IRS Private Debt Collectors Accused Of Pressuring Taxpayers

There’s a new law in effect where the Internal Revenue Service now can pass along unpaid tax bills to private debt collectors.

If you know anything about debt collection at all, you can get a sense for just how problematic this new law may be. In fact, according to Forbes, many U.S. senators have already come on record regarding the way that these debt collectors are handling certain taxpayer accounts. Specifically, Pioneer Credit Recovery has been among those that have been targeted by the concerned senators.

Issues with IRS Private Debt Collectors

So just what are some of the major issues when it comes to IRS private debt collectors? Forbes states that in their letter regarding Pioneer Credit Recovery, Sens. Sherrod Brown (D-OH), Benjamin Cardin (D-MD), Jeff Merkley (D-OR) and Elizabeth Warren (D-MA) have found the issues to be four-fold:

Concerns about properly protecting U.S. taxpayers from criminal debt collectors posing as IRS agents.
Pressuring taxpayers into illegal, illogical or complicated payment plans or transactions.
Violation of the Fair Debt Collection Practices Act.
Violation of IRS protocol and guidelines.

While all of the aforementioned issues are of grave concern, the one that the senators have found to be most alarming thus far is the potential violation of the Fair Debt Collection Practices Act. This is largely because of Pioneer’s short lapse in collection attempts regarding letters sent to verify debt and confirm debt collector legitimacy. Pioneer’s short five-day window has the potential to allow scammers to swoop in and capitalize.

Additionally, Forbes reports that there are also major concerns about how much taxpayers are being pressured into settling debts or moving around assets to compensate for their unpaid debts, notably among low-income taxpayers. Under the Federal Trade Commission’s Fair Debt Collection Practices Act, it’s illegal for a debt collector to use any sort of threat, abusive language or unfair or deceptive practices when it comes to collecting debt. However, after looking into the call scripts of Pioneer, the senators have found concerns regarding the collector’s ability to stay within these set confines.

Additionally, Forbes reports that there are also major concerns about how much taxpayers are being pressured into settling debts or moving around assets to compensate for their unpaid debts, notably among low-income taxpayers. Under the Federal Trade Commission’s Fair Debt Collection Practices Act, it’s illegal for a debt collector to use any sort of threat, abusive language or unfair or deceptive practices when it comes to collecting debt. However, after looking into the call scripts of Pioneer, the senators have found concerns regarding the collector’s ability to stay within these set confines.

It’s worth noting that in response to the senators’ letter and concerns about possible illegal collection practices, Pioneer has responded defending its integrity and claiming that all of its collections practices fall within legal lines. Forbes states that Pioneer is just one of four agencies that the IRS authorizes to collect debt on its behalf. The other three are CBE, ConServe and Performant.

It’s worth noting that in response to the senators’ letter and concerns about possible illegal collection practices, Pioneer has responded defending its integrity and claiming that all of its collections practices fall within legal lines. Forbes states that Pioneer is just one of four agencies that the IRS authorizes to collect debt on its behalf. The other three are CBE, ConServe and Performant.

Separating Scam from Legit: What You Need to Know

You’ll get an IRS letter if your tax account has been passed to a debt collector. Private debt collection agencies still must abide by the Fair Debt Collection Practices Act. All payments must go to the IRS – not to any debt collection agency (or those posing to be a debt collection agency). Debt agencies are unable to place tax liens or issue any sort of levy against taxpayers.

You’ll get an IRS letter if your tax account has been passed to a debt collector.
Private debt collection agencies still must abide by the Fair Debt Collection Practices Act.
All payments must go to the IRS – not to any debt collection agency (or those posing to be a debt collection agency).
Debt agencies are unable to place tax liens or issue any sort of levy against taxpayers.

Not Collectible Status

What is “Not Collectible Status? One way or the other, the IRS is going to get the money that you owe it. If you owe taxes, preferably, the IRS will receive this payment during tax season following the completion and submission of your annual tax return. But for some people that either owe taxes, have fallen behind on taxes or have just flat-out stopped filing tax returns, the fact is that they may not have the financial means to keep up with what they owe to the IRS. If the IRS finds out that they have no chance of collecting what is rightfully owed to them from a delinquent taxpayer, than a particular individual is marked “CNC,” or “currently not collectible status.” This post will take a closer look at how this designation works.

Not Collectible Status : CNC 101: The Basics

As we noted in the opening, the IRS is going to know if you fall behind paying taxes or filing your tax returns – and it is going to come after you for it, either via mailed notices, phone calls or home visits until you give them what you owe. But if all this fails, it’ll likely enforce collection. This is done by garnishing your salary, taking control of your bank accounts and/or selling off other properties or assets you own.

However, if you’re able to prove to the IRS that their actions through enforced collection would present an “economic hardship,” then the IRS will likely place a hold on your status by identifying you as “currently not collectible.” Be warned though that achieving this status is a process, and what you may perceive to be an economic hardship the IRS may merely conclude is just an inconvenience – so it’s a bit of a process to achieve CNC designation and, ultimately, the IRS has the final say.

CNC Payment Process

Like we’ve been saying, sooner or later the IRS gets what its wants – so don’t think that CNC status is the end to your tax problems. It’s a compromise on behalf of the IRS – no tax is forgiven and you’ll still certainly be subject to penalties that you’ve accrued by failing to pay your taxes or failure to file the proper documentation.

So, just how does the IRS get its money? There are a few ways:

Follow-up date: In some cases, the IRS may designate a follow-up date on your CNC status, meaning that they reopen it and send it back to collections to start the process again.
Automatic re-opening: Should you fail to file a tax return or continue to let back taxes accrue, the IRS can re-open your case for collection. It can also re-open your case if it’s found that your financial situation has changed and you’re now better able to pay.
Refund repayment: Many CNC cases are also resolved by arranging that future tax refunds that you’re owed go toward paying unpaid taxes.

The important thing to remember when it comes to CNC, is that the “C” stands for “currently” – not “permanently.” And one way or the other, the IRS will get the money you owe it. If anything, CNC status should serve as a much-needed wakeup call to the particular individual to get their taxes in order, to get their finances in order and to make good with the IRS.

Forgiven Debt – 1099-C Surprise

Like many Americans, you’ve had some credit mishaps in the past. But you were greatly relieved when you settled one of them last year – the one that involved your unpaid credit card debt. Aside from the relief you felt, you were also happy – happy that you settled with the debt collector by agreeing to pay several thousand dollars less than what you actually owed.

But now your relief and happiness has turned to confusion, as you’ve received a 1099-C, or a cancelation of debt notice, that you’ll have to claim the forgiven debt as taxable income. What gives?

While the scenario described above is nothing more than a hypothetical, it’s also a situation that accurately depicts what a lot of consumers experience per year – that the IRS considers some forgiven debt as taxable income. And when Uncle Sam comes knocking, it’s time to pay up…

1099-C Explained

As we noted in the opening, the 1099-C form is a cancelation of debt form. And if you’ve settled a debt that’s at least $600 less than the original balance, the IRS considers that taxable income. Depending on the amount of debt settled, this 1099-C form can have a sizeable reduction in the refund you’re due – or even significantly increase the tax payment you’re due to turn in on tax day.

There are some exceptions, and the experts advise that you consult with an accountant to learn whether or not you qualify for them if you get a 1099-C in the mail.

Avoiding the 1099-C

The issue of the 1099-C and forgiven debt as taxable income is a good time to remind you of some ways to stay out of credit trouble. After all, not only do negatives on your report impact your credit score, but they can also be a financial burden.

Get smart: Most people make these credit mistakes when they’re young, usually before age 30. So before you open a line of credit, brush up on your financial planning tactics and know the importance of a good credit score. It’s easy to read these things and say “that’ll never be me,” but this is reality – it very well could be you.
Pay on time: Many people fall into a downward spiral of debt when they fail to pay on time and just keep putting off payment until it goes to collections. Pay on time – even if it’s just the minimum payment.
Make high-interest debt a priority: The larger the interest rate, the more you’ll be paying over time. So if you have numerous balances, make sure you’re making the required payments on all of them – but put the high-interest ones first. You’ll save more in the long run.