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 receive a CP40 Notice from the IRS, you can breathe a sigh of relief. However, you must know your rights so you’re not bullied or scammed by a private collection agency (PCA).
Does the IRS Use Collection Agencies?
Yes, your tax debt can end up with one of four PCAs: CBE, ConServe, Performant, or Pioneer. This may happen to you when the IRS decides it does not have the resources to handle your case or does not know how to contact or find you. There are also many reasons your debt can’t be sent to collections, including if you receive Social Security Disability Insurance, you’re currently in a designated combat zone, or you’re classified as an innocent spouse.
What Happens Next?
The IRS sent you to collections. What happens next?
You’ll be notified of this 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. Then, you’ll receive a letter from the PCA your debt was assigned to. This letter will also contain a taxpayer authentication number. The numbers on these two letters must match.
Only after you’ve received both of these letters, with matching taxpayer authentication numbers, will the collection agency call you. You’ll use this unique number to ensure the PCA is legitimate. A legitimate PCA will never ask you to use untraceable methods of payment, such as a gift card or prepaid debit card. You should always pay the IRS directly for your back taxes.
In addition to avoiding scams, you should also know your rights as a consumer and taxpayer. There is a long list of tactics debt collectors cannot use, including threatening violence, or lying about your debt or their ability to take legal action.
The Benefits of a PCA for Taxpayers
When your tax debt is sent to a collection agency, all you have to do is know your rights, avoid scams, and wait out the statute of limitations on your back taxes. A PCA can’t take any legal action against you to collect the debt, including a lien or a levy. The IRS explicitly states, “Private collection agencies cannot take any type of enforcement action against you to collect your debt.”
There are no adverse consequences if you decide not to respond to a PCA. Responding can actually make things worse. If you cannot resolve your tax debt with the PCA, the agency can (and likely will) send your debt back to the IRS. Instead, you can wait out your statute of limitations on the collection of your back taxes. This way, your information simply sits at a PCA and poses no threat to your financial wellbeing.
Even though dealing with a private collection agency is better than having the IRS levy your assets or garnish your wages, it can still be stressful. You can turn to a tax resolution professional at East Coast Tax Consulting Group with any questions you may have after the IRS sends you a CP40 Notice. Contact us for a free consultation today.