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The federal government needs money. I get it.
The Internal Revenue Service has a significant number of overdue tax debts it needs to collect. More than 5 million taxpayers were delinquent near the end of April, according to the agency.
But a proposal to allow the IRS to turn over those delinquent accounts to private debt collection agencies isn’t the solution. It’s a bad idea, used before — in the late 1990s and again in the last decade. Both times the outsourcing failed.
Many people are already scared of the IRS if they owe money. I see little upside to this already tenuous relationship if we return to having private collection agencies go after tax delinquents.
This is also what Nina E. Olson, the national taxpayer advocate, said in a 21-page letter to the chairmen and ranking members of the congressional tax-writing committees. Ms. Olson noted that she and the Office of the Taxpayer Advocate were involved in the private debt collection program between 2006 and 2009.
“Based on what I saw, I concluded the program undermined effective tax administration, jeopardized taxpayer rights protections, and did not accomplish its intended objective of raising revenue,” Ms. Olson wrote. “Indeed, despite projections by the Treasury Department and the Joint Committee on Taxation that the program would raise more than $1 billion in revenue, the program ended up losing money. We have no reason to believe the result would be any different this time.”
Ms. Olson is also concerned that collection efforts would put a “bull’s-eye on the backs of low-income taxpayers,” who make up an overwhelming majority of folks whose accounts would be turned over to debt collectors.
I fear, as Ms. Olson does, that private debt companies driven to collect as much revenue as possible will result in overly aggressive collection tactics, including pressuring people to agree to payments they can’t possibly afford. If someone then defaults, it can cost more money to go back and establish a fairer payment plan.
“Low-income taxpayers often lack financial savvy and are terrified of what a debt collector might do to their lives,” Ms. Olson wrote.
The Federal Trade Commission has been regularly going after and sanctioning debt collectors for bad and illegal behavior. Debt collection is among the top consumer complaints received by the FTC.
Here’s something else about the pending tax-collection legislation that should cause concern. It would require the IRS to send delinquent cases arising from the Affordable Care Act to private debt collectors.
The collection agencies could get cases under two scenarios. With the ACA, people shopping on the health exchange may qualify for a tax credit to help pay for insurance. But consumers who receive too much of this subsidy must pay back the excess. Additionally, individuals and their dependents are required to have minimum essential health insurance unless they qualify for an exemption. If it’s determined they were in the financial position to pay for coverage and don’t fall under an exemption, they face a penalty for being uninsured, which they have to pay when they file their federal income tax returns.
The IRS is responsible for collecting in both instances. The IRS can snatch refunds to satisfy the debt. However, the agency is prohibited from using its usual tough collection tools to collect payments.
“If debt collectors come to be seen as the public face of the ACA, I am concerned that could make the IRS’ job more difficult as it tries to balance its twin missions of revenue collection and benefits administration,” Ms. Olson noted.
The proposal was introduced by Sen. Charles E. Schumer, D-N.Y., and has bipartisan support. But some congressmen and a consortium of 15 civil rights and consumer groups, who also penned a letter to senators, oppose the plan, as does the IRS Oversight Board, a nine-member independent body charged to oversee the IRS. The board also sent a letter to Senate and House leadership objecting to the proposal to use private debt collectors.
“The experiment has failed twice and there is nothing to lead us to believe it will not fail again,” the board said.
What’s the saying? Fool me once, shame on you. But fool me twice, shame on me. Using private collection agencies for tax debt is a foolish, foolish idea.
We don’t know anyone who actually wants to make it harder to collect invoices, but here are some common issues that result in this scenario.
Repeatedly Invoice Incorrectly
Develop a reputation with your customer for sending invoices with wrong information is a great way to end up at the bottom of their list to process. Regardless of the cause (e.g. wrong prices, back orders, miss shipments, incomplete purchase orders), the result is delayed payment.
If you won’t listen to them, why should they listen to you?
Delay Resolving Disputes
You cannot collect while a dispute is unresolved. Regardless of the reason (too busy, can’t get internal cooperation, can’t locate documents, etc.), the longer it takes you, the longer your payment gets delayed. Wait long enough, and it becomes even harder as the necessary information, including people’s memory of the transaction, is more difficult to compile.
Keep sending automated, increasingly nasty letters on disputed invoices that you haven’t had time to deal with to resolve. Keep reminding them of your failure to address the issues while threatening to take escalated action against them. They’ll remember this unpleasant treatment long after the particular dispute is resolved.
Bounce Them Around Your Company
“I can’t answer that question; you need to talk to _____”. Make it their job to sort things out with the various people in your company.
Treat All Customers The Same
Sure, policies and procedures are required for efficiency and effectiveness. But not all customers are alike. Refuse to develop different approaches, or even policies and procedures, and you can end up with repeated payment issues.
We get a large number of claims at our B2B collection agency that reflect one or more of these issues. We’ve become experts at dispute resolution with resultant debt collections while trying to preserve vendor-customer affinity. We understand that for clients where this is a rare occurrence, turning it over to us for the intensive time commitment and expertise required makes economic sense. But, we have concern for our clients and their long-term customer relationshipsif we see this too often.
One of the simplest ways to detect is to confirm certain information provided on a credit application using easy, free resources on the Internet. As a commercial collection agency, we regularly get claims where this has not been done and we discover that the information provided was either misleading or outright fraud. In either case, it is no surprise that the invoices were not collected by our clients..
The first thing to do is look for the company's website. Frankly, if a company does not have a website in 2012, it is a cautionary indicator, either as potential fraud or as a company that may struggle to perform well in the Internet age. Typically, simply putting "www." in front of the text after the @ symbol in the email address provided by the potential customer will lead to the company's website. If this information isn't available, we simply search on the Internet to find the company website. If the email address provided from an email service, such as Gmail, hotmail, etc., that too is a cautionary indicator, either of potential fraud or simply a very small business.
The next step is to verify that the contact information on the website is the same as provided on the credit application. This helps to ensure that you have found the correct website as well as confirming that the customer is providing consistent contact information. It is very important to call the phone and fax numbers to verify they are valid. Be careful if:
Make sure you get the company's main phone number, and for smaller businesses get the owner's mobile phone number and direct email address. If the business phone is a mobile phone, that typically is an indicator about the size or possibly the legitimacy of the business.
If there is no phone number on the website, that is a red flag. Any company that does not publish a phone number means they don't want their customers calling them. It is difficult to provide good customer service if there cannot be phone communication, and if a potential customer doesn't provide good customer service, how long can their company perform well? The lack of a phone number on a website is a common factor on a significant portion of the fraudulent cases we see.
If the customer indicates they are a corporation, (limited liability company), or partnership, confirm this with the appropriate Secretary of State. Forty-seven of the 50 states have free websites where you can get this information with a simple search. A complete list of these sites with links directly to the search pages is provided on our website at . Also on this page is the info-graphic displayed here as well as a free downloadable file that you can import into your web browser. It creates a favorites folder in your browser with links to all 50 states for easy future reference.
Confirm that the name and address registered with the state is consistent with the information on the credit application and investigate discrepancies. If necessary, use a similar process with the respective licensing authority's online website if the business is required to have a professional license, such as a contractor, real estate broker, or medical professional.
Next, verify that the business address is valid and is a commercial location. Type the address into . Use the satellite view to quickly establish the type of building at the location. Use street view when available and if you feel the need to take a closer look. Further investigation is recommended if:
The building does not look appropriate for the type of
Most importantly, confirm that this is not a mailbox service, such as a Store, or executive suites location. Over 90% of the fraud cases we see have a mailbox service, executive suites or residential location as a primary address.
There are a number of different ways to try to determine if a commercial location might be a mailbox service such as a store. Google Maps typically will give you a list of the businesses located at a specific address. More research is needed if:
If nothing shows up on Google Maps, do a copy and paste of the address into your default search engine for a quick search. In a recent fraud case, Google Maps listed 15 other business names at the location, but not the Store. But, the first result when we put the address into regular Google search gave us the Store phone number at that address.
If you ship merchandise to a mailbox, you are not going to have proof that your customer actually got the merchandise. You will only have proof that it was received by the mailbox service (or executive suite in that scenario). Your collection agency will also be at a dead-end if the debtor skips on payment.
If you suspect or confirm that an address is a mailbox service, ask the company for their physical location and confirm it. If the location is a mall unit, confirm that it is a physical store and not simply a kiosk in the common area. Confirm any home addresses provided through Internet search and maps. It is critical to have a home address if the business does not have a permanent physical location or you get a .
Finally, use the Internet to get the phone numbers and other contact information for the trade references provided by the potential customer. Some fraudsters provide the name of a legitimate company as a reference, but the contact information is directed towards a conspirator instead of the actual company.
If you are dealing with a legitimate, established company, this process can take less than five minutes and be performed by anyone who uses the Internet.
This is not meant to be a comprehensive list of fraud detection activities. Nor does the uncovering of a cautionary indicator mean fraud is being attempted, just that further investigation may be warranted. In these cases, you may want to get additional forms of contact information, a copy of a driver’s license, business license, or utility bill for the business, and check trade references and credit reports more carefully.
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