By Meghan Hudson, Financial Counselor, New York Legal Assistance Group
Death and taxes, they say, are the only certainties in life, so perhaps it should come as no surprise that being victimized by a taxpayer fraud scheme is becoming more common. These lucrative schemes are increasing in number and complexity around the world. Many of the scammers pressure taxpayers to make immediate payments and threaten license suspension, deportation or arrest if they don’t. Their sophisticated methods can be very convincing. This summer we had a client fall prey: she lost $3,500 of her savings to a fraudster via iTunes Gift Cards. She is one of many who were defrauded and certainly won’t be the last.
Meanwhile, the Internal Revenue Service announced in April that it has hired private debt collection companies to collect past taxes (despite two failed attempts at privatizing tax debt collection in the past), adding a new wrinkle and making it more difficult to know what’s real and what’s a scam. And, as reported last week in the New York Times, a group of Democratic senators have found that the IRS’s private collectors are using tactics that are not just high-pressure, but may be illegal. The article describes training scripts that suggest that debtors use 401(k) funds, home loans and credit cards to pay off their overdue taxes. Pushing taxpayers to the limit like this can have dire consequences. There are other options that we’ll discuss below.
Both fraudsters and IRS contractors have the same goal: they want your money – and they have little incentive to deal fairly with people who legitimately cannot afford to pay their taxes. The following are steps you can take to determine whether you are dealing with a real IRS debt or a scammer, and what your options are if it’s legit.
Know the players
There are only four debt collection agencies that can collect IRS debt: CBE, ConServe, Performant and Pioneer. Unlike the scammer, the IRS will inform you first by mail of the tax debt and indicate the debt collector assigned to your case. Only then will you get a call. If you are contacted by anyone who is not affiliated with one of these companies, you are at risk of being defrauded.
Validate the company collecting the debt
If you owe back taxes, you will need to pay them, but make sure you’re really paying your tax debt and not lining the pocket of a scam artist. Keep some things in mind. The IRS-approved debt collection companies will NOT ask for a payment via iTunes or other gift cards, or prepaid debt cards. Payments and checks should only be made be payable to the U.S. Treasury and sent directly to the IRS regardless of what collection agency you are working with. You can also pay online at www.IRS.gov/PayYourTaxBill.
Know your rights
You have the right to work with the Taxpayer Advocate Service (TAS) and to get a financial analysis of your economic situation in order to assess proper payment options. The IRS must take basic living expenses into consideration when determining ability to pay. The average monthly Allowed Living Expenses in New York City, for example, is $3,132 for a single person household. But, keep in mind that private debt collection companies are not required to refer hardship accounts to the TAS and are free to try to collect on debt that would otherwise be uncollectable by the IRS. If you can’t afford the payment, call the TAS yourself or visit their website. A TAS Taxpayer Advocate can put you on a payment plan that is affordable based on your income.
The debt collectors tasked with collecting IRS tax debt must follow the Fair Debt Collection Practices Act. The IRS must inform you of the debt that will be transferred and to whom. They can’t engage in harassing or abusive practices. To make a complaint about a private collection agency or report misconduct by its employee, call the Treasury Inspector General for Tax Administration (TIGTA) hotline at 800-366-4484 or visit www.tigta.gov.
Know what you owe
You have a right to know how much you owe in taxes and how the amount was calculated. You can call the TAS at 800-829-1040 or go online to https://taxpayeradvocate.irs.gov/ and create a Secure Access Account on the IRS website. In the tax account tools page you can see 18 months of payment history, the balance for each tax year that you owe and the payoff amount. Don’t ask the person on the phone to validate it, make sure it’s correct with the IRS.
While you are sorting out your situation – and your options, do not agree to a payment plan that you can’t afford. Do not live off your credit cards or withdraw money from your retirement savings to pay off the tax debt. (This is often taxed as income and if you’re under 59.5 years old there are additional ramifications, such as early withdraw fees.)
According to the same New York Times article, a recent analysis found that nearly a quarter of the accounts involved taxpayers with below-poverty level wages, and more than half were taxpayers with incomes of less than 250 percent of the poverty level. If you have an economic hardship, the TAS can place you into a status known as Currently Not Collectible which means that the IRS will stop trying to collect the debt from you and won’t garnish wages – though your tax debt will continue to accumulate interest and penalties. The TAS can also approve Offer in Compromise plans, an agreement to settle the debt for less than the full amount. It’s better to work with a Taxpayer Advocate to get on a payment plan that allows you to still cover your basic needs. I suggest you create a budget before creating a payment plan and see how much you can afford to pay. If you don’t qualify for either program you can work with a TAS advocate to create a longer installment plan so that your monthly payments are affordable.
In summary, when it comes to calls related to tax debt don’t be bullied into making an immediate payment. Validate the debt and take a realistic look at your income. If you indeed owe the debt, you will need to pay it or a portion of it. However, make sure that you are paying a reasonable amount based on your income and that you’re not living on borrowed money or surviving solely on ramen noodles to make it happen. And don’t hesitate to reach out to your politicians and demand they promote policies that protect your rights. Private debt collection programs have historically wasted federal resources and violated consumer rights.