The Internal Revenue Service has received new powers through the federal FAST Act and the situation is likely to make some Connecticut taxpayers furious, a prominent Connecticut tax lawyer said.
Among them is the shifting of long overdue cases to private debt collectors, something that could make taxpayers more vulnerable to identity theft, said Eric Green of New Haven-based Green & Sklarz LLC. Another new power would suspend passports, a move that can be accomplished by the IRS turning over the names of alleged deadbeat taxpayers to the State Department.
“It’s going to be a nightmare,” said Green, who represents taxpayers before the IRS. “People are going to be very surprised by these things.”
The third-party collectors will only be able to refer taxpayers to payment options on IRS.gov or checks mailed directly to the IRS, the revenue service said this week. Collectors will not be asking for payments via debit or credit cards.
“The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment,” according to a Sept. 26 news release from the revenue service.
The Connecticut Department of Revenue Services has been using private debt collectors for years but is currently in between contracts, department spokesman James Carson said. The private debt collectors are only used after the department's usual attempts have been exhausted, Carson said. Longtime delinquency and moves out of state are some circumstances when the private companies may be brought in, he said.
The Connecticut Department of Administrative Services in June awarded $450,000 contracts to two companies – Account Control Technology Inc. of California and Nationwide Credit Corp. of Virginia – through a process that included requests for proposals. The contracts became active on July 1 and expire in 2021.
The state’s revenue services department is evaluating those companies for possible use, Carson said. Use of encryption software is among the issues being studied by revenue services administrators, he said.
“What we need is beyond what the other agencies need,” Carson said. “We get well into the weeds on this security stuff. We take our privacy obligations very seriously.”
Although a specific case has not been brought to the Connecticut branch of the American Civil Liberties Union, government outsourcing of tax collections is problematic, the group says.
“We would … be concerned about the government turning very sensitive personal information over to third-party companies, and about the real possibility for data breaches if that occurs,” said Meghan Smith, communications director for the Hartford-based American Civil Liberties Union of Connecticut.
Susan Kniep, a former East Hartford mayor who is president of the Federation of Connecticut Taxpayer Organizations, said she objects to all use of private companies to collect taxes. Among her concerns are how the firms are monitored and use of political connections in getting collection contracts.
“What recourse will those being pursued by these private debt collectors have should the heavy hand of those in the private sector go beyond what some may consider reasonable or if the tactics used extend outside the law?” she asked.
The new collection methods were not something sought by the IRS, according to Green, who testified at the national Taxpayer Advocate Service Forum in May. They were included in 30 pages added late to the Fixing America’s Surface Transportation, or FAST Act, signed by President Obama in December, he said.
The FAST Act provision is not the IRS’ first foray into using private collection companies. A program begun 10 years ago under a provision of the American Jobs Creation Act lasted three years. The IRS abandoned the program after it was determined that its agents had a significantly higher collections rate than the private companies, according to the Taxpayer Advocate Service’s 2013 annual report to Congress. The service is a branch of the IRS.
This year, four collection companies, including two based in New York, have been hired to implement the new program. ConServe of Fairport, New York; Pioneer Credit Recovery Inc. of Arcade, New York; CBE Group of Cedar Falls, Iowa; and Performant Recovery of Livermore, Calif.; will work on cases that the IRS is no longer actively pursuing due to their age, relative small size, and IRS manpower limitations.
“They (the private companies) don’t always hire the best and the brightest,” said Green, who has testified at many hearings in Washington, D.C., involving the IRS and is a noted public speaker on tax issues. “Computer security is something that will have to be handled especially well.”
Each of the collection companies will be working a national caseload, meaning Connecticut taxpayers with overdue accounts may get calls from any one of the four companies, said Lea Crusberg, an IRS spokeswoman whose responsibilities include handling Connecticut matters.
Crusberg did not provide numbers on how many accounts in Connecticut or nationally will be included in the new program.
Taxpayers and their representatives, such as their tax preparers, will be sent two written notices alerting them that their accounts are being moved to private collection. The second letter will be a confirmation of the first, the IRS said in the release. Collection company employees will be able to identify themselves as contractors of the IRS for purposes of collecting taxes. The companies will be bound by provisions of the Fair Debt Collection Practices Act, the IRS said.
Policing the interactions will be nearly impossible, Green said.
“Who’s watching the private collectors?” he asked rhetorically. Kniep asked the same question.
The suspension of passports provision of FAST is expected to take effect early in 2017, Green said. Challenges can only be made in U.S. Tax Court or Federal District Court, he said.
Connecticut residents conducting international business may have to get on planes and return home to fight their cases. The law applies to those owing $50,000 or more to the IRS.
“It’s going to be very expensive,” Green said.
While tough on taxpayers, the provision may become a “very effective” collection tool similar to laws in Massachusetts and New York that yank driver’s licenses away from those owing state taxes, he added.