Understanding IRS Use of Private Debt Collectors for Inactive Tax Receivables

The Internal Revenue Code permits the IRS to leverage private debt collectors to pursue “inactive tax receivables” for which the agency is not actively engaging. Typically, this occurs when:

1. A taxpayer or their representative has not interacted with the IRS on an open matter in over a year;
2. An assessment is more than two years old and the case has not been assigned to an IRS agent, or;
3. The IRS lacks the resources to pursue, or cannot locate, the taxpayer.

When the IRS turns over a collection matter, it sends a notice indicating which of the three contracted collection agencies will contact the taxpayer. The letter provides the taxpayer with the phone number of the collection agency, FAQs about the collection process, and the option for a written request to work directly with the IRS instead of the collection agency. In addition, to ensure the safety of private information, the notice will contain a Taxpayer Authentication Number, allowing the taxpayer to verify the representation of the collection agency.

Collection agencies do have the ability to schedule payment plan arrangements for those who can pay their debt within seven years or before the collection expiration date. However, payment plans beyond seven years must be negotiated directly with the IRS. Similarly, partial payment plans and offer-in-compromise (that which allows an individual to settle a tax debt for less than the full amount owed) can only be approved by the IRS.

For more information on the IRS’s debt collection methods or for assistance with settling a tax delinquency, please contact Alan Goldenberg, Principal and Leader of Anchin’s State and Local Tax (SALT) and Tax Controversy groups, or your Anchin Relationship Partner.