As the glass doors parted and let me in to the store, I walked over to the postal desk, “manned” (if you will) by a very attractive young lady who probably was young enough to be my granddaughter. She asked if she could help me, and I stated my intention to mail the package I was holding via Priority Mail. Fully expecting to see a red white and blue sticker and hard envelope slide across the counter in my direction, she turned to her keyboard, and said to me, “Phone number, please?”
I gulped, somewhat in shock. I then listened to some words falling out of my mouth, as if they were spoken by another person: ” The U.S. Post Office is not allowed to ask me for my phone number in mailing Priority Mail”
I then heard her impatient voice, as it almost sounded distant to me: “Sir, we are not the Post aw-fice, We are (X-store)”.
Me: “S’ok. I will go to the Post Office”.
After buying the ink and driving eight miles back to my local Post Office feeling terribly snookered by the veiled and misleading marketing attempt of this particular office superstore, I relayed my story to my lovely and dedicated local postmaster, who brought up a very good point. “You know, Tony, postal kiosks are not supposed to ask for personal information. They are supposed to behave exactly as we do, as they are our regulatory delegates”.
I thanked her, and when I arrived back, I reviewed the time-tested definition of (what is) a “state actor”, and that anyone acting as an agent or delegate in lieu of government with respect to a function must act like government. That little bit of knowledge (and one Metro-Card) will probably get me on the NYC Subway line of my choice, but it did lead me to envision what is certain to happen with the Federal Government’s latest effort in order to “privatize” certain Federal tax collections.
For those of you in the audience who are interested, (as the great Dodger baseball announcer Vin Scully is fond of saying), Internal Revenue Code Sec. 6306 permits the IRS to use private debt collection agencies in order to collect back tax debts. Now for those of you scoring the game at home, The Fixing America’s Surface Transportation Act of 2015 (FAST Act) gave the IRS the specific power to contract with private collection agencies for the collection of certain “inactive tax receivables.” And for the youngsters in the audience (as Mr. Scully is also fond of saying), let the record reflect that this attempt at “outsourcing” tax debt was tried in the 1990’s, and failed miserably, with the biggest issue being the dilution and obfuscation of taxpayer rights due to the ignorance of private collectors regarding the tax law. (For the sabermetric nerds in the audience that would actually like to read these rights, allow me to direct you to those silly little tax books seemingly collecting dust on bookshelves everywhere, where you can have fun reading them).
However, turning to the serious, here is the fundamental problem with privatization of tax collections: If a Federal Tax debtor is attempting to settle a debt with the government, he is afforded certain rights and privileges that are really quite complex and highly technical. On the other side of the table from the debtor is a representative of the IRS who (most likely) is not as well-schooled in these rights and privileges as one might think, as he or she follows a publicly-available document known as the “Internal Revenue Manual” in his collection dealings with taxpayers. The document is simply a document outlining IRS practice and procedure, but it is not law and non-binding upon any party to the proceedings. (Sshhhh…you did not hear that from me!). There are many times when working a case when I have pointed out glaring differences between the Internal Revenue Manual and the Regulations, to the surprised responsible IRS Officer.
So if tax disputes were a baseball game, it would be the equivalent of two teams playing with two different rule books and two distinctly different concepts of what the umpire is supposed to do. Confusing enough for you? (Can any of this stuff GET any hairier?)
So, enter private bill collection agencies. Now to those of you who have ever dealt with commercial collectors, you realize several things fairly quickly, being 1) Bill collectors have very defined, and repetitive jobs where their function is to collect as much money as possible from debtors. 2) Bill collectors are often compensated on a percentage of what debts they collect. 3) Most debtors either cannot pay their bills (or are running from paying their bills), and 4) The combination of items 1) through 3) lead these souls to be unsympathetic to any explanations that the debtor might be giving, no matter how legitimate or justifiable.
I am not the most imaginative person in the universe, but even for me it is not hard to imagine the following scenario: I give to you Susie Jones, a single mom with two children who has fled from an abusive relationship moving into a friend’s garage. One month later, Susie’s mom died, leaving her as the beneficiary of an IRA. While saddened at her mother’s passing, she was grateful for the badly-needed cash and later followed the advice of her high school friend that managed a bank. With the friend telling her that “inheritances are tax-free”, she invested the IRA proceeds into a large condominium in a great neighborhood, feeling that even with this IRA take-down, she would not have to file a tax return. As Susie’s confidence grew, she was even able to return to holding a job.
So there we have the story of Susie, a very nice young lady who has experienced two tragedies and two address changes in a short period of time, and who is now pointing her life’s arrow in the right direction.
However, during this same time frame, the Form 1099 reflecting the IRA withdrawal (in addition to IRS notices concerning income taxes generated on the IRA) were chasing Susie, but due to a tragicomedy based on errors of expired forwarding addresses coupled with bad tax advice by a person who never should have given it, Susie continued restructuring her life, blissfully unaware of what was taking place.
After some time, the notices were farmed out to a private collection agency. who then located Susie’s new address and sent a collection notice to her. Horrified, Susie sought out the assistance of a local tax practitioner who obtained the proper representational authority from Susie, and called the collection agency.
(The conversation went something like this):
(Collector): “Ajax Asset Recovery. This is Adrienne”.
(Representative): “Hello, my name is Charles Smith, and I am a tax practitioner in Phoenix, AZ. I represent Susie Jones. I am calling in reference to a notice that Susie received last week with respect to income taxes owed for X-year. To this end, I am calling to ask you for courtesy and a thirty-day hold to be placed on the account, as I am just getting to what took place, and to be fair, I would like to be able to represent Susie to the best of my ability”.
(Collector): “WHO the heck did you say you are?”
(Representative): “Again ma’am, my name is Charles Smith, and I am a tax practitioner in Phoenix, AZ. I represent Susie Jones. I am calling in reference to a notice that Susie received last week with respect to income taxes owed for X-year. To this end, I am calling to ask you for courtesy and a thirty-day hold to be placed on the account, as I am just getting to what took place, and to be fair, I would like to be able to represent Susie to the best of my ability”.
(Collector): “I can’t speak with you. You are not her!!”
(Practitioner): “Ma’am, according to Circular 230 promulgated by the Internal Revenue Service, taxpayers are afforded the right to have certain credentialed individuals represent them in tax matters. Would you like me to fax over my authority?”
(Collector): “I don’t care about any of that, I don’t care about her rights. She is far by any of that. If she does not pay her bill, we will put a lien on any property she has”.
(Practitioner): “I beg to differ with you ma’am, but Susie has retained all of her rights with respect to forced collection. First of all, from what I understand, she relied on a trusted advisor in good faith with respect to the retirement account’s taxability. Secondly, she never received any notices with respect to tax collection, as they were sent to the wrong address. Thirdly, there may be other remedies available to her, for which some time can only tell if they are useful to her. She is a once-abused single mom trying to piece her life together, so once again, I politely ask you for courtesy as we research this case”.
(Collector): “Listen Mr. whatever your credentials are, I don’t have to follow any rules other than state law. Don’t you know its a crime to impede lawful bill collection?”
(Practitioner): “Ma’am…don’t you know it’s a FEDERAL crime to obfuscate the rights of a taxpayer? I think I need to bring this to the attention of the District Director and the Taxpayer Advocate”.
You see where all of this is headed…and this is precisely the reason why this effort to privatize tax collection failed twenty years ago. Those who act in lieu of government must act like government in being “state actors”. and how could that ever be possible using private collection agencies unfamiliar with Federal Tax Procedure? I can just see the endless stream of complaints going back to Congressional offices as government once more tries to make an effort be “efficient”, (with predictable result).
I trust that I have made this point clear to you. But, in conclusion, you might be wondering who in the heck is Georges Santayana, (and why on earth is he relevant to our discussion?)
Contrary to what you may be thinking, Mr. Santayana was not a tax practitioner, but he was a famous 20th Century philosopher, essayist, poet, and novelist. It was Mr. Santayana who coined the phrase that they who do not remember the past will be condemned to repeat it.
Goodnight Mr. Santayana, wherever you are. You certainly knew a lot more about tax practice than you ever thought.
Tony De Angelo