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That call from an unlisted number? Might be a collections rep for IRS

That Saturday morning call from an unlisted number? It might be someone calling on behalf of the IRS.

A drunk diner i n Colorado accidentally left his waiter more than 1,800 dollars tips in cash.

That Saturday morning call from an unlisted number? It might be someone calling on behalf of the IRS.

Starting this spring, the IRS plans to use selected private debt collectors to go after overdue federal tax debts, reigniting a previously failed experiment in an effort to boost revenue. The agency, which didn't respond to a request for comment, hasn't set a specific start date.

The program was sold by lawmakers as a means to generate more federal revenue amid the lack of collection resources at the IRS.

Consumer advocates are worried. Scams by criminals posing as IRS-designated collectors are inevitable, and the agency's previous experiments in the 1990s and 2000s with private collection companies lost money, they say.

Sen. Charles Schumer (D-N.Y.), who introduced the proposal and represents the state where two of the four chosen private collection agencies are based, didn't respond to a request for comment. Navient, the parent company of Pioneer Credit Recovery, one of the collection agencies in the program, donated $4,000 to Schumer in 2016, according to the Center for Responsive Politics.

Who will be targeted?

This spring, the IRS will hand over "inactive tax receivables" -- delinquent taxpayer accounts that are no longer actively pursued by the agency -- to the collection companies. About 380,000 accounts initially will be transferred, according to an estimate by the National Taxpayer Advocate, an independent office within the IRS. The IRS estimates that roughly 80% taxpayers whose accounts may be sent to private collectors are "relatively low income," says Nina Olson, the national taxpayer advocate.

"Their financial incentive is to collect as much as they can get regardless of the impact on a taxpayer who may be scared into agreeing to pay more than he or she can afford,” she says.

Private collectors will get accounts of people who are difficult to locate or ones that haven't been assigned to an IRS employee due to a lack of resources.

Some tax debtors won't have to deal with private collectors at all. Exempted from their reach are people below 18 years old, serving in the military, currently under IRS investigation or litigation, negotiating with the IRS for repayment or appeal, located in declared disaster areas or considered innocent spouses.

"By law, the IRS can’t take collection action against taxpayers who genuinely can’t pay their tax liabilities in full," Olson says. "Instead, it may place taxpayers into ‘currently not collectible’ status or compromise a debt for less than full value. Private collection agencies can’t do that."

In addition to Pioneer, based in Horseheads, N.Y., Conserve of Fairport, N.Y., Performant of Livermore, Calif., and CBE Group of Cedar Falls, Iowa. will collect on behalf of Uncle Sam. The companies will keep up to 25% of the amount collected, as does the IRS. The remaining 50% will go to the Treasury Department.

Despite stiff opposition, the new program was tucked in a road funding bill — the Fixing America’s Surface Transportation Act — that was passed in December, 2015. President Trump likely is in favor of it. During his confirmation hearing, Treasury secretary nominee Steven Mnuchin said using private collectors is "an obvious thing to do" given all the uncollected receivables.

"The IRS' hand was forced by Congress. (The IRS is) not gung-ho to do this," says Chi Chi Wu, staff attorney at the National Consumer Law Center.

Concerns about scams, aggressive calls

IRS policy is to never call taxpayers' homes without first sending a mailed notice, and it has consistently informed consumers about the policy to help them avoid scams. The IRS will similarly inform taxpayers if their accounts are transferred to private collectors, which also must separately snail mail their intent to collect. The collectors, the IRS says, must follow provisions of the Fair Debt Collection Practices Act that prohibit abusive tactics, including adhering to consumers' right to send letters demanding that collectors stop calling.

Critics of the program have pointed out that it will disproportionately affect poor and working class Americans.

About 10% of the accounts going to private collectors received Social Security or Railroad Retirement Board benefits in 2015, and their median annual income was about $19,000.

Nearly 40% of them had income that was equal to or less than 250% of the federal poverty level, meaning they are exempt from the IRS practice of imposing a continuous levy on incomes. "Yet it considers their accounts eligible for assignment to" private collectors, the National Taxpayer Advocate says in its 2016 annual report. "The IRS is implementing a (private debt collection) in a manner that is arguably inconsistent with the law and that unnecessarily burdens taxpayers, especially those experiencing economic hardship."

The IRS has several tax forgiveness programs for debtors who seek relief. Private collectors aren't required to disclose them even if the debtor is eligible. The collectors' financial incentives could motivate them to withhold the information, Wu says. "A lot of them don’t have the ability to pay. They’re too broke. If you're dealing with an IRS collector, they can say 'fill out this form.' We think taxpayers should know about the full range of rights," she says.

Pioneer lost a federal contract in 2015 when the Department of Education accused it of making "materially inaccurate representations" to borrowers about a loan rehabilitation program. Navient, which owns Pioneer, couldn't be reached for comment.

The enforcement powers of private collectors pursuing tax debts are limited. Unlike the IRS, they're not empowered to place liens on earnings or homes. And they're prohibited from reporting consumers to credit rating agencies for failure to pay tax debts, according to the National Taxpayer Advocate.

Also troubling the program's critics is the looming likelihood of scammers who will be emboldened to call and pose as reps for the IRS. Other than warning letters and self-introduction at the beginning of their calls, tax debt collectors aren't required to prove who they are.

“Frankly, with all the scams, I’d be hesitant to talk to them, even if they're real collectors," Wu says.

Follow USA TODAY business reporter Roger Yu on Twitter @ByRogerYu.

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