Dealing With Tax Debt Collection

Given that it is tax time, now is a particularly good time for anyone who has tax debt—or anticipates owing tax debt after this year’s tax cycle—to understand how the Internal Revenue Service (IRS) handles debt collection for tax debt. A recent article in Forbes discusses how the IRS currently handles tax debt, and what debtors should expect.

In some cases, tax debt can be discharged in a bankruptcy proceeding. However, in many cases, tax debt is not dischargeable. For anyone who owes tax debt, it is important to learn more about how the federal tax debt collection process works, and what your options might be for filing for consumer bankruptcy.

How Does the IRS Handle Tax Debt and Debt Collection?
As the Forbes article explains, starting in 2017 the IRS “was required to hand over some unpaid tax bills to private agencies for collections.” Even though previous efforts to use private debt collection companies for collecting tax debt, the IRS moved forward with a private debt collection program. As the IRS program explains, private debt collection companies are required to adhere to consumer protection laws, which means abiding by the Fair Debt Collection Practices Act (FDCPA) and other federal laws that are designed to protect consumers.

Once the IRS began using private debt collection companies to collect on tax debt, many debtors have complained about debt collection practices. The private debt collection program was expanded despite consumer advocate concerns, and as a result of complaints, the National Taxpayer Advocate’s annual report specifically addressed the IRS private debt collection program and cited it as “one of the most serious problems encountered by taxpayers.” However, the IRS continues to use private debt collectors, and it will likely continue to do to for the immediately foreseeable future.

If you already owe tax debt, or expect that you will owe tax debt, what should you expect based on the private debt collection program? The Forbes article highlights the following:
  • You will receive a letter from the IRS indicating that your debt will be handed over to a private debt collection;
  • Private debt collection company will send you a letter confirming that the IRS has handed over your debt;
  • You will be required to make any payments to the IRS directly, and payments should only be made by credit or debit card through the IRS online.
To avoid any scams, you should never give out your credit card number over the phone, or agree to pay in any other form such as a gift card or a wire transfer. These are common scams that can harm debtors tremendously.

Bankruptcy and Tax Debt
If you are already facing calls and other forms of contact from private debt collection companies seeking to recoup tax debt, can you file for bankruptcy to discharge your tax debt? Discharging tax debt in bankruptcy is complicated and may not be possible. In general, tax debt is only dischargeable in a Chapter 7 bankruptcy if the following are true:
  • Tax debt is from income taxes;
  • No fraud or willful tax evasion;
  • Tax return properly filed for the tax debt;
  • Tax debt is at least three years old; and
  • IRS assessed the tax debt at least 240 days before bankruptcy petition is filed.
Contact an Oak Park Bankruptcy Attorney
Dealing with tax debt and consumer bankruptcy can be complicated. If you have been harassed by a debt collector, or if you want to find out if you may be eligible to discharge your tax debt in bankruptcy, an Oak Park consumer protection lawyer can help you. Contact the Emerson Law Firm to learn more.


See Related Blog Posts:

Rising Consumer Debt and Delinquencies

Concussion Settlements in Consumer Bankruptcy Cases

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