If you’re wondering what comes next when the IRS sends you to a private debt collector, the short answer is maybe nothing. The long answer is much more complex, but if you are receiving a CP40 Notice from the IRS, you must know your rights and what a private collection agency (PCA) can and cannot do, so you’re not bullied by them or fall prey to scammers.
Key Takeways
Does the IRS Use Collection Agencies?
Yes, currently the IRS works with three authorized private collection agencies:
- CBE Group
- ConServe
- Coast Professional Inc.
These agencies are contracted by the IRS to contact taxpayers and help resolve certain overdue federal tax debts. They operate under strict IRS guidelines and are bound by the Fair Debt Collection Practices Act (FDCPA).
Why Would the IRS Send Your Debt to a Private Collector?
The IRS handles an enormous volume of tax debt cases every year, and it does not have the staffing or resources to actively pursue all of them. The agency typically refers accounts to PCAs when:
- The IRS lacks the resources to work on the account
- A year has gone by without any interaction from the taxpayer regarding their tax debt
- The IRS cannot locate the taxpayer
- More than 2 years have passed since the assessment, and the account was not assigned for collection
It is important to understand that referral to a PCA does not mean the IRS has given up on your debt or that your situation has deteriorated. It is simply a capacity and administrative management decision.
Many reasons can prevent your debt from being sent to collections, such as receiving Social Security Disability Insurance, being in a designated combat zone, or being classified as an innocent spouse.
What Happens Next?
The IRS sent your account to a private collection agency. What happens next?
Step 1: You Receive a CP40 Notice from the IRS
You’ll be notified of the change in your account status via a CP40 Notice from the IRS. You’ll also receive Publication 4518, which explains what to expect now that your debt is with a PCA. Your CP40 will have a taxpayer authentication number. Keep this number; you will need it to verify that any subsequent contact is legitimate.
Step 2: You Receive a Letter from the PCA
Then, you’ll receive an introductory letter from the PCA to which your debt was assigned. This letter will also contain a taxpayer authentication number. This number must match the one on your CP40 Notice from the IRS.
This matching number system is your first and most important line of defense against scammers impersonating debt collectors.
Step 3: The PCA Contacts You by Phone
The collection agency will call you only after you’ve received both letters, each with a matching taxpayer authentication number. You’ll use this unique number to ensure the PCA is legitimate. A legitimate PCA will never ask you to use untraceable payment methods, such as a gift or prepaid debit card. You should always pay the IRS directly for your back taxes.
Your Rights When Dealing with a Private Collection Agency
In addition to avoiding scams, you should know your rights as a consumer and taxpayer. Private collection agencies acting on behalf of the IRS must comply with both the Fair Debt Collection Practices Act (FDCPA) and IRS-specific guidelines. These rules provide you with meaningful protections.
Debt collectors cannot use aggressive tactics, including threatening violence, lying about your debt, or claiming their ability to take enforcement action. Unlike the IRS, a PCA can’t take any legal action against you to collect the debt, including a lien or a levy. Its only tools are communication, either by mail or phone calls.
The Statute of Limitations: A Hidden Opportunity
One of the most important and often overlooked aspects of being assigned to a PCA is the potential to benefit from the IRS’s statute of limitations on collections.
The IRS generally has 10 years from the date a tax liability is assessed to collect that debt. This is known as the Collection Statute Expiration Date (CSED). Once this date passes, the IRS legally loses its right to collect the debt, and it is written off.
When your account is at a PCA, the clock on your CSED keeps running. Because PCAs have no enforcement powers, they cannot take any action to stop or toll (pause) the statute of limitations, as the IRS can in some circumstances. If your CSED is approaching, having your account sit at a PCA, where limited action can be taken against you, can work to your advantage.
This does not mean you should ignore the situation entirely. But understanding where you stand with your CSED is an important part of any tax resolution strategy.
Payment Options Available Through a PCA
If you are ready and able to resolve your tax debt, a PCA can help you set up a payment arrangement. These options generally include:
- A lump-sum payment in full
- A full-pay installment agreement (monthly payment plan) over the earlier of seven years or the CSED.
Regardless of which option you choose, always make your payments directly to the IRS, never to the PCA.
Should You Work Directly With the PCA or Seek Professional Help?
This is one of the most important decisions you can make after receiving a CP40 Notice. While it may seem straightforward to simply call the PCA and make arrangements, there are situations where working with professional tax representation is strongly advisable:
- You have a large tax debt and are unsure of your options
- You believe you may qualify for an Offer in Compromise (a settlement for less than you owe)
- Your Collection Statute Expiration Date is approaching
- You are experiencing financial hardship and may qualify for Currently Not Collectible (CNC) status
- You suspect you were wrongfully assigned to a PCA
- You have unfiled tax returns that are complicating your situation
If your situation is better served by a resolution option other than an installment agreement, you’ll need to work directly with the IRS. You can do this by notifying the PCA of your wish.
Taxpayers who want a PCA to stop contacting them should submit a No-Contact letter to the PCA. Once the letter is received by the PCA, the account will be returned to the IRS. Keep in mind that this does not resolve the debt. The IRS may then pursue collection on its own, potentially using enforcement tools such as liens or wage levies.
However, remember that if you’re looking to run out the clock on the CSED, it can sometimes work in your favor to do nothing. Once that deadline passes, the IRS can no longer collect the debt.
A licensed tax professional, such as a CPA, enrolled agent, or tax attorney, can evaluate your complete financial situation, determine which resolution path makes the most sense, and negotiate with the IRS on your behalf. In many cases, professional representation can result in significantly better outcomes than taxpayers achieve on their own.
The tax professionals at East Coast Tax Consulting Group can answer any questions you may have after the IRS sends you a CP40 Notice. Contact us for a free consultation today.
CP40 Notices and Private Collection Agencies FAQs
Can a private collection agency garnish my wages or levy my bank account?
No. Private collection agencies working on behalf of the IRS have zero enforcement authority. They cannot garnish your wages, freeze or levy your bank accounts, seize your assets, or file a tax lien against your property. Only the IRS itself has those powers. A PCA’s only tools are letters and phone calls. If anyone claiming to be from a PCA threatens enforcement action, it is almost certainly a scam.
What if I can’t afford to pay the debt the PCA is collecting?
If you are experiencing genuine financial hardship, you may qualify for Currently Not Collectible (CNC) status. This is an IRS designation that temporarily suspends collection activity because the IRS determines you lack the ability to pay. While CNC status does not eliminate your debt, it pauses enforcement and allows your CSED to keep running. You should not try to negotiate CNC status directly with a PCA; that determination is made by the IRS. A tax resolution professional can help you apply.
Can I request that the IRS take my case back from the PCA?
Yes, if you think you were incorrectly assigned to a PCA. For example, if you are eligible for an exclusion such as SSDI status or innocent spouse relief, you can contact the IRS directly to request that your account be reviewed and recalled. You may also request a recall if you are working toward a resolution, such as an Offer in Compromise, or are in the process of filing for bankruptcy. Working with a tax professional can help you navigate this process efficiently.
Does being sent to a private collector hurt my credit score?
The IRS referral to a PCA does not directly appear on your credit report. However, if the IRS has filed a federal tax lien against you (which can happen independently of the PCA referral), that lien is a matter of public record and can affect your ability to obtain credit, sell property, or refinance a mortgage. Note that a PCA itself cannot file a tax lien; only the IRS can. If you are concerned about a tax lien on your record, a tax resolution professional can advise you on options for lien withdrawal, subordination, or discharge.
How long can a PCA try to collect my debt?
The PCA’s collection authority is tied to the IRS’s own CSED, generally 10 years from the date the tax was assessed. Once the CSED passes, however, the debt is legally extinguished, and neither the IRS nor any PCA can collect it. This is why knowing your CSED is so important.