Four debt-collection agencies were hired by the Internal Revenue Service to chase down late payments on 140,000 accounts with balances of as much as $50,000.
Raid your 401(k). Ask your boss for a loan, load up on your credit cards, or put up your house as collateral by taking out a second mortgage.
Those are some of the financially risky strategies that Pioneer Credit Recovery suggested to people struggling to pay overdue federal tax debt. The company is one of four debt-collection agencies hired by the Internal Revenue Service to chase down late payments on 140,000 accounts with balances of as much as $50,000.
The call scripts those agencies are using — obtained by a group of Democratic senators and reviewed by The New York Times — shed light on how the tax agency’s new fleet of private debt collectors extract payments from borrowers. On Friday, those senators sent a letter to Pioneer, the IRS and the Treasury Department accusing Pioneer of acting in “clear violation” of the tax code.
In the letter, the four senators, led by Elizabeth Warren of Massachusetts, say that the IRS’ contractors are using illegal and abusive collection tactics.
In particular, they object to Pioneer’s “extraordinarily dangerous” suggestion that debtors use 401(k) funds, home loans and credit cards to pay off their overdue taxes.
“Pioneer is unique among IRS contractors in pressuring taxpayers to use financial products that could dramatically increase expenses, or cause them to lose their homes or give up their retirement security,” the senators wrote. “No other debt collector makes these demands.”
The debt collectors are paid on commission, keeping as much as 25 percent of what they collect.
On Thursday, in advance of receiving the letter, the IRS said it was comfortable with the approach its outside collectors were taking. The agency “is committed to running a balanced program that respects taxpayer rights while collecting the tax debts as intended under the law,” said Cecilia Barreda, an IRS spokeswoman.
Pioneer, for example, instructs its employees to “suggest that liquidating assets or borrowing money may be advantageous” and to “give the taxpayer ideas on where/how to borrow,” according to the scripts it submitted to the IRS. If that route does not work, the scripts show, Pioneer’s collection agents encourage taxpayers to ask their family, friends and employers for money.
All four of the collection companies hired by the IRS — CBE Group, ConServe, Performant Recovery and Pioneer — tell debtors that they can set up an installment plan lasting as long as seven years, two years longer than the span that private collectors are legally allowed to offer. The code that authorizes the IRS to hire outside collectors says they may offer taxpayers installment agreements that cover “a period not to exceed five years.”
The IRS said payment plans lasting longer than five years are legal as long as they are approved by the agency.
“If the taxpayer agrees, and after the IRS approves, the private firm will monitor payments arrangements between five and seven years,” Barreda said. “This process is in accordance with the law and ensures that taxpayers assigned to the private firms will have the same payment options as taxpayers dealing with the IRS.”
Others disagree with the agency’s interpretation. Nina E. Olson, the national taxpayer advocate at the IRS, said the agency was engaging “in legalistic gymnastics to justify something the law doesn’t allow.”
To consumer advocates, the call scripts seem to realize their fears.
That kind of “give us anything you can” approach is common among consumer debt collectors, but the government has typically been more measured, weighing what is owed against what the taxpayer can reasonably afford.
The idea is that pushing taxpayers to the limit, while temporarily good for the IRS, causes long-term strain on the government overall.
No one wins, the theory goes, when taxpayers wind up on public assistance from settling overdue tax bills. The IRS does not try to collect from people who make only enough to afford basic living expenses like food, housing and transportation. (Only one collector, Performant, had lines in its scripts about how to handle hardship cases. Those accounts should be marked and returned to the IRS, Performant instructed its employees.)
Low-income taxpayers make up most of the cases farmed out to the private collectors, according to an analysis by Olson.
Olson said she was “deeply concerned” by collectors suggesting that taxpayers borrow against their retirement savings, take out home loans or increase their other debts to pay their taxes.
“The IRS may suggest those things, but the IRS is authorized to perform a financial analysis of a taxpayer’s ability to pay, and it does not collect from taxpayers where its financial analysis shows doing so would impose a financial hardship,” she said by email.
Pioneer is a subsidiary of Navient, which declined to comment on its tax-debt collection efforts, referring questions to the IRS. The other three collectors did not respond to questions about their call scripts.