IRS will use private debt collectors, but warns of potential scams

Debt collectors are coming ... for your years-overdue unpaid federal taxes.

The IRS said Tuesday it would start sending letters out this month to taxpayers whose longtime unpaid tax debts are being farmed out to authorized private debt collection firms.

The private debt collection program was created by a federal law enacted by Congress in December 2015.

The IRS told reporters that for the first month they plan to send out 100 letters a week. Assuming there are no problems with that process, the plan is to then start issuing 1,000 letters a week thereafter.

Of course, whenever debt collection is outsourced to the private sector by a government agency, that can provide a boon to scammers posing as federal agents or as the approved debt collection firms.

So here's what every taxpayer needs to know to avoid getting duped by con artists:

You'll hear from the IRS first.

If your case will be farmed out to a private collection firm, the IRS will notify you and your tax representative first by letter. That letter will include the name of the firm you'll be dealing with, along with the firm's contact information. Then the designated firm will send its own letter confirming that it will handle your case.

Initial contact won't be by phone.

"To protect the taxpayer's privacy and security, both the IRS letter and the collection firm's letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate," the IRS said.

You'll only be contacted if you have longstanding tax debts.

"Here's a simple rule to keep in mind. You won't get a call from a private collection firm unless you have unpaid tax debts going back several years and you've already heard from the IRS multiple times," said IRS Commissioner John Koskinen.

Only four firms are authorized by the IRS.

They are: CBE Group of Cedar Falls, Iowa; Conserve Of Fairport, New York; Performant of Livermore, California, and Pioneer of Horseheads, New York. Affected taxpayers will only be assigned to one of them. If you get a call or a letter from a different firm, they are not working with the IRS.

They can identify themselves as IRS contractors.

The private collection firms' agents who work on taxpayer cases are not IRS employees. But they are working on the federal government's behalf and should indicate that. And they "must be courteous and must respect taxpayer rights," according to the agency.

Related: What happens when you can't pay what you owe the IRS

Only send payments directly to the IRS.

You should never be asked to send payment to the firm or to anyone other than the IRS or U.S. Treasury. All checks must be made payable to the "United States Treasury."

Anyone calling and demanding immediate payment by prepaid debit card, gift card or wire transfer -- or asking for your credit card or debt card number -- is a fraud. Hang up.

The debt collectors still have to follow the rules.

The collection agencies must follow all the provisions of The Fair Debt Collection Practices Act, which protects consumers from abusive collection practices. For instance, debt collectors can't call a person's work, threaten harm or use profane language. And the times they may call are limited to certain hours.

The collectors also are not authorized to take enforcement actions against taxpayers (e.g., filing a notice of a federal tax lien or issuing a levy).

File a complaint if you've been mistreated.

If you feel your taxpayer rights have been violated or if you've fallen prey to a tax scammer, the IRS recommends registering your complaint with the Treasury Inspector General for Tax Administration.

You also may want to register your complaint with the Consumer Financial Protection Bureau, which has a database of more than 700,000 complaints, a quarter of which pertain to debt collectors.

Another reason to offer feedback: The program is essentially an experiment being watched closely not only by the IRS but by lawmakers. Also keeping an eye out will be the National Taxpayer Advocate and the Treasury employees' union, both of whom have expressed strong reservations about the program's cost-effectiveness and how it's structured, among other things.

Personal Finance


CNNMoney Sponsors