How to Help Your Clients Understand the IRS Collections Process

Over half of the nation’s taxpayers hire tax professionals to prepare their yearly returns. Tax preparers play a key role in assisting taxpayers with IRS inquiries. The IRS encourages this relationship. The Taxpayer First Act, passed in July 2019, aims to improve IRS communication with taxpayers. Commissioner Rettig underscored the importance of tax preparers in helping with this policy shift in his recent talk at the AICPAA National ax Conference: “It’s very important … to get highly engaged with us on this. This belongs to you. It belongs to your clients. It belongs to every person on the IRS workforce. And we want to get it right.”

The Taxpayer First Act enhances taxpayer’s rights in dealing with the IRS, including changes to the collection of delinquent and unfiled taxes, such as:

  • greater taxpayer protections from private tax debt collectors
  • modified IRS procedures on summonses and notice with respect to third-party contacts
  • income-based waivers or deferment for delinquent taxes
  • direct payment options

Collection Agencies

If your client receives a Notice CP40 (or CP140 for business owners) with an authentication number, the IRS has turned over their debt to one of four collection agencies. The agency will send a letter with the same authentication number and information on how the taxpayer can resolve their overdue taxes.

Make sure that the client has received both letters with the matching authentication number. Some Dirty Dozen scams now involve realistic-looking IRS letters using stolen tax information, such as prior-year refund amounts, to trick taxpayers out of cash.

The collection agency will also reach out by telephone. Both the taxpayer and the agency will exchange the authentication number to identify themselves. When contacted, the taxpayer should make sure the caller is from one of the private collection agencies listed on IRS.gov.

The Taxpayer First Act enhances your client’s rights when dealing with collection agencies. Federal law prevents the agency from threatening, harassing, or even collecting money. All collection payments are made directly to the IRS or the U.S. Treasury – never to the agency.

IRS Visits

The IRS announced via Fact Sheet 2019-15 that revenue officers will visit taxpayers who have been evading all other forms of contact about their ongoing compliance issues. Although revenue officer visits are generally unannounced, IRS emphasizes in the Fact Sheet that these visits will only occur after the taxpayer ignored numerous contacts by mail about an existing tax issue.

A legitimate RO is there to help the taxpayer understand and meet their tax obligations and is forbidden to threaten or request unusual forms of payment. The RO will not demand tax payment without the opportunity to question or appeal the amount. If there is outstanding federal tax debt, the RO will offer payment by a check payable to the U.S. Treasury or online payments through the Electronic Federal Tax Payment System (EFTPS).

When an RO visits, the taxpayer has the right to see two forms of official identification that include a serial number and a photo of the revenue officer. Revenue officers do not carry badges, which would be a sign of a scammer at work. Additional information on identifying legitimate IRS representatives and how to report scams can be found here.

Preventative Options

As a tax professional, you are in a unique position to educate your clients and community on how they can proactively handle unfiled or unpaid taxes before IRS collection efforts begin. Whether your client has years of unfiled taxes or they simply can’t afford to settle their debt, there are options to bring their accounts current without collections.

If your client owes the IRS but is unable to pay, there are a few avenues open to reducing the hardship of that debt:

Counsel your clients to bring their taxes up to date if they are behind in filing. Unlike 1040s that will receive refunds, which expire after three years, it is never too late to prepare and file paper returns with taxes owed. The IRS is more amenable to work out an agreement when all returns are filed.

For more information on filing back taxes, visit our blog article here.