By the time debt collectors start contacting them, debtors should consider discussing their situations with an experienced New York bankruptcy lawyer. This counts doubly for when the debt collector is trying to recover a tax debt. Wait, what’s that again? A debt collector pursuing a public debt rather than a private one? Yes, it’s true. A few years ago, a handful of debt collectors received a lucky break: Congress authorized the IRS to hire private debt-collection firms to collect on tax debts that it was giving up on. The decision bucks a long-term IRS policy of never directly contacting taxpayers by phone. There are several reasons for why this is a bad policy for debtors and why New York bankruptcy is preferable to dealing with tax-debt collectors.
- Private tax collectors have every incentive to pad their bottom lines at debtors’ expenses. Privatizing debt-collection efforts has never worked particularly well for the federal government. When it’s tried to do so before, such as student-loan collection or even servicing, its private-sector agents did everything they could to maximize debtors’ payments, for example, by neglecting to tell debtors of their income-sensitive repayment options. For IRS debts the results will be similar.
- The IRS will need to work extra hard to monitor the collectors. Debt collectors do not have an incentive to behave scrupulously, so the government will have to monitor their behavior, track complaints via hotlines, and maintain a manual instructing the collectors on how it wants them to behave. Ultimately, these burdens help create a mechanism for punishing poorer debtors rather than detecting tax evasion by wealthy tax dodgers.
- Finally, private tax collection opens the door to scammers pretending to work on behalf of the IRS. Back when the IRS never contacting debtors by phone, it was easy enough to spot a fraudster, but now, how can debtors tell whether the person calling them is validly working on a government contract?
This last question is the most important, and there are two answers to it. One, the IRS will only contact certain debtors. In particular, the debt must have fallen through the cracks for a variety of reasons: the taxpayer couldn’t be found, more than one-third of the ten-year limitations period has run on the tax debt, or the IRS has not interacted with the taxpayer for more than one year. Also, the IRS won’t hand over some debts under any circumstances, notably those owed by minors or armed-service personnel in active combat zones.
As for avoiding scams, debtors can note the following:
- Whether they knew about the debt before the call. The IRS will try to reach out to debtors by mail before handing their cases to collectors.
- Whether the debt collector requests the payment to go to its accounts rather than to the IRS. This should be a clear giveaway that the caller is lying. Federal tax payments go to the IRS, not collectors.
- Whether they’ve already negotiated with the IRS. The IRS’s goal is to outsource tax debts that are hard to collect, not those that it’s negotiating over.
- Whether the collector is breaking the Fair Debt Collections Practices Act (FDCPA). Even if they’re working for the IRS, the FDCPA applies to tax-debt collectors.
Just remember, if you owe a tax debt, then it might be dischargeable in a chapter 7 New York bankruptcy. Even if it’s not, then debtors can always use chapter 13 to use the automatic stay to prevent further collection calls. Finally, negotiating with the IRS is possible. Contacting an experienced New York bankruptcy lawyer can help you evaluate these options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.