IRS Ends Contract With Private Debt Collectors

The Internal Revenue Service, over the past couple of years, has been hiring other companies to do its job. Specifically, the collection of tax debts between five and ten thousand dollars was being contracted out to private debt collection companies.

This arrangement was recently discontinued, and it's all over the news. What's less all over the news is what that means to you, the person in need of tax debt relief from the IRS.

Here are three ways this change may affect your ability to obtain tax debt relief.

1. IRS Agents, Unlike Private Debt Collectors, Have the Power

Private debt collection companies do one thing and one thing only: collect debt. Whether it's credit cards, car loans, or tax debt really doesn't matter to the private debt collectors. They are focused exclusively on collecting that debt.

IRS employees, however, have familiarity with tax debt and people who need tax debt relief. This familiarity is important to you if you owe tax debt, because IRS collectors can advise taxpayers on forms to file and departments to call.

What's more, certain IRS agents have been authorized to make arrangements with taxpayers, including installment agreements and offers in compromise.

"In these challenging economic times, I have asked all IRS employees to go the extra mile to help financially distressed taxpayers," IRS Commissioner Doug Shulman has said to reporters.

Private debt collectors have no such power and no such incentive.

2. Tax Debt More Effectively Collected by the Government

The temptation with a private debt collector is to view the collector as a hired mercenary with no right to receive payment of any kind. The IRS, by contrast, is the actual agency to which the tax debt is owed.

This may have been a factor in the low tax debt collection rates of private collectors: 11 cents per dollar, compared to the IRS rate of 24 cents per dollar.

Of course, if you need tax debt relief, this is a double-edged sword. The IRS has more power to levy bank accounts and other assets than a private collection agency.

3. Less Harassment or More? Time Will Tell

Although widespread abuse has not been documented in the case of the private contractors the IRS has hired, private debt collection horror stories are plentiful.

By the same token, IRS collection horror stories are not exactly scarce. Before the IRS reforms that took place in the late 1980s, IRS tax debt collection policies were borderline terrorism.

It's unlikely that the IRS returning to in-house debt collection will mean a return to the hard-core collection processes of years past.

Still, if there ever was a time to cut a deal with the IRS to settle your tax debt once and for all, now looks a lot like that time. The fact that IRS agents are doing the collecting, overall, may enhance your chances of obtaining tax debt relief....

But be prepared to pay that 24 cents on the dollar.

About the Author:
Andrew Freiburghouse is a freelance writer and editor living in Brooklyn, NY. He has worked in a variety of fields including magazine journalism, tax preparation, screenwriting, copywriting, and real estate. He graduated from Santa Clara University in 1999 with a B.A. in English. A regular contributor at tech blog Edgelings.com, Andrew was born and raised in the City of Los Angeles. He hopes he will survive the New York winter.