS debt collectors.

"That there is even the remotest possibility in the course of this economic and health crisis a [private collection agency] employee would contact a taxpayer who is low income, or receiving Social Security Disability Income (SSDI) or Supplemental Security Income (SSI), is unconscionable," said Olson, the former National Taxpayer Advocate who retired in 2019.

The IRS didn't respond to several requests for comment.

In a March notice, the agency said it would lighten enforcement efforts from April 1 to July 15. However, the IRS encouraged taxpayers to cooperate in extending any expiring statute of limitations that are jeopardized during the period or face a notice of deficiency.

IRS agents are also avoiding in-person contact with taxpayers, postponing payments due under installment plans and suspending automatic liens and levies during the time period, the notice said.

Olson said the IRS' lack of clarity about how it's treating existing cases held by private debt collection agencies is particularly troubling because it hasn't implemented the Taxpayer First Act requirement to exclude from referrals people who receive SSDI or SSI.

The IRS agreed to the exclusion in 2015 "in response to a taxpayer advocate directive issued by me, and it never did," Olson said. "The IRS said it was too difficult to program, so these taxpayers could just self-identify, which is absurd and harmful to these vulnerable taxpayers." 

The ABA Section of Taxation recommended in a Monday comment letter that the IRS should instruct private collection agencies to suspend all private debt collection, not merely "new" delinquent accounts.

Alternatively, the IRS could transfer from the private collection agency to the agency, pursuant to the Fair Debt Collection Practices Act, any account where the taxpayer has been affected by COVID-19, the respiratory illness caused by the coronavirus, the ABA tax section letter said.

The transfer should take place "if the service determines that private collection agencies are not prepared to respond adequately to the medical and financial issues affecting taxpayers impacted by the COVID-19 emergency," the letter said.

Olson said low-income taxpayers could see their $1,200 economic recovery payments threatened by private collection agencies.

"What is to stop a PCA employee from saying to the taxpayer, 'Well, now you can make a one-time payment toward the debt,'" Olson said. "Folks are afraid and will agree to pay."

She added, "Since the IRS hasn't implemented the low income/SSDI/SSI filters, the right thing to do is tell the PCAs to stand down until July 15 at the earliest."

--Additional reporting by David van den Berg, Dylan Moroses and Amy Lee Rosen. Editing by Neil Cohen.

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