Taxing Definitions

Definition — Collecting the debt

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Have you heard about the guy who walked into an accounts receivable department to pay a compliment? The old joke may be a possibility for the private debt collection agencies hired by the government to collect delinquent tax debts. A customer satisfaction survey included in a report released by the Treasury Inspector General for Tax Administration shows the results range from 90% to 95% satisfaction with the collection agencies.

The final inspector general report was dated September 5, 2018. The report reviews the results of the private debt collection program the IRS was required to begin using to collect inactive tax receivables under the Fixing America’s Surface Transportation Act (passed in 2015).

This is the third time the IRS has outsourced receivables collection. The last two programs (in 1996 and 2006) were shut down largely due to lack of cost effectiveness, meaning establishing and running the program cost more than the amount collected.

The current program began on schedule in April 2017, when the IRS started sending delinquent accounts to four private debt collection agencies.

How much do you know about the current program?


Do you think the revenue from the current program exceeds the costs?




The IRS requires the collection agencies to verify four items to authenticate a taxpayer’s identity: Name, Taxpayer Authentication Number, Complete Address (including zip code), and Date of Birth.

The taxpayer authentication number is provided to the taxpayer in the initial contact letter (CP 40) from the IRS informing the taxpayer that the account is being assigned. The taxpayer authentication number is provided again when the collection agency sends the taxpayer its initial contact letter.

The purpose of the taxpayer authentication number is to allow “two-party authentication” so that both the collection agency and the taxpayer can authenticate each other. When the collection agency employee speaks to the taxpayer, the taxpayer is asked to provide the first five digits of the taxpayer authentication number. The collection agency employee then provides the taxpayer with the last five digits of the taxpayer authentication number. This process also helps to assure the taxpayer that the caller is a legitimate contractor authorized by the IRS.

However, in cases for which the taxpayer does not know the taxpayer authentication number, the IRS has established an additional authentication probe that the collection agency can use to verify a taxpayer’s identity. For these cases, the taxpayer verifies the name, complete address of record (city, state, and zip code), and date of birth, and the taxpayer agrees to continue authentication.

Do you think the collection agencies can ask for the taxpayer’s social security number when the taxpayer authentication number is not available?




Do you think the IRS provides the collection agencies with taxpayers’ telephone numbers?




Many cases assigned to the collection agencies involve taxpayers the IRS was unable to locate or contact. The IRS sometimes has difficulty reaching taxpayers because of inaccurate or outdated taxpayer contact information in its computer systems.

As a result, the collection agencies must perform extensive research and may use tools and resources not available to the IRS to identify the most current contact information, such as addresses and telephone numbers, for these taxpayers.

Do you think the collection agencies share the updated contact information with the IRS?




Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions and official documents. The full documents may include facts and issues not presented here. Please use the link provided in the post to read the entire document.

This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.


Right answer!

Per the treasury inspector’s report, as of May 31, 2018, total program revenue ($56.62 million) was approximately $1.3 million more than costs ($55.33 million).

Sorry, wrong answer :(
Right answer!

Per the treasury inspector’s report, current IRS guidance allows the collection agencies to use the taxpayer’s social security number similarly as the taxpayer authentication number, by asking the taxpayer to provide the first five digits of the social security number, and allowing collection agency employees to provide the taxpayer’s last four digits.

Sorry, wrong answer :(
The IRS was not originally providing the telephone numbers, but began to do so in March 2018.
According to the inspector general’s report, the IRS did not originally provide taxpayer telephone numbers to the collection agencies.

The IRS stated that the taxpayer’s information drops off of the taxpayer information file when the collection matter is shelved or closed “unable to locate.” The IRS stated that telephone numbers are no longer available for most of these taxpayers.

However, by analyzing the IRS’s closed entity file, the treasury inspector general located telephone numbers for approximately 113,883 (47%) of the 242,822 taxpayers with accounts assigned to the collection agencies.

The IRS later told the inspector general that the IRS began providing taxpayer telephone numbers to the collection agencies in March of 2018.

Sorry, wrong answer :(
Right answer!

According to the inspector general’s report, although the collection agencies are identifying new information that may help collection efforts, that information is typically retained by the agencies and not shared with the IRS.

The IRS’s systems are updated with new contact information only if it involves new payment arrangements established by the collection agencies, or if the collection agencies determine a taxpayer is deceased and produces the proof of death certificate.

No other taxpayer information is shared with the IRS.

The IRS has made no attempt to obtain this information from the collection agencies, even though such information could be useful if the taxpayer has future compliance issues unrelated to the delinquency that is being worked by the agencies.

For example, the IRS did not include the sharing of contact information as a requirement in the collection agencies’ contracts. However, officials from one collection agency stated that including such information in the weekly data file exchanges would be simple, and they would be willing to share this information with the IRS if it asked for it.

In response to the treasury inspector general’s report, the IRS said that if the collection agencies were to provide updated taxpayer contact information, the IRS would have to build the capability to incorporate the information.

The IRS determined it would not be cost effective to build the capability since the IRS was not intending to work these cases.

In addition, per treasury regulation 301.6212-2 and revenue procedure 2010-16, a collection agency getting a new address from a taxpayer in the course of contacting the taxpayer to collect tax debt would not trigger any requirement for the IRS to change the address of record. Notification to the collection agency is not sufficient because clear, concise notification must be addressed to certain, specified IRS addresses, submitted via, or orally provided to an IRS employee with access to the service master file.

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