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 up to $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 debtors. On Friday, those senators sent a letter to Pioneer, the I.R.S. and the Treasury Department accusing Pioneer of acting in “clear violation” of the tax code.
In the letter, a copy of which was provided to The New York Times, the four senators, led by Elizabeth Warren of Massachusetts, say that the I.R.S.’s 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 I.R.S. 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.”
On Thursday, in advance of receiving the letter, the I.R.S. 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 I.R.S. spokeswoman.
The debt collectors are paid on commission, keeping up to 25 percent of what they collect.
Pioneer 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 I.R.S. for approval. 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 I.R.S. — 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 I.R.S. to hire outside collectors says that they may offer taxpayers installment agreements that cover “a period not to exceed five years.”
The I.R.S. said that payment plans lasting longer than five years were legal as long as they were approved by the agency.
“If the taxpayer agrees, and after the I.R.S. approves, the private firm will monitor payment arrangements between five and seven years,” Ms. 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 I.R.S.”
Others disagree with the agency’s interpretation. Nina E. Olson, the national taxpayer advocate at the I.R.S., said that the agency was engaging “in legalistic gymnastics to justify something the law doesn’t allow.”
The I.R.S. is owed about $138 billion, a sum that lawmakers are eager to reduce. To supplement the agency’s collection efforts, Congress ordered it to hire outside firms — an approach that was tried twice before, in 1996 and in 2006, and then abandoned because of cost overruns and concerns about abuses. Lawmakers hope the new program, which began this year, will yield better results; the congressional Joint Committee on Taxation estimated that it could net $2.4 billion over the next 10 years.
But consumer advocates, including Ms. Olson, view the project with alarm, fearing that aggressive collectors will push troubled people to the financial brink and hound them for payments they cannot afford.
To consumer advocates, the call scripts seem to realize their fears. All of the collection companies encourage taxpayers who may not be able to fully pay off their tax bill, even through installments, to make a one-time voluntary payment. Three of the agencies instruct debtors that “extra payments or higher payments can be accepted at any time.”
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. When taxpayers cannot pay their entire bill at once, the I.R.S.’s internal collectors are generally only permitted to place them into installment plans that will fully resolve their debt.
Low-income taxpayers make up most of the cases farmed out to the private collectors, according to an analysis by Ms. Olson. After reviewing the first batch of files the I.R.S. sent to outside collectors, her office found that nearly a quarter of the accounts involved taxpayers with below-poverty level wages, and more than half were taxpayers with incomes of less than 250 percent of the poverty level.
Ms. 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 I.R.S. may suggest those things, but the I.R.S. 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, a subsidiary of Navient, was effectively fired two years ago by the Education Department from its contract to collect overdue student loan debt after the agency determined that it gave borrowers inaccurate information about their loans at “unacceptably high rates.” Pioneer was sued this year by the Consumer Financial Protection Bureau, which said it “systematically misled” borrowers.
Navient is fighting the consumer bureau’s lawsuit and has denied any wrongdoing. It declined to comment on its tax debt collection efforts, referring questions to the I.R.S. The other three collectors did not respond to questions about their call scripts.
For its part, the I.R.S. said that it supported its private collectors’ tactics.
The agency “encourages people to look into options for paying their tax debt, including things such as installment agreements,” Ms. Barreda said in a written response to questions about the call scripts. “How they pay is a personal choice. Giving taxpayers ideas of possible borrowing sources to pay their tax liability is consistent with fair debt collection practices as well as I.R.S. practice.”
But Ms. Warren and the three other Democratic senators who sent the letter on Friday — Sherrod Brown of Ohio, Benjamin L. Cardin of Maryland and Jeff Merkley of Oregon — took exception to these collections practices. They particularly criticized the extended payment offers and the encouragement for debtors to send in “extra payments,” both of which they said violated the I.R.S. code.
The law “allows collectors to ask only for a payment in full, or an installment agreement providing for full payment over a maximum period of five years,” the senators wrote. “When Congress required the I.R.S. to hire private debt collectors to collect certain tax debts, it did so under strict provisions to ensure that taxpayers were not put at risk during the collection process, but it appears that Pioneer is not adhering to these protections.”
The I.R.S.’s last effort to outsource debt collection was deemed a failure by the agency, which eliminated the program in 2009 and said that its internal staff could handle the work more efficiently. The program wound up costing the federal government millions more than it actually recouped from taxpayers.
The latest attempt stems from a 2015 provision, buried in a $305 billion highway funding bill, that required the agency to outsource some of its collection. President Trump’s Treasury secretary, Steven T. Mnuchin, said his department would monitor the effort.
“In general, I am supportive of using outside firms on a contingency basis after all other means have been used,” he said at a congressional hearing last week. “I think it’s a balance between making sure the government collects money efficiently and appropriately with making sure we don’t jeopardize taxpayers.”