The Internal Revenue Service has released additional guidance about its new and controversial “Private Debt Collection” program — which requires the use of private debt collectors to collect certain delinquent tax debts — while fraudsters continue to scam unsuspecting victims by posing as IRS debt collectors.

According to the new guidance which will be incorporated into the Internal Revenue Manual, “[t]he IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continuing scams where callers impersonate IRS agents and request immediate payment.” To this end, the IRS will utilize the following procedures when a taxpayer’s account is referred to a private collection agency (PCA):

• The IRS will first send a letter to the taxpayer indicating that their account that the module has been assigned to the PCA.
• The PCA will also send a letter to the taxpayer to confirm that the module has been assigned to them.
• Both of these letters to the taxpayer will contain a unique 10-digit identifier, instead of the taxpayer’s SSN.
• This unique identifier will be used to conduct a two-party verification between the taxpayer and the PCA.
• Taxpayers can confirm the names of the PCAs under contract with the IRS at this link:   https://www.irs.gov/businesses/small-businesses-self-employed/private-debt-collection.
• PCAs will not ask for payment on prepaid debit, gift or iTunes cards (a common technique used by fraudsters impersonating IRS representatives).
• Payment by check will be payable to the “United States Treasury” and sent directly to IRS, not the PCA.

The IRS has entered into collection contracts with only four PCAs: (1) CBE Group in Cedar Falls, Iowa; (2) ConServe in Fairport, New York; (3) Performant in Pleasanton, California; and (4) Pioneer in Horseheads, New York. Each of the PCAs are authorized to identify themselves as contractors of the IRS collecting taxes. Private debt collectors are required to be courteous and respect taxpayers’ rights. They must follow provisions of Internal Revenue Service Private Collection Agency Policy and Procedures Guide and the Fair Debt Collection Practices Act, and are also subject to various provisions of the Internal Revenue Code governing confidentiality of tax returns and return information.

Under the new law requiring the use of PCAs, the IRS must refer the following categories of collection cases to private collection agencies:

• Cases removed from active IRS inventory because of lack of resources;
• Cases removed from active IRS inventory due to inability to locate the taxpayer;
• Cases for which more than one-third of the 10 year statute of limitations for collection has passed and there has been no assignment to an IRS employee for collection; or
• Cases where 365 days have passed without taxpayer or third party interaction to further collection of the account.

In addition, IRS has the discretion to refer other types of collection cases to PCAs as appropriate.

The following types of collection cases may not be referred to PCAs:

• Cases involving a taxpayer that is deceased;
• Cases involving a taxpayer that is under the age of 18;
• Cases involving a taxpayer located in a designated Combat Zone;
• Cases involving a taxpayer that is the victim of tax-related identity theft;
• Cases involving a taxpayer under examination, litigation, criminal investigation or levy;
• Cases subject to pending or active offers in compromise;
• Cases subject to a pending or active installment agreement;
• Cases subject to a statutory right of appeal;
• Innocent spouse cases; or
• Cases involving a taxpayer located in a presidentially declared disaster area who requests relief from collection.

Any case assigned to a PCA that subsequently meets any of the above criteria — due to a change in circumstances — will be returned to the IRS.

The IRS guidance also provides direction to IRS employees when contacted by taxpayers whose accounts have been referred to private collection agencies. Such taxpayers are to be advised that they must work directly with the PCA to work out collection issues, including the negotiation of installment agreements. Any taxpayer who says they feel threatened or have reason to believe they are being scammed are to be referred to the Treasury Inspection General for Tax Administration (TIGTA).

Critics of the IRS Private Debt Collection warn that it will provide fraudsters with additional opportunities to perpetrate a long-running scam where criminals prey on unsuspecting victims by posing as IRS representatives seeking to collect tax debts.  According to the Treasury Inspector General for Tax Administration, this widespread fraud scheme has caused taxpayer losses of over $55 million.  To date, more than 50 individuals have been criminally charged for their roles in a complex fraud scheme in which individuals from call centers in India impersonated IRS officials in demanding payment of back taxes.  Call center operators targeted U.S. victims who were threatened with arrest, imprisonment, fines, and/or deportation if they did not pay money allegedly owed to the IRS.  Victims who agreed to pay the scammers were instructed on how to provide payment, such as by purchasing stored value cards or wiring funds.

In federal court yesterday in Houston, an Indian national pleaded guilty to conspiracy to commit money laundering for his role in liquidating and laundering victim payments generated through various telephone fraud schemes using India-based call centers.  Also yesterday the Justice Department announced the arrest of seven individuals who are alleged to have participated in a nationwide scheme to steal $9 million from unsuspecting taxpayers by impersonating IRS agents.  In this scheme, individuals purporting to be employees of the IRS would call and threaten victims with legal action, arrest, and imprisonment for a supposed debt owed to the IRS.  The callers made these threats and used other methods of intimidation to persuade the victims to wire money utilizing MoneyGram, Walmart-2-Walmart Money Transfer, and other wire transfer services.  IRS investigators have currently identified nearly 8,000 victims of this fraud scheme and total loses approximating $9 million.

The Justice Department press release announcing yesterday’s arrests cautions taxpayer to be wary of telephone calls demanding payment of tax debts:

“No legitimate employee of the United States Treasury Department or the Internal Revenue Service will demand that anyone make payments via MoneyGram, Western Union, Walmart-2-Walmart Money Transfer, or any other money wiring method, for any debt to the IRS or the Department of the Treasury,”  J. Russell George, Treasury Inspector General for Tax Administration, said. “Nor will the Department of the Treasury demand that anyone pay a debt or secure one by using iTunes cards or other prepaid debit cards. If you receive one of these calls, hang up immediately and go to the Treasury Inspector General for Tax Administration (TIGTA) scam reporting page to report the call.”

With private collectors set to start making calls about overdue tax debts, taxpayers must be more vigilant than ever to ensure that they are dealing with legitimate representatives of either the IRS or a duly-authorized private collection agency.

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