Private Tax Collectors to Begin Collecting for IRS: Here’s What You Need to Know About Your Rights

Taxation Word Shows Excise Levy And Duty

Written by Amy Biviano, BBB Foundation Director

The IRS announced this week that private debt collection companies will start collecting overdue tax bills in spring 2017. They’ve also released the names and contact information of the four companies awarded those contracts.

  1. CBE Group, 1309 Technology Parkway, Cedar Falls, IA 50613
  2. Conserve, 200 CrossKeys Office Park, Fairport, NY 14450
  3. Performant, 333 N Canyons Parkway, Livermore, CA 94551
  4. Pioneer, 325 Daniel Zenker Dr, Horseheads, NY 14845

Under the Fixing America’s Surface Transportation Act, passed in December 2015, the IRS is required to use third party, private collection contracts to collect long term, outstanding tax bills. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts, and a lack of resources prevents the IRS staff from working these cases.

According to the IRS, the chosen collection companies are required to agree to respect taxpayers’ rights, including the consumer protection provisions of the Fair Debt Collection Practices Act, and to be courteous in their communications. The collection agencies are permitted to identify themselves as IRS contractors collecting taxes. While the IRS includes information about these changes on www.irs.gov, and encourages consumers to frequently check the “Tax Scams and Consumer Alerts” page on their site, there are warning signs that tax scams will continue to proliferate and likely will increase, given this significant change.

In light of the unending phone scams in which criminals impersonate the IRS and demand immediate payments of taxes, the IRS says it will do everything it can to help taxpayers avoid confusion and understand their rights and responsibilities to pay any tax due. The IRS warns taxpayers to be especially careful of scams where callers claim to be collecting on behalf of the IRS.

Since most scammers have long differed from official IRS communications in their use of phone calls and emails while the IRS has strictly communicated by letters through the postal mail, the confusion between official and potentially false information may increase dramatically with this change. No longer can a consumer count on the fact that they have been contacted by a method other than the mail as an easy check on fraudulent activity, a policy that gave consumer advocates an easy to convey message and many targeted seniors more peace of mind.

Better Business Bureau serving the Northwest offers the following precautions to keep in mind, should a consumer receive a call about a past due account:

  • You will pay the IRS directly. Private collection agencies will not ask for payment on a prepaid debit card, a practice used by current tax scammers.  Instead, tax payers will be informed about electronic payment options currently located on http://www.irs.gov/Payments. The consumer can also opt to pay a past due balance by check, but this payment should only be payable to the US Treasury and sent directly to the IRS, never the private collection agency.
  • You will still get a letter. Any collection assignment must be preceded by two separate letters alerting the taxpayer of a past due balance and the pending collection activity. This procedure more closely mirrors prior IRS policy and may avoid some scam activity, but that is not clear at this point.
  • Not everyone is affected. Accounts that will not be sent to private collection agencies include taxpayers who are: deceased, under the age of 18, military members in designated combat zones, victims of tax-related identity theft, currently under examination or audit, currently in a payment plan, classified as an innocent spouse, and those in presidentially declared disaster areas.
  • You can opt out. Consumers who do not wish to work with the assigned private collection agency to settle overdue tax accounts must submit a request in writing to the private agency directly.

The IRS also advised any taxpayer who wants to make a complaint about a private collection agency or about the behavior of a specific employee to contact the Treasury Inspector General for Tax Administration (TIGTA) at 800-366-4484, online at tigta.gov or in writing to:

Treasury Inspector General for Tax Administration Hotline, PO Box 595, Ben Franklin Station, Washington DC 20044-0589.

As always, the BBB Scam Tracker and bbb.org remain reliable resources for consumer information and scam detection and reporting resources.

Amy Biviano serves as the Foundation Director for BBB serving the Northwest. Biviano is a CPA and holds an MBA in Taxation from Gonzaga University and a BA in Anthropology from Yale University. 

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Podcast: Five Money Saving Tax Tips for Small Businesses

We are excited to bring you our first podcast, featuring our Vice President of Marketing, David Quinlan!

The tax season is a difficult sea to navigate for any company, but it can be an especially unique challenge for small businesses. While you may have until April to file your taxes, tax preparation should be a yearlong process. Follow these five tips to give your small business a simpler tax season with less stress.

Five Money Saving Tax Tips for Small Businesses

The tax season is a difficult sea to navigate for any company, but it can be an especially unique challenge for small businesses. While you may have until April to file your taxes, tax preparation should be a yearlong process. Follow these five tips to give your small business a simpler tax season with less stress.

tax-meme 2.25.16

  1. Know the Important Dates

Depending on the type of business you are operating, there are different filing deadlines that you need to know. For example, if you’re a sole proprietor or a single-member LLC, then your tax deadline will typically be April 15, the same day as personal income tax.

If you have incorporated your small business, then the income tax must be paid three months after your company’s year-end. Corporations have the flexibility to pick a year-end date prior to filing their first year, allowing them to choose a schedule that will best suit their needs. For example, if you have a beauty salon, you may choose a year-end date that falls after the holidays but before the summer wedding rush.

  1. Fund a Retirement Plan

If the amount of taxes you owe for the year is exorbitantly high, consider making contributions to your retirement accounts. As long as neither you nor your spouse has active participant status, your Traditional IRA contribution is deductible. If you or your spouse is an active participant, then your tax filing status and your MAGI determines whether the contribution will qualify as an additional deduction.

If you have not already done so, consider establishing a retirement plan for your small business. Depending on your annual salary and the type of plan you choose, you may be able to contribute and deduct up to $53,000 a year.

  1. Work with a Professional

As a small business owner, you probably wear a lot of hats. No doubt you’re competent in your field of expertise, but when it comes to your business’s finances, it’s best to work with a professional. Bookkeeping can be an overwhelming and tedious task, and hiring a tax attorney or accountant will allow you to focus on growing your business.

Even if you currently handle your business’s finances, tax time is a great time to hire an accountant. Their job is to ensure you are organized, prepare your taxes and make certain everything is in accordance with all CRA guidelines.

Tax planning shouldn’t be a year-end scramble. It should involve consistent preparation throughout the year. By establishing a relationship with a tax advocate, you can minimize your risk of an audit while saving money as your small business expands.

  1. Have Lunch Meetings

Whether you’re looking for a last minute deduction or you want to qualify for more deductions next year, consider hosting lunch meetings. When you dine with your business partners or employees, 50% of the cost of the meal is tax deductible, so long as the meal isn’t too lavish or over-the-top and it is specifically for business.

If meals or entertainment are provided for the benefit of your employees, you can deduct 100% of the cost. Examples of expenses that can be written off at 100% include:

  • Free food and beverages provided to the public for the purpose of promoting your business
  • Company picnics
  • Holiday parties, both in your facility and at a restaurant
  • Meals provided to employees as an incentive to work after-hours or on holidays and weekends
  • Free coffee, bottled water or snacks provided to employees at the place of business

The IRS looks closely at deductions for meal costs, so be sure to keep proper documentation. There are numerous smart phone apps available that allow you to input the date and location of the meal and upload a photo of the receipt, making it easy to keep a record of it.

  1. Charitable Contributions

Small business owners are a generous lot. In fact, studies show that up to 75% of small businesses make charitable contributions. A donation to a 501(c)(3) in the form of cash, volunteered services or sponsorship of a fundraiser can be deducted in whole or in part. As always, careful record keeping is a must. In most cases, an organization should provide you with a written statement that it has received a contribution from your business.

Preparation is not only essential to having a tax season that is free from stress and frustration, but it also ensures that your small business receives all of the tax benefits for which it is eligible. By staying organized and preparing for tax season throughout the year, you can be confident that you are making the best financial decisions for your small business.

Tax Filing Tips for Beginners

Written by Mary Lou Boles, Programs Assistant

Tax Beginners Blog 1.27.16

Nothing says “adulthood” like filing your own taxes. But don’t let that thought intimidate you: doing your taxes doesn’t need to be a daunting task. By following these tips and tactics, rookie taxpayers can save time and money this tax season.

Collect and organize your tax documents. Though tedious, organizing all the paperwork that you’ll need is essential. People who are new to filing their taxes generally just need to keep track of their W-2 forms – the document that reports an employee’s annual wages and the amount of taxes withheld from their paycheck- and maybe the 1098-E form that shows the interest paid on student loans throughout the year. The amount of tax documents you need may increase as you financially mature. Keep all of your tax documents in one place and make a folder for each tax year.

Educate Yourself. There are a lot of fancy terms associated with taxes such as exemptions, credits and deductions, to name a few. It’s important to educate yourself on these terms and find out what they mean. You wouldn’t go out and buy a new laptop without researching the customer reviews, right? Likewise, it’s smart to do a little research on your tax situation to ensure that you receive a proper refund. Check out TurboTax’s Tax Term Glossary to define any unknown terms that you come across.

Decide how you want to file. Now that you’re organized and understand all your tax documents, it’s time to decide how you want to file. Many tax payers decide to file their taxes online through H&R Block or TurboTax. Online tax filing software like these are generally free and easy to use if you’re filing simple tax return forms such as the 1040EZ or 1040A. Utilize helpful articles by the Internal Revenue Service (IRS) like this one to determine which form you should use if you’re unsure. Inexperienced tax preparers may be more comfortable filing in person, either from a certified tax preparer or a franchise tax office. Make sure you take the time to find a reputable tax preparer because inexperienced taxpayers are often easy targets for con artists. Protect yourself from scams by avoiding tax preparers that base their fees on how large your refund will be.  Visit BBB’s Accredited Business Directory to find accredited tax preparers.

Don’t Procrastinate. The tax submission deadline this year is April 18, 2016. Make sure you file your taxes in a timely manner. The earlier you file, the sooner you’ll get your tax refund. If you end up needing more time to file your taxes past the submission date then you must file Form 4868, which is the application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You can find this form and more information regarding tax filing extensions here.

Good luck filing your taxes! Remember, bbb.org is always a good resource!

Affordable Care Act Brings Changes to IRS Tax Forms

Written by Michelle Tabler, Alaska Regional Manager

The holidays are over and tax season has started. Better Business Bureau advises taxpayers to be aware of the Affordable Care Act (ACA) reporting requirements.

Tax Healthcare Blog 1.12.16

Every person filing a tax return will need to provide information on their health care coverage for the year. If you had qualifying coverage all 12 months, you may just need to check a box on your tax return. If you obtained coverage through your state’s Marketplace under the ACA, then you will receive tax form 1095-A to file with your taxes (and you must file a tax return in order to be eligible for future premium assistance). Exemptions are claimed when you file your tax return or through the Marketplace.

The ACA requires minimal essential coverage for each month of the year. Minimum coverage includes: employer provided health insurance; coverage provided through the Health Insurance Marketplace in your state; government-sponsored programs such as Medicare, Medicaid and veteran’s health care programs; policies purchased directly from insurance companies; and other health insurance coverage recognized by the Department of Health & Human Services.

People who purchased health coverage through their state’s Marketplace are in effect reconciling at tax time any advance payments of the premium tax credit paid on their behalf by the government. These credits are based on a sliding scale for those with household incomes between 100 and 400 percent of the federal poverty line based on family size, home address and the cost of health coverage in the area. Individuals who chose to accept advance credit payments for their health insurance premiums will reconcile at tax time. If the advance payments are lower than the actual premium tax credit then the taxpayer will receive the difference as a higher refund or lower tax due. If the advance payments were more than the actual credit, then the taxpayer will owe the difference.

Taxpayers who do not have qualifying health care coverage nor qualify for an exemption will be required to pay a shared responsibility payment when filing their tax return. The IRS includes a worksheet to help calculate this payment.

There are several individual exemptions from the requirement to have qualifying health coverage: annual premiums are more than eight percent of household income; the gap in coverage is less than three consecutive months; hardship that prevents obtaining coverage; or belonging to a group explicitly exempt from the requirement.

New this year, if you had insurance through your employer or were offered coverage, you may receive a form 1095-B or C. This is a good record of your insurance and may be needed if you are applying for some types of exceptions.

Taxes and ACA rules may be confusing to consumers, so if you plan to hire a tax preparer, check out the company at bbb.org. Be sure the preparer has the expertise you need and ask for the fees up front. Have all your information well organized for your appointment, including last year’s return, and list any question you may have. It will save you time and money.

Also, be alert to tax identity theft scams. According to the IRS, tax-related ID theft occurs when a person’s social security number has been stolen and used to file a fraudulent tax return to obtain the refund. BBB is encouraging consumers to file their tax returns as early as possible.