IRS CP 40 Notice — Account Assigned to Private Collections
If you receive notice CP40, that means the IRS has assigned your account to a private collection agency. The IRS started outsourcing some collections in 2015, and if the agency hasn’t been able to contact you or reach a resolution on your tax debt, you may receive this notice or the CP140 notice which is very similar.
To get help now, contact us at the W Tax Group today or keep reading for an overview of what to expect.
What Happens If You Receive Notice CP40?
The IRS sends CP40 to let you know that your account has been referred to a collection agency. The collection agency will also send you a placement letter. Both of these notices are required by law.
Once you receive these notices, the collection agency will likely contact you over the phone. They will ask several questions to verify your identity, and they will also ask you for part of a code from the letter. In turn, they should be able to give you the other part of the code to verify that they are a legitimate collection company.
Working With a Collection Agency to Resolve Your Tax Debt
A debt collection agency can only collect full payment or help you set up a payment plan. They cannot remove penalties, accept an offer in compromise, or mark your account as currently not collectible. They also cannot order collection actions such as liens, levies, or garnishments.
What to Do If You Receive CP40
Here are the options if you receive CP40:
- Pay the balance in full through the IRS or the collection agency.
- Set up a payment plan through the IRS or the collection agency — You can usually get monthly payments as long as you can pay off the balance in seven years or before the Collection Statute Expiration Date (CSED).
- Request penalty abatement from the IRS — You can often get relief if you incurred penalties for the first time or have reasonable cause for the penalties.
- Consider an offer in compromise — If you can only afford to pay some of the tax liability, the IRS may let you settle for less than you owe.
- Ask the IRS for currently not collectible status — If you prove that you cannot afford to pay, the IRS will stop collection actions against you until your situation changes.
- Contact the IRS to dispute the tax due — There are several different ways to dispute your tax bill, but in some cases, you may need to pay the tax under protest and then request a refund.
As indicated above, collection agencies can only take certain actions. If you want to request penalty relief or apply for a settlement, you will need to work directly with the IRS.
How to Make Sure the Collection Agency Is Legitimate
Unfortunately, there are a lot of scams where thieves pretend to be the IRS. They prey on people’s fears to convince them to share private information or payment details. When you’re contacted by anyone who claims their collecting a debt for the IRS, be cautious about talking with them. It’s always better to err on the side of caution rather than fall prey to a scam.
To make sure you’re talking with a legitimate collector, keep the following tips in mind:
- Don’t talk to anyone unless you’ve received both letters — By law, the IRS must send you Notice CP40, and the collection agency must send you a placement letter. In some cases, the collection agency may call you before you receive the letter. This can happen if the agency has the wrong address but the correct number, but even then, you should still insist that you receive the letter before you talk with the collector. Contact the IRS to update your address.
- Make sure they’re from one of the IRS’s contracted agencies — As of 2023, the IRS works with CBE, Coast Professional, and CoServe. This list is subject to change. Check the IRS’s website for an updated list of third-party collectors contracted to collect tax debts.
- Verify the number from your notice — The collection agency should ask you for some of the numbers on your letter to verify your identity. Then, the agency should be able to give you the remaining numbers to verify its legitimacy. Never talk to a collector about taxes without taking this verification step.
- Check your IRS transcript — If you set up an online IRS account, you can check to see if your account has been assigned to a third-party collector. Here are the instructions for online IRS accounts.
Most importantly, pay attention to the collector’s tactics. If they demand immediate payment or request payment through an unusual method such as an iTunes card, they are not a legitimate collection agency. When in doubt, end the call. If you find out they are legitimate, you can call them back. In contrast, if you give your money to a fraud, you will not be able to get it back.
IRS Vs. Third-Party Collections
Third-party collection agencies don’t have the same rights as the IRS. They cannot file tax liens, garnish your wages, or seize your assets. If a collector threatens that they are going to take those actions against you, consider reporting them to the IRS. Collection agents are prohibited from bullying, threatening, or intimidating you.
Collection agents are authorized to collect your debt or help you set up payment arrangements. If you don’t want to work with the collection agency, you can contact the IRS directly to set up arrangements to pay your taxes. Or you can hire a tax attorney to handle the process for you.
What If You Receive Notice CP40 in Error
The IRS generally only assigns inactive accounts to collection agencies. If you are already on a payment plan or if you’ve recently applied for an offer in compromise or innocent spouse relief, contact the IRS and let them know that you received this notice in error. It’s also a mistake if you receive this notice for a deceased taxpayer, a minor, or someone in a combat zone.
How to Switch Your Account Back to the IRS
You are not obligated to work with a collection agency. To get your account switched back to the IRS, send a letter to the collection agency and ask them to stop contacting you. Then, contact the IRS to make arrangements for your tax bill.
What Is www.IRS.gov/CP40?
Most CP40 notices have the web address www.IRS.gov/cp40 printed on them. This URL connects to the IRS’s webpage about understanding your CP40 notice. The IRS provides these links so that taxpayers can learn more about why they received the notice.
The IRS’s site explains that you should keep the CP40 notice. You will use the number on it to verify your identity with the third-party collection agency. The collection agency will ask you for the first five numbers. Then, they will give you the last five numbers. If they do not know these numbers, don’t talk to them.
Get Help With Notice CP40
If you’ve received notice CP40, we can help you. At the W Tax Group, we work closely with our clients to customize solutions that meet their unique needs and their budgets. Depending on what’s happening, we may be able to reduce penalties, set up payments, reduce your tax bill, or help you make other arrangements with the IRS.
There are many different options — to learn more, contact us today.