IRS CP40 - What to Do When a Private Collection Agency Contacts You About Your IRS Tax Liability

What Exactly Is an IRS CP40 Notice? 

In the simplest terms, an IRS CP40 notice is a letter from the IRS informing you that they have assigned your overdue tax account to a private collection agency (PCA). Yes, you read that right. The IRS is authorized by law—specifically, Internal Revenue Code (IRC) § 6306—to use private companies to collect certain unpaid tax. This usually happens when an unpaid tax is considered an “inactive tax receivable.” This could mean a few things: 

• The IRS may lack the resources to actively pursue the account. 

• It’s been over two years since the tax was assessed, and the account hasn’t been worked by an IRS employee. 

• An IRS collector was assigned, but there has been no meaningful contact with you for over a year. 

It’s important to understand that the IRS doesn’t just hand over any account. There are specific rules about which accounts are ineligible for private collection, such as those involving minors, active-duty military in combat zones, victims of identity theft, or individuals with pending installment agreements or offers in compromise. 

“I Received a CP40. What’s My First Step?” 

First, don’t panic. This is a manageable situation. Here’s what to do next: 

1. Verify, Verify, Verify: Scammers love to impersonate the IRS. The first thing you should do is confirm that the notice and the collection agency are legitimate. The process is designed with security in mind. 

2. You will first receive the CP40 notice directly from the IRS. This is your official notification. 

3. Shortly after, the private collection agency will send you their own letter. 

4. Both letters will contain a unique Taxpayer Authentication Number. You will use this number to verify each other’s identity when you speak. A legitimate agency will ask for a portion of the number and then provide the rest to prove they are who they say they are. 

5. Know Your Rights: Just because a private company is involved doesn’t mean you lose your rights. In fact, these agencies are legally required to follow the Fair Debt Collection Practices Act (FDCPA). This means they cannot harass, threaten, or deceive you. You still have all the protections under the Taxpayer Bill of Rights. 

   
   

The Powers and Limitations of Private Collection Agencies 

This is where a lot of fear comes from, so let’s clear it up. What can these agencies actually do? And more importantly, what can’t they do? 

What Private Collectors CAN Do	What Private Collectors CANNOT Do
✅ Locate and contact you by mail and phone.	❌ Take enforcement action. They cannot issue a bank levy, garnish your wages, or file a federal tax lien. Only the IRS can do that.
✅ Request full payment of your tax liability.	❌ Demand payment be made directly to them. All payments must be made to the “U.S. Treasury.”
✅ Help you set up a payment plan.	❌ Ask for payment on a prepaid debit card, gift card, or via wire transfer. This is a huge red flag for a scam.
✅ Obtain financial information from you with your consent to help find a solution.	❌ Threaten you with arrest or deportation.

Currently, the IRS has contracts with the following three agencies: 

• CBE Group, Inc. 

• Coast Professional, Inc. 

• ConServe 

If you are contacted by any other company claiming to be an IRS collection agency, it is a scam. 

Your Payment Options 

When it’s time to pay, remember the golden rule: Always pay the IRS directly. A private collection agency will never ask for a check made out to them or for your credit card number over the phone. They will guide you to one of the following payment methods: 

• Online: Through IRS Direct Pay on the IRS website. 

• By Mail: A check or money order made payable to the “U.S. Treasury.” 

• Payment Plan: The agency can help you set up an installment agreement, but the payments are still directed to the IRS. 

Watch Our Free Video for More Information! 

Feeling overwhelmed? Sometimes, hearing it explained can make all the difference. We’ve created a comprehensive video that breaks down how to deal with IRS back taxes, wage garnishments, bank levies, penalties from taxes, passport revocations, tax audits, tax appeals, payroll taxes/employment taxes, taxes during marriage/separation/divorces and statute of limitations for taxation. 

Scan the QR code below with your phone or click the website link to watch now! 

The Ultimate Guide to Solving Your IRS Tax Problems

Click the picture below to watch the video now!

Click here to watch our YouTube videos. Like and subscribe to our YouTube channel for more helpful tax tips! 

You Don’t Have to Face This Alone 

Receiving an IRS CP40 notice can feel isolating, but it’s a sign that it’s time to take action. Ignoring it won’t make it go away and may lead the IRS to take more serious collection actions down the road. You have rights, you have options and you have the power to resolve this. 

If you’re feeling unsure about your next steps or want to explore all your options, you don’t have to navigate this complex process by yourself. We are here to help you understand your situation and find the best path forward. 

Book a consultation with us today. Let’s tackle this together.