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Overdue tax bill? A collection agency may call
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The IRS is outsourcing only its simplest cases -- "low-hanging fruit" -- to the private collection agencies so that its own agents can focus on collecting more complex, high-dollar debts.

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"These are the simplest of debt collection cases where the taxpayer has acknowledged in some way that the money is owed, they just have not made a payment," says Lipold.

"In determining which cases to assign, the IRS is making different kinds of exclusions. For instance, if the IRS finds that there is any kind of litigation involved, that case is automatically not going to be assigned. If the death of a taxpayer is involved, that case is not going to be assigned. There are more than 30 exclusions. What we are looking for are the simplest of cases where we think there is a high probability that the debt collection agency is going to be able to make the collection."

The private collection agencies may only contact the taxpayers and/or their tax preparers, CPAs or lawyers. They are not authorized to negotiate with taxpayers or take enforcement actions such as liens, levies or seizures. And they can neither solicit nor accept payments -- those must go to an IRS lockbox.

Lipold says the IRS has budgeted for 70 full-time IRS employees to oversee the contractors. Private collection agencies that divulge taxpayer information could not only lose their contracts, but face fines and even imprisonment. The program's performance will be assessed in a special report due to Congress in 2008. There will likely be feedback from the Taxpayer Advocate's office as well.

"They do have a significant amount of IRS oversight on this," says Penaluna. "We really expect to see a lot of IRS people in our facility on a regular basis."

The collection agencies will be paid on a sliding scale of 21 percent to 24 percent of the tax collected: 21 percent for amounts above $10,000; 22 percent for amounts from $5,000-$10,000; 23 percent for amounts from $1,500-$5,000 and 24 percent for amounts under $1,500.

Rozanne Andersen, general counsel and senior vice president of legal and government affairs for ACA International, the Association of Credit and Collection Professionals, views the IRS program as an opportunity for debt collectors to earn some long-overdue respect.

"From the moment we read about President Bush's support for this program, we realized that even if only 12 collection agencies are ultimately selected, it really serves as a 'Good Housekeeping stamp of approval' on the industry. That's why, as an industry, we are so concerned that these agencies succeed."

All agree that the outsourcing initiative will be under close scrutiny from all sides, owing to the highly charged political nature of income tax today. Even if the $1.4 billion target goal is a mere drop in the bucket compared to the $2 trillion the IRS collects every year, just the act of attempting to collect it could help change the mind-set of the scofflaws out there.

"I think there is a general malaise on the part of the taxpaying public, and they believe it is highly unlikely that that IRS will follow up and audit you," says Andersen. "If for no other reason than to change that attitude, I think it's excellent that collection agencies will actually be following up on these past-due payment obligations."

Jay MacDonald is a contributing editor based in Austin, Texas.

Next up: How to tell if the IRS bill collector is legitimate

Bankrate.com's corrections policy -- Updated: Sept. 14, 2006
 
 
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