It’s a scary experience to find a notice from the Internal Revenue Service (IRS) waiting in your mailbox. If you’re here, it’s because you received a CP40 notice and need to know what it means.
You can probably guess that you need to take some kind of action on your tax account because that’s what most IRS notices mean. In the case of a CP40 notice, it means that the IRS assigned your account to a private collection agency. If this happens, don’t wait to get help – contact us at Wiggam Law to talk about the best steps forward when you receive a CP40 notice.
What Does This Notice Mean?
Besides telling you that your account is now in the hands of a collection agency, the CP40 will tell you:
- What happens next (or future collection actions)
- What actions you need to take to clear the debt
- Who you need to contact to make arrangements for the taxes owed
The CP40 notice is virtually indistinguishable from the CP140 notice. If your account is assigned to a private collector, you may receive either notice. Whichever one you get, stay calm – it’s not too late to take action. This guide to navigating the CP40 notice gives you the tools you need to understand and move toward clearing your tax debt.
What is a CP40 Notice?
In simple terms, a CP40 notice means that private debt collectors have taken over your tax account from the IRS. Some debt balances go inactive because the account is old and without activity or because the IRS couldn’t reach you.
If you’re getting a CP40 notice, no matter what the outside reason is, the ultimate reason is one (or both) of the following:
- You didn’t take action on your debt after getting multiple forms of contact from the IRS
- You didn’t receive the IRS messages about your taxes owed, and they could not reach you
You could get a CP40 notice if you forget to file your taxes one year, and the IRS assesses a tax balance against you, but they send their letters to your old address, and you never see them. Or you could get the notice if you stop making payments on a payment plan, then fail to respond to all the communication from the IRS about your tax debt.
If you get a CP40 notice, it’s very important for you to take action about your tax debt immediately. Don’t wait to respond to the collection agency or the IRS – the longer you wait, the more penalties and interest will accrue.
What’s the Difference Between a CP140 and CP40 Notice?
There’s no real difference between the CP140 and CP40 notices. They both state that your tax account has been moved to a third-party collector, and you should take action now. If you have old tax debt, you could receive either notice.
What to Do if You Get a CP40 Notice
When you get a CP40 notice, you should confirm that the collection agency listed on the notice has your debt account. After that, contact them immediately to make payment arrangements for your tax debt.
If you prefer, you can work with the IRS to resolve your tax debt. To transfer your tax debt account back to the IRS, simply contact the IRS and let them know what you want to do.
Here’s what you should do after you get a CP40 notice:
Confirm That the Agency Named on the Notice Works With the IRS
Before you act, always confirm that the agency on the notice actually has a partnership with the IRS. There’s been an unfortunate uprising in scam artists pretending to be collection agencies to collect fraudulent payments. Remember, a legitimate collection agency will never require you to make payments to any entity besides the Department of the Treasury. They won’t accept payments made out to the collection agency, and they won’t ask for odd types of payments such as gift cards or wire transfers.
Luckily, there’s an easy way to confirm that the letter and agency are both legitimate. All you have to do is:
- Visit the IRS website
- Search for the keyword “private debt collection”
- Find your collection agency’s name in the search results. (If it’s not there, then it may be a fraudulent notice)
- Contact a tax attorney if you’re unsure
In addition to the CP40 notice from the IRS, you’ll receive a letter from the private agency that got your account. The letter will state that they’re under a contract with the IRS to collect a debt. Before you take any action, you should make sure you received both letters and confirm that the information is the same (and legitimate) in both.
Check the Agency’s Taxpayer Authentication Number
Both of the letters you receive – the CP40 from the IRS and the one from the private collection agency – contain a taxpayer authentication number (TAN) that the agency will use to confirm your identity.
You can match that TAN across both letters to make sure that they’re definitely legitimate. When you talk to the collection agency, you provide them with half of the number, and they provide you with the rest of it. That’s how both you and the agency put yourselves at ease.
Arrange to Pay the IRS
Get in touch with the collection agency right away to make plans to pay your tax debt. Remember that even though you’re making payment arrangements with the agency, you’ll be paying the IRS directly.
The collection agency processes your payment via phone, but it’s the Department of Treasury that actually handles the payment to the IRS. If you prefer, you can make a payment online using IRS Direct Pay or EFTPS.
The collection agency can help you arrange to:
- Pay in full
- Make a partial payment
- Enter into a payment arrangement
You won’t be able to apply for any tax settlement programs for relief, such as offers in compromise or innocent spouse relief through a collection agency. You can do that directly with the IRS or find a tax professional who can help.
Learn the Fair Debt Collection Practices Act
It’s a sad truth that debt collectors can be intrusive and unethical. You should know your rights under the Fair Debt Collection Practices Act (FDCPA).
For instance, the FDCPA says that collectors cannot:
- Call you before 8 AM or after 9 PM
- Call you at work or on your cell if you asked them not to
- Continue to call you after you send a letter requesting that they stop
If collectors are reaching out to you despite your request to stop, you should seek the help of a tax attorney as soon as possible. Unfortunately, not long after the IRS started using private collectors, the collectors were accused of using illegal and/or abusive practices to collect debts. Although those accusations are more than five years old, nothing has been done to correct the problem. Policy analysts claim that the use of private debt collectors has a significantly worse impact on poor taxpayers.
Ask the IRS to Take Your Account Back From the Collectors
If you’re more comfortable working with the IRS to handle your tax debt, they will work with you. All you have to do is let the collector and the IRS both know that you prefer to work with the IRS, preferably in letter form.
How to Handle Tax Debt on a CP40 Notice
No matter how old your tax debt is, it’s not too old to deal with it after you get a CP40 notice. If you got one, here’s what you can do:
File Your Back Taxes (If Applicable)
You should still file your back taxes if you neglected to file a return years ago and the IRS finally conducted an assessment. The IRS is notorious for assessing high when it comes to your tax liability (and debt), and if you file a correct return, you may be able to lower your tax bill.
You might want to leave your taxes unfiled if:
- The IRS-assessed balance is lower than it would be if you filed
- You’re likely to receive an offer in compromise that lowers your tax bill to negligible amounts
- The statute of limitations on the taxes owed is close to expiration
Check with a tax expert if you’re not sure – they can help you decide whether to file and how to proceed if you choose to file.
Pay Your Whole Tax Balance
Paying your entire tax balance in one fell swoop is the dream, and it’s the preferred option if you can comfortably afford it. This eliminates the extended costs of tax debt, like interest and penalties.
Of course, not everyone can afford to pay their entire tax balance. Some people choose to take out loans to pay tax bills, which can be economical if the interest rate is low.
Settle With an Offer in Compromise
An offer in compromise is a way to deal with your tax bill up front, even if you can’t afford to pay it off in full. If that’s the route you choose to take, you’ll need to talk to the IRS directly. A collection agency cannot negotiate an offer in compromise.
As part of the application process, the IRS will require details about your finances to demonstrate that paying in full would be a hardship. If you’re approved, you’ll get to make payments over a 24-month period or pay off the reduced balance.
Negotiate a Payment Plan
The most common option for paying off your taxes is a payment arrangement with the IRS. The collection agency can help you set this up. Be open to offers and aim for a reasonable monthly payment that you can afford. The IRS may require that you provide more information about your life and financial situation to decide if the payment arrangement is needed.
What Happens When You Ignore a CP40 Notice
When you don’t respond to a CP40 notice, the collection actions can escalate. As long as you continue to be unresponsive, the agency will continue trying to contact you. In some cases, collection agencies call the people who are associated with you – like family, friends, and professional colleagues – trying to get in touch with you.
Can Collectors Take Legal Action for Tax Debt?
Private debt collectors aren’t allowed to take any enforcement actions against you to collect your tax debt. That means forced collection actions such as garnishments, liens, or levies. If a collector threatens to take forced collection actions, tell them they don’t have the right to do so.
While a collector can’t file a lien or a levy, the IRS can. You aren’t entirely safe from forced collection actions as long as your debt is unpaid with no arrangements made to pay.
How to Avoid Getting a CP40 Notice
There’s a way to avoid a CP40 notice that just can’t fail: pay your tax bill! Don’t let your tax account get so old that the IRS doesn’t want to deal with it anymore. You can’t know if you’re at risk before it happens because the IRS isn’t open about how they outsource accounts. Know that paying your tax obligations means you have zero chance of getting a CP40 notice.
Get Tax Help Dealing With Your CP40 Notice
If you’ve never responded to a tax notice before – or even if you have – dealing with the IRS is just more comfortable with an expert’s hand to guide you. The tax attorneys at Wiggam Law can help you deal with the tax issues you’re having now. Don’t let your taxes wait, contact us today to schedule a consultation and see how we can help you.