A private agency says it is collecting your IRS debt: is it legitimate?

It may be. Federal law requires the IRS to hand certain older, inactive tax debts to private collection agencies, and since September 23, 2021 the IRS has used three: CBE, Coast Professional and ConServe. A legitimate agency contacts you only after the IRS has mailed you Notice CP40, it sends its own letter before it calls, and it never asks you to pay anyone but the U.S. Treasury.

The program is real, but so are the scams that copy it, so the safest approach is to check every claim against what the IRS itself says before you discuss your account or pay anything. The program is one small part of the collection process described on Kathryn Meyer's page on IRS collections and enforcement.

Why would the IRS send your account to a private agency?

Section 6306 of the Internal Revenue Code directs the IRS to enter into contracts for the collection of all "inactive tax receivables." Under section 6306(c), a tax debt becomes inactive in one of three ways:

• at any time after assessment, the IRS removes it from active inventory because it lacks the resources or cannot locate you;
• more than 2 years have passed since assessment and the debt has not been assigned to an IRS employee; or
• it was assigned to an employee, but more than 365 days have passed without contact with you or a third party to move collection forward.

In plain terms, the accounts that go to private agencies are older balances the IRS is not actively working. The IRS describes them as accounts where taxpayers owe money "but the IRS is not actively working them," often because of their age or the agency's limited resources.

How does a legitimate private collection contact unfold?

The IRS's own pages describe a fixed sequence, and each step can be checked.

1. The IRS writes first. You receive Notice CP40 telling you that your overdue account has been assigned to a private collection agency. Your representative, if you have one on file, also gets written notice.
2. The agency writes second. The assigned agency mails its own initial contact letter confirming the assignment. The IRS says the agency will not telephone you before sending that letter.
3. Both letters carry a taxpayer authentication number. When the agency calls, you and the caller exchange portions of that number so each side can confirm the other's identity.
4. The agency explains payment options and can set up and monitor an arrangement to pay in full within seven years or by the collection expiration date.
5. Payments go to the IRS. Every payment is made to the U.S. Treasury through IRS payment channels, never to the agency.

You can also confirm the assignment yourself. The IRS says your account transcript, available through its Get Transcript service or your online account, will show a transaction code 971 noting that collection was referred to a private debt collection agency, and another code 971 noting that Notice CP40 was issued.

Which agencies does the IRS use?

Before September 23, 2021, the IRS also used Performant and Pioneer, which are no longer on its list. Because contracts change, compare any caller's company name and phone number with the IRS's private debt collection page on the day you are contacted, not with a number in a letter you cannot verify.

What can a private agency do, and what can it never do?

The IRS lists the accepted ways to pay: IRS Direct Pay from a bank account at no cost, the Electronic Federal Tax Payment System, a debit or credit card through an IRS payment processor (which charges a fee), a check or money order payable to the United States Treasury, or a preauthorized direct debit that you authorize in writing. Checks under that direct debit option are always payable to the United States Treasury and can be changed or canceled up to one business day before the scheduled payment.

The agency's limits matter for what it cannot offer you. If your finances call for an offer, a hardship pause or a plan longer than its contract allows, that decision belongs to the IRS, and the IRS measures it with its own expense tables, explained in how the IRS decides what you can afford to pay.

Which accounts are never sent to a private agency?

Section 6306(d) and the IRS's list exclude accounts involving taxpayers who are deceased, under 18, in a designated combat zone, victims of tax-related identity theft, receiving Supplemental Security Income or Social Security Disability Insurance (the statute says when substantially all income is those benefits), or individuals whose adjusted gross income does not exceed 200 percent of the applicable poverty level. Also excluded are accounts that are:

• under examination, litigation, criminal investigation or levy;
• subject to a pending or active offer in compromise or an installment agreement;
• subject to a right of appeal;
• classified as innocent spouse cases; or
• in a presidentially declared disaster area where the taxpayer asks for relief from collection.

If you fall into one of these groups and a private agency contacts you, that is a reason to call the IRS and ask for the account to be reviewed. A pending offer is covered in whether you qualify for an IRS offer in compromise. Spousal claims are covered in innocent spouse relief.

What changes the answer

• Whether you received Notice CP40. No CP40 and no agency letter means the call should be treated as suspect until the IRS confirms the assignment.
• How you are asked to pay. Any request to pay the agency, or to pay by gift card or prepaid debit card, falls outside what the IRS says its contractors may do.
• Whether your account is excluded. The categories in section 6306(d), such as an open installment agreement, a pending offer or a disability benefits case, keep an account out of the program.
• Whether you want the agency at all. The IRS says that if you do not wish to work with the assigned agency, you must say so in writing to the agency.
• Disasters. Section 6306(i) lets the IRS set procedures for taxpayers affected by a federally declared disaster to ask for relief from contractor collection and the return of the account to the IRS.
• The collection deadline. Agency plans must finish within seven years or by the collection expiration date, so the date matters; see how long the IRS has to collect a tax debt.

For example: a call about a 2019 balance

For example, imagine a retired teacher who receives a call from someone who says he works for an agency collecting a 2019 tax balance for the IRS and asks for a payment that day by gift card. She has not received a CP40 notice or any letter from an agency. Under the IRS's own description of the program, three things are wrong with the call: no CP40, no initial letter before the phone contact, and a request for gift card payment. She hangs up, checks her IRS online account, and sees no code 971 referral on her transcript. A month later she receives a genuine CP40, followed by a letter from one of the three listed agencies carrying a taxpayer authentication number. When that agency calls, the caller matches part of the number, offers a payment plan she can complete within the time left on the collection clock, and directs her to IRS Direct Pay. This is a hypothetical, not a real case.

Common mistakes when a private agency calls

• Paying the caller. All payments go to the U.S. Treasury through IRS channels.
• Trusting a phone number given by the caller. Use the IRS's private debt collection page to confirm the agency.
• Throwing away the CP40 or the agency letter. Both carry the authentication number you need to verify later calls.
• Assuming the agency is the end of the road. It cannot accept an offer or grant hardship status, so those requests go to the IRS.
• Agreeing to a plan you cannot keep. A defaulted plan returns you to the same balance, with more interest and penalties.
• Forgetting that the IRS can still act. The IRS says the agency cannot take enforcement action, but the IRS itself keeps its authority to file a lien or levy.

What to do this week

1. Find your Notice CP40 and the agency's initial letter, and note the taxpayer authentication number.
2. Check your IRS account transcript for the code 971 entries showing the referral and the CP40.
3. Compare the agency's name with the three listed on the IRS's private debt collection page.
4. Decide whether a plan is affordable, or whether you need an IRS-level option such as an offer or a hardship pause.
5. If the contact looks fake, do not pay; report it through the reporting link on the IRS page, which leads to the Treasury Inspector General for Tax Administration.

Frequently asked questions

Is it legal for the IRS to use private collectors?

Yes. Section 6306 authorizes qualified tax collection contracts and requires the IRS to use them for inactive tax receivables. The Fair Debt Collection Practices Act applies to those contracts, except where the tax code overrides it.

Does the agency keep a cut of what you pay?

Section 6306(e) lets the IRS retain up to 25 percent of amounts collected under these contracts to pay for the services, and up to 25 percent more for an IRS compliance personnel program. Your account is credited with the full amount you pay.

Can you get a different payment plan from the IRS instead?

Yes. You can tell the agency in writing that you do not wish to work with it, and the IRS's own plans are compared in the IRS payment plan options.

What if you already paid the balance?

The IRS says to work with the agency to find out why the payment was not applied and to give it the payment details it asks for, so the payment can be credited.

Can someone represent you with the agency?

Yes. The IRS sends written notice of the transfer to your representative as well as to you; how representation works is covered in how a tax attorney represents you before the IRS.

What if a lien or levy notice arrives while the agency has your account?

Those notices come from the IRS, and the 30-day windows in them still apply; see what a Collection Due Process hearing is and when to ask for one.

Where should you start if a letter is confusing?

Identify which notice you actually have first; the overview in what to do if you receive an IRS notice is a starting point.

Help with an old balance

An account in private collection is usually an old one, and the right answer may be a plan, an offer, a hardship pause or a closer look at whether the debt is still collectible at all. Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel and represents taxpayers in collection matters. Before you commit to a payment arrangement, contact the firm or call (571) 560-8674. The list in what to gather when the IRS starts collection shows what to bring.

Sources

• 26 U.S.C. 6306, Qualified tax collection contracts
• IRS, Private debt collection
• IRS, Private debt collection FAQs
• IRS, Private debt collection: accounts assigned to private collection agencies
• IRS, Get your tax records and transcripts