Magazine article The CPA Journal

Tax Bounty Hunters on the Trail of New Yorkers

Magazine article The CPA Journal

Tax Bounty Hunters on the Trail of New Yorkers

Article excerpt

New Jersey recently became the first state to hire a tax bounty hunter or ferret-a contingent fee agent who engages in the discovery, assessment, and collection of taxeschiefly from out-of-state concerns doing occasional business in the state. Up until now this is a form of privatization that had been engaged in only by local jurisdictions (cities, counties, etc.) within eight other states: Connecticut, Delaware, Georgia, Kansas, Michigan, North Carolina, Pennsylvania, and Wyoming.

The chief area of controversy, however, is not the privatization of the activity; it is the method of compensation-contingent fee based on a percentage of taxes, interest, and penalties collected. Critics contend that, in due process terms, this is somewhat akin to having a traffic cop get paid a percentage of the ticket revenue. The practice has withstood court challenge, however, in five of six states, the lone exception being the Sears case in Georgia.

The practice originated as a method of employing property tax appraisal experts by local counties and municipalities. The New Jersey contract, as well as contracts in Pennsylvania and Delaware, extend to wage, income, business privilege, and sales taxes. The New Jersey contract was let to a collections lawyer who previously had the contracts with cities in Pennsylvania and Delaware and his affiliated collections agency, the Municipal Tax Bureau (MTB). Recently, one bounty hunter firm has proposed soliciting capital in a private offering.

Unauthorized Disclosure. Perhaps the threshold issue is whether this practice violates the structures on disclosure of the taxpayer's confidential financial information, e.g., NJ.S.A 54:50-8. In New Jersey the state may defend by saying that private tax collection agents are authorized by statute NJ.SA. 54:49-12.2. But nowhere are discovery and assessment agents (which require much more in the way of confidential records and information) so authorized. Moreover, there is significant anecdotal information that bounty hunters use confidential taxpayer information obtained in one jurisdiction to prosecute the same taxpayer in, and even solicit contracts with other jurisdictions. This effectively circumvents any restrictions on exchange of information between tax authorities.

Another bounty hunter operating in New York, raises significant concerns in this area because it audits for abandoned property or escheat liabilities principally by using temporary employees. This, therefore, would require a corporate taxpayer to turn over sensitive shareholder and financial information to part-time employees over whom there is very little control.

The targets of this system have included professional athletes as well as physicians, accountants, builders, and attorneys performing services in the jurisdiction. Also included are out-of-state corporations which have not filed returns despite an alleged taxable nexus with the state. The techniques of the MTB include computer cross-checks of real estate, hospital, court, motor vehicle, hotel, and building permit records and even surveillance of cars and trucks coming into the jurisdiction.

Consumer Fraud. Another objection to this bounty hunter or ferret approach is that the communictions from bounty hunters often convey the erroneous impression that they are a part of government. This can bes interpreted as a violation of the Federal Fair Debt Collection Practices Act, 15 U. …

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