Back in December of 2015, Congress passed a law that requires the IRS to hire private debt collectors. Today, the IRS hired those debt collectors and the program will begin in earnest after October 15.
The primary job of IRS private debt collectors will be to target expats and residents with delinquent tax bills. If you owe Uncle Sam, get ready for the harassment and late night calls that are sure to come.
In addition to the obvious concerns of harassment and your private data being handed over to a debt collector, the IRS outsourcing collections to debt collectors opens the door to scammers. How can we expats know the difference from a real collection agent and a scammer?
Most of us know that the IRS doesn’t call you to collect a debt. If they want your attention, they mail a letter to your last know address, an agent visits your house, they levy your bank account and garnish your wages. Those are the ONLY methods the IRS uses to “contact” a taxpayer. If you receive a call from someone claiming to be from the IRS, it’s a scam.
Now that debt collectors will begin targeting Americans, this logic out the window. These debt collectors will use any and all resources at their disposal to find and coerce you into paying so they earn their commission. They will use late night calls and auto dialers… the exact methods the IRS warned us about in this August 2016 post.
This is especially important for expat Americans. If you and your assets are out of the United States, the only way these contractors can pressure you is over the phone. Seems unlikely they’ll fly to Panama or Belize, so expect phone calls to begin rolling into you, your employer, and your friends.
And we expat Americans will be the primary targets of these debt collectors. If the IRS has been unable to collect from you, because your assets are protected offshore, your case will be transferred to a debt collector.
- The IRS can levy an offshore account if your bank has a branch in the United States. If you are living abroad, you might do well to select a bank that does not have a branch in America.
I should also remind you that the IRS can revoke your US passport. If you owe more than $50,000, the government can revoke or refuse you a United States passport. For more on this, see my article Warning: The IRS Can Now Revoke Your Passport.
Note that this law doesn’t “allow” the IRS to use private debt collectors. It “requires” the Service to hand off all cold cases. There’s little in the way of discretion: IRS is required to use private debt collection companies to collect “inactive tax receivables.” Inactive tax receivables are defined as any tax debt that’s been:
- removed from the active inventory for lack of resources or inability to locate the taxpayer;
- for which more than 1/3 of the applicable limitations period has lapsed and no IRS employee has been assigned to collect the receivable; or
- for which, a receivable has been assigned for collection, but more than 365 days have passed without interaction with the taxpayer or a third party for purposes of furthering the collection.
The only debts which won’t be sent to private debt collection companies are those with a pending an Offer-in-compromise, installment agreement, or innocent spouse claim. Basically, if the IRS is unable to collect from you because you filed a dispute that has tolled the statute of limitations, your case can’t be sent to collections.
Keep in mind that your tax debt usually expires 10 years from the date you filed the return. Because the IRS has no budget to chase down these cold cases, they’re pushing them off to hoping private debt collectors will bring in free money… cash they wouldn’t have received had they held on to the cases.
The objective is to force you into paying before the statute runs out. For us expats, to convince us over the phone that they will get us if we don’t pay, even though there’s no chance they can follow through on that threat.
Worried yet? Here’s a bit of history that gives me hope that this program will be short lived. Back in 1996-1997 a similar pilot program resulted in a $17 million net loss to the government before it was shut down. The IRS tried again in the the mid-2000s and lost $4.5 million (expenses exceeded receivables by $4.5 million).
Here are the four companies approved by the Service to receive your tax account information:
- CBE Group 1309 Technology Pkwy Cedar Falls, IA 50613
- Conserve 200 CrossKeys Office park Fairport, NY 14450
- Performant 333 N Canyons Pkwy Livermore, CA 94551
- Pioneer 325 Daniel Zenker Dr Horseheads, NY 14845
Since this article is focused on expat Americans, I should point out that you must file your IRS forms each year. Failure to file your FBAR, foreign asset statement or foreign corporate return can be a crime. Likewise, sending money out of the US for the purpose of keeping away from the IRS can be a crime. If you can afford to pay your US taxes, you must do so.
Expat Tips for Dealing with the IRS Private Debt Collectors
If you owe the IRS more than you can afford to pay, and you’re living abroad, selecting a bank that doesn’t have a branch in the US is prudent.
If you can afford to make monthly payments, I suggest you set up an installment agreement.
If you can afford a lump-sum payment, but not monthly payments, I suggest you set up an Offer in Compromise.
If you can’t afford to make any payments, then you might file a request to be considered uncollectable.
If you will do nothing, be aware that private debt collectors are on their way… and that scammers are sure to be close behind. Watch out and do what you need to do to protect yourselves.
Sometimes doing nothing is the best option. If you have a year or two left on your collection statute, any filing you make might draw attention to your case.
Living abroad tolls your collection statute. However, IRS computers rarely pick up on this. The vast majority of my expat clients have their debts forgiven after the 10 year statute runs out. Filing and Offer in Compromise or contacting the Service puts that at risk.
I hope you’ve found this article on the IRS hiring private debt collectors to be helpful. If you would like a referral to an expert who can assist you with an Offer in Compromise, installment agreement, or an uncollectable request, please contact me at email@example.com. Likewise, if you would like a referral to an offshore bank, send me an email.