IRS private debt collection is a program, required by federal law, under which the IRS assigns some overdue accounts to private collection agencies. You get IRS Notice CP40 and then a letter from the agency before any call. The agency can set up a payment plan, but it can’t levy or file a lien, and every payment goes to the IRS.
If a CP40 has arrived and you’d rather have a licensed representative on the account than a collection agency, call us at 877-924-1040 or request a free case review.
What Happens if the IRS Sends You to Private Collections?
Your account moves to one of three agencies working on the government’s behalf. The IRS private debt collection page lists them as CBE Group, Coast Professional and ConServe, the contractors in place since September 23, 2021. The agency explains your payment options and can set up and monitor an arrangement that pays the balance in full within seven years or by the collection expiration date.
The balance is the same IRS balance it was before. Interest and penalties keep running, and the IRS keeps its own collection powers even while an agency is working the account.
The Two Letters That Come First
The IRS writes first. Notice CP40 tells you your overdue account has been assigned to a private agency. The agency then sends its own initial letter explaining how to resolve the balance, and it won’t phone you before that letter goes out.
Both letters carry a taxpayer authentication number. When the agency calls, you exchange parts of that number to confirm each other’s identity, so keep both letters somewhere safe. To check the assignment without relying on anything in the letters, pull your IRS account transcript through the IRS’s Get Transcript tool. An assigned account shows a transaction code 971 with the CP40 notice listed next to it.
Scammers imitate these calls. The IRS says a genuine agency will never ask you to pay it directly or to pay with prepaid debit cards, iTunes cards or gift cards.
Why Your Account Was Assigned, and Who the IRS Won’t Assign
The law behind the program is section 6306 of the tax code, and the IRS’s FAQ gives the criteria it uses. An account can be assigned when the IRS lacked the resources to work it or couldn’t find you, when a year has passed without you or your representative dealing with the IRS about it, or when more than two years have passed since assessment without the account being assigned for collection.
The IRS won’t assign an account if you’re a victim of tax-related identity theft or you receive SSI or SSDI. It also excludes you if your adjusted gross income doesn’t exceed 200% of the applicable poverty level. The same goes if you’re under examination, in litigation, under criminal investigation or subject to a levy, if you have a pending or active offer in compromise, or if you’re in a presidentially declared disaster area and have asked for relief. If one of those fits and your account went out anyway, that’s worth raising.
What the Agency Can and Can’t Do
The agency’s role is narrow. It can send the initial letter, identify itself as an IRS contractor, and set up and monitor a payment arrangement. It can’t take enforcement action of any kind, which means no levy and no Notice of Federal Tax Lien. It can’t accept or reject an offer in compromise, it can’t place your account in currently not collectible status, and it can’t charge a fee for setting up a payment agreement.
Payments go to the United States Treasury, never to the agency. The IRS lists Direct Pay, the Electronic Federal Tax Payment System, card payments through a processor, a check or money order payable to the United States Treasury, and a preauthorized direct debit you approve in writing.
Options the Agency Can’t Offer
Several of the most useful outcomes sit outside the agency’s authority. If paying would leave you unable to cover basic living costs, currently not collectible status is an IRS decision. A settlement for less than the balance goes through the IRS as an offer in compromise.
Before you agree to any plan, checking the IRS collection deadline on each year tells you how long the IRS actually has left.
That deadline is generally 10 years from assessment under section 6502, which we explain in does tax debt expire. If the IRS has already moved toward enforcement on another year, the CP504 notice is the warning that usually comes before a levy.
How an Enrolled Agent Takes the Account Forward
You don’t have to work with the assigned agency. The IRS says that if you don’t want to, you must tell the agency in writing. From there, the account can be handled with the IRS directly, and that’s where a representative can do more than an agency can.
We’re a small, senior team of enrolled agents, licensed by the IRS with unlimited rights to represent taxpayers. We check the balance against your transcripts, look at the collection deadline, and then decide between an IRS installment agreement, hardship status or an offer. You never meet with the IRS. We do.
If you’re holding a CP40 and want a licensed representative on the account instead of a collection agency, call us at 877-924-1040 and have the notice in hand.
FAQ
What happens if the IRS sends you to private collections?
The IRS sends Notice CP40, then one of three private agencies sends a letter and later calls. The agency can set up a payment plan but can’t levy, file a lien, accept an offer or grant hardship status, and every payment goes to the IRS.
What does it mean when an overdue tax account is assigned to a private collection agency?
It means the IRS has handed day-to-day collection of that balance to a contractor, usually because the account was inactive or couldn’t be worked. The debt itself doesn’t change, and the IRS still holds its own enforcement powers.
What happens when you owe the IRS over $10,000?
Owing more than that doesn’t send an account to a private agency by itself, since assignment turns on inactivity and time. It does matter for payment plans. Under section 6159, the IRS must accept an installment agreement for certain individuals whose tax balance doesn’t exceed $10,000, and above that the plan is negotiated.
How far back can the IRS go to collect a debt?
Generally 10 years from the date the tax was assessed, under section 6502 of the tax code. Certain events can extend that period, so each tax year’s deadline should be checked against your IRS transcript.
Written by
William Sharpe, E.A., C.T.R.S.
Founder & Certified Tax Resolution Specialist
William has been in the tax business since he was 8 years old, starting in the mail room of the family enterprise. He began filing tax returns in 1999 and spent decades shadowing his grandfather, founder Bill Sharpe. In 2005 he teamed with Bill & Deborah Sharpe to open Total Income Tax — today the busiest tax office in Peoria — and in 2016 he founded Total IRS Relief to help taxpayers resolve their IRS and Illinois tax struggles.
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