IRS Panel Discusses Private Debt Collection Program

WASHINGTON – On the June 14 Webcast of Tax Talk Today, IRS Collection officials and tax professionals discussed recent legislative changes affecting tax practitioners who represent clients in collection cases. From a new type of installment agreement called partial payment, to provisions permitting the IRS to assign some collection accounts to private collection agencies, this month’s panel of experts covered a wide range of information regarding the changing directions of IRS Collections.

In a taped segment that preceded the live panel discussion, IRS Commissioner Mark W. Everson commented on the $300 billion tax gap — the difference between taxes owed and taxes collected — and the IRS’ increasing efforts to reduce that number. Those efforts include the planned January 2006 launch of the IRS initiative to use private collection agencies, a move that stems from provisions in the 2004 American Jobs Creation Act.

“Certainly, if we can reduce that tax gap, that’s really going to help the country,” said Everson. “Also, I would say it’s a question of basic respect for the rule of law. We can’t have people not paying what they owe.”

In a lively discussion of collections procedures and payment options, the Tax Talk Today panel of experts discussed details and concerns regarding private collection agencies and the new partial payment installment agreements, and fielded multiple viewer questions on both subjects.

“The Private Debt Collection Program itself really is a supplement to our own resources,” said Brady R. Bennett, Director, Collection, Small Business and Self-Employed Division, IRS. “There’s a lot of work out there that we just can’t get to based on our own resource level.”

The IRS expects to contract with three private collection agencies for the Limited Implementation Phase, which kicks off in January 2006. This Phase will initially include only individual taxpayers who owe less than $25,000 (all assessed taxes, penalties and interest due) and represent what the IRS terms “a high likelihood of collectibility.” These are taxpayers who have previously agreed to any assessments and may also have made payments. Because IRS studies have shown no correlation between amount of taxes owed and level of income, the Private Debt Collection Initiate will not be focusing on any one category of taxpayers.

“We’re not going to be looking at profiles by either age, or income, or geographic area,” said Deborah Gascard Wolf, Business Requirements Director, Filing and Payment Compliance Modernization Project, Wage and Investment Division, IRS. “They will be randomly selected by the amount that they owe.”

Taxpayers assigned to a private collection agency will receive a letter of notification from the IRS that includes contact information for both the collection agency and the IRS. The collection agency will have the authority to reach a viable payment agreement with the taxpayer, which must meet IRS standards, but will have no enforcement capabilities. All tax payments will still be made directly to the IRS. Taxpayers are fully covered by the Fair Debt Collection Practices Act that covers disputes and other issues.

Tax practitioners should brush up on their knowledge of collection procedures, payment options and the Taxpayer Bill of Rights, because experts predict a wave of queries from concerned taxpayers.

“I think it’s going to start making phones ring again for practitioners, which is a good thing,” said Claudia Hill, EA, MBA, owner and principal, Tax Mam, Inc. “But I also think it’s a good time for practitioners to hone their collection skills.”

Oftentimes, the taxpayer does not come to the tax practitioner until trouble is already brewing. When that happens, the panel urges practitioners to find out exactly where the potential client is in the process, decide whether to represent the client, and then get complete transcripts of actions taken to date.

“Practitioners have to be careful of the client that delays,” cautioned Robert E. Panoff, Esquire, P.A. “It can look like the rep is participating in the delay and create the wrong impression about the professional ethics of that rep.”

Partial payment installment agreements, another hot topic with the Tax Talk Today panel, may provide relief for taxpayers unable to pay their total tax liability within the Collection Statute of Limitations. The IRS is now able to accept partial payment installment agreements when the taxpayer cannot full pay the liability before the collection statute expires.

“Anything that increases the various alternatives to deal with a collection issue is a positive event,” commented Panoff. “It’s a useful tool.”

In addition to partial payments, panelists discussed Offers in Compromise and modifications to Form 656. A comparison of the different payment options now available, including the new partial payment installment agreement, can be accessed at http://www.taxtalktoday.tv. Information on changes to Form 656 can be found on the IRS Web site at http://www.IRS.gov.

Another topic covered by the Tax Talk Today panel was pyramiding, which usually involves one of two categories of unpaid employment taxes:

• More than one quarter of unpaid employment taxes, or

• “Musical corporations,” in which unpaid employment taxes accumulate within an entity that is then disbanded and restarted under a new employer identification number. This activity is more likely to warrant scrutiny and possible criminal prosecution from the IRS.

“As the IRS continues to focus on collection and payment options, tax practitioners and their clients can expect to see an increased presence of revenue officers in the field,” said Brady Bennett. “Clear communication between the tax practitioner and the revenue officer will be the key component to managing the payment of tax liabilities to the satisfaction of all parties.”

A full transcript of this month’s Webcast — titled “What’s New with IRS Collection — Partial Payment Installment Agreements and Much More” — can be accessed at: http://www.taxtalktoday.tv/index.cfm?pgname=5.71&pro=84.

Tax Talk Today is co-sponsored by the IRS. The next Webcast, “What You and Your Clients Need to Know about Deferred Comp Plans,” will be Tuesday, July 12, from 2 p.m. to 3 p.m. ET.