06 Feb How the IRS Managed to Improve Tax Collection with the Use of Third Parties
For a long time, it was the IRS themselves who were the ones trying to collect the money you owed them. However, at one point, they decided to start hiring private agencies to do the same in their name. The first attempt didn’t go well, but after many years, in 2017, they started it again. Today, it works like a charm – at least for the IRS.
In this article, we wanted to investigate how this works, why it’s effective for the IRS, and what you can do to protect yourself from these agencies. Let’s take a look:
How Does the IRS – Third-Party Debt Collector Relationship Work
The most important thing you should know is that the IRS uses specific agencies that have limited rights in what they can do with taxpayers. Only four agencies are allowed to act as debt collectors for the IRS:
This means that only these four agencies can come to collect taxes and debts from you in the name of the IRS, and no one else! If some other agency tries this, you can safely ignore them or report them to the police.
Also, before you get contacted by either of these four agencies, the IRS will send you a letter. This is the Notice CP40, which tells you that you have been assigned to a private collection agency.
After that, the collection agency in question sends you their initial letter, which explains how you can pay the taxes you owe.
Once all of that happens, you are required to communicate with the agency and try to work things out by paying your debts or by finding ways to resolve your overdue taxes. Naturally, you need to be aware that you have particular rights when this happens – the agency cannot do whatever they want! Take a look at our previous article to learn about your rights.
Why Does This Work for the IRS?
Well, in all honesty, it doesn’t. At least not in the way it was supposed to work. However, the IRS ends up getting the money that they are owed, and it seems that this works for them. Besides, it works well for the agencies, since they are allowed to keep up to 25% of the money they collect.
On the other side of the spectrum, the taxpayers who are targeted by these collection agencies often don’t have the means to settle their debts quickly. In most cases, they are then offered the possibility to enter into installment agreements, which they can’t afford either.
If that weren’t enough, the U.S. government gets the other short straw, as the U.S. Treasury needs to spend more on this program than it ends up getting in return.
Key Takeaways and How to Protect Yourself from These Agencies
The unfortunate reality is that this system is unlikely to change soon. Significant opposition to it existed from the beginning, but it ended up becoming law anyway.
The only thing that you can do is to try not to reach the point where the IRS sends their bullies in the form of these collection agencies. However, if you do get into this predicament, you should know your rights and what the best option for you is. We at Golden Tax Relief specialize in cases like these and can help you deal with these agencies and the IRS. Give us a call to learn more!