The IRS sends a CP40 notice to inform you that it has assigned your tax debt to a private collection agency (PCA). Several PCAs contract with the IRS to pursue tax debt that the IRS has not been successful in collecting but does not consider a priority for its own continued pursuit.
If you receive an IRS notice CP40, it is actually a good sign in a way, as it indicates that the IRS itself will not be actively pursuing your tax debt, at least for the time being. But it does not mean you are in the clear — your file could get transferred back to the IRS at any point.
Why Did I Receive a CP40 Notice From the IRS?
You received a CP40 notice from the IRS because your tax debt is now assigned to a private collection agency. The CP40 notice is to inform you of the name of the PCA and to provide you with its contact information so that you can arrange to pay your tax debt.
Because tax collection scams abound, the IRS informs you ahead of time before transferring your tax debt to a private collection agency so you can verify the PCA is legitimate.
Can the IRS Transfer My Tax Debt to a Private Collection Agency?
Yes, the IRS can, and often will, transfer your tax debt to a private collection agency. It typically does this with low-priority balances that it wishes not to continue to devote resources to collecting itself.
In other words, Elon Musk will probably never have a tax debt referred to a third-party agency and receive a CP40 notice, but an average office worker might.
How Do I Confirm the Private Collection Agency Contacting Me Works With the IRS?
On your IRS CP40 notice you will find the name and contact details for the private collection agency to which your tax debt has been assigned. You can verify this PCA works with the IRS in a couple of ways.
First, you can search “private debt collection” on IRS.gov to view the list of private collection agencies with which the IRS is currently contracted.
Second, you can cross-reference the PCA information on your IRS notice CP40 with the letter you have received or will shortly receive from the private collection agency itself.
Can I Still Dispute My Tax Balance Due and Penalties After I Receive a CP40 Notice?
Yes, you can dispute your tax debt after receiving a CP40 notice, but depending on your situation, it is not always a good idea.
If you dispute the balance with the private collection agency but cannot reach an agreement on how much you owe, or whether you owe at all, the agency might transfer your file back to the IRS, at which point you could become vulnerable to liens or garnishment.
Before disputing a tax balance with a third-party agency, speak with a tax professional, who can help you determine the best course of action to take.
Do Private Collection Agencies Offer Payment Plans to Settle Tax Debt?
Yes. Most private collection agencies are happy to receive any money from debtors that they can get, and therefore they offer payment plans to settle tax debt. That does not mean it is always a good idea to contact them to set one up when you receive a CP40 notice. Speak with a tax professional first about your options.
Can a Private Collection Agency File a Tax Lien, Levy Property or Garnish Wages After You Receive a CP40 notice?
A private collection agency has no authority to file tax liens, levy property or garnish wages after you receive a CP40 notice. They can harass you with letters and phone calls — that’s it. Their strongest course of action is actually to transfer your file back to the IRS.
If this happens, you will receive an IRS notice letting you know. While your debt is placed with a private collection agency, however, you are safe from more aggressive IRS collection actions.
How Can Wiztax Help?
The key is to get started. Ignoring important IRS notices makes your tax situation more difficult. Call us today at (866) 568-4593 to learn more about how we can help, or start here to take our free online evaluation. Regardless, we promise to save you thousands in fees.
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