Starting in April of this year, the IRS began using 4 private debt collection agencies to go after taxpayers who have outstanding balances.  The companies are CBE, ConServe (how’s that for a horrible name?), Performant, and Pioneer.  This isn’t the first time the IRS has gone to private debt collection.  A 1996 program cost the IRS $4.1 million and collected only $3.1 million.  In 2006 the service went after $1.8 billion of debt that was 1-3 years old.  An analysis by the Office of the Taxpayer Advocate determined the program had little success.  The IRS did a better job collecting 62% more than the private collectors did.

So why do it again?  Who knows.  The present state of the IRS is one of complete and total disarray.  It’s the worst I’ve seen in 39 years of practice.

One of the collection companies, Pioneer, is already in hot water.  The collection process is governed by the rules of the Fair Debt Collections Practices Act.  Pioneer has been accused of violating that act, failing to protect taxpayers from criminals posing as IRS agents, pressuring taxpayers into risky financial transactions (mortgaging a home, liquidating retirement funds, etc.), and violating IRS guidelines.

The way the process works is the IRS sends the delinquent taxpayer a letter informing that a collection agency will take over and the name of the agency.  The the collection agency sends its own letter to the taxpayer.  Both letters are to contain information ( a code) that will help the taxpayer verify the legitimacy of the collection agency.  The collection agency then can set up payment options including installment agreements.  No money is ever to be sent to the agency, but rather directly to the IRS and made payable to the US Treasury.

In my opinion the service has made a terrible decision to go this route.  It opens the door for another way that scammers can dupe taxpayers.  And, since not many people even know about the program most who are contacted will likely think any notification is a scam, even if it’s legit.  Just like with any tax issue initiated against you by the IRS it is in your best interest to contact a tax professional to assess the situation before taking any action.  Yes it will cost you money to hire someone, but you can thank the IRS for that.