By law, the IRS is required to use private agencies to collect on inactive tax debts. These are tax debts that have been outstanding for two years since assessment, or debts where a third of the 10-year statute of limitations has passed.
The IRS doesn’t spring this on you, though; it sends you a Notice CP40 to let you know your tax debt has been assigned to a private collection agency.
Unlike many private debts that are sent to collections, the IRS still maintains full ownership of the tax debt. This means the assigned private agency can’t garnish your wages, levy your bank account, or file liens, but they can help you set up some types of payments. If you’ve been sent to collections, you need the services of our IRS collections attorney.
Key Takeaways
- The IRS is required by law to assign inactive tax accounts to private collection agencies.
- The IRS only uses three private collection agencies (CBE Group, Coast Professional, Inc & ConServe).
- The IRS sends you a Notice CP40 before the private collection company reaches out.
- Private collection agencies can’t garnish, file liens, levy, or settle tax debts.
- The IRS retains the debt ownership and is the main decision maker on tax relief resolutions.
Is the IRS using Private Debt Collectors?
The IRS does use private collection agencies, as per a 2015 mandate by Congress. In particular, IRS debt collection efforts currently rely on three specific private debt collectors to help the agency collect back taxes from inactive taxpayers in specific circumstances:
- CBE Group, Inc.
- ConServe
- Coast Professional, Inc.
No other collection companies are approved to collect federal tax on the IRS’s behalf, so if someone outside these agencies contacts you claiming to work with the IRS, treat it as a scam. However, the IRS may decide to work with new agencies – check their website for the most up-to-date information.
Why Was My Debt Sent to Collections? Has My Situation Gotten Worse?
Not necessarily, it usually just means your own was inactive. You’re not facing aggressive collections like wage garnishments or bank levies right now.
However, if you keep ignoring the PCA efforts to collect, they’ll send your tax account back to the IRS as “uncollectible by PCA.” This may lead to the IRS sending your account to active inventory, where a Revenue Officer (RO) may be assigned to your case. An RO has the authority to levy, garnish, and attach liens to property.
Keep in mind that interest and penalties continue to accumulate while your account is with a PCA, which can significantly increase your debt. To avoid this, find a way to settle your tax debt or contact a tax professional to make payment arrangements.
Why Congress Mandated that the IRS Use Private Debt Collectors
In 2015, Congress required the IRS to hire private collection agencies, starting in Spring 2017, to collect inactive tax receivables as part of the Fixing America’s Surface Transportation (FAST) Act – this is the same law that puts your passport at risk if you owe taxes.
What are inactive tax receivables? Put simply, they’re uncollected tax debts that the IRS itself lacks the resources to collect in a timely fashion. IRS debt collection resources are not infinite. If the agency cannot locate or contact a taxpayer with unpaid back taxes or cannot assign an IRS agent to collect the debt, it risks running out of the statute of limitations to collect.
To avoid these situations, Congress mandated that the IRS use private debt collectors in the following situations:
- The IRS has labeled a case “inactive” due to an inability to locate or contact the taxpayer in question
- The IRS has no agents of its own to assign to collect the debt
- More than one-third of the 10-year collection statute of limitations has passed
This Congressional mandate provides the IRS with greater resources to collect from “inactive” delinquent taxpayers by requiring them to partner with the specific collection agencies mentioned above.
Does the IRS Sell Debt to Collection Agencies?
No, the IRS doesn’t sell your tax debt to private collection agencies, unlike a lot of medical debt or credit card debt. The IRS keeps ownership, and even if the private collection agency reaches out to you, you still pay the IRS directly, not the agency.
The PCAs are just assigned your tax account to collect on behalf of the IRS and are paid by commission on the amount they successfully collect. Your rights, tax balance, and relief tax options remain the same. All the collection agency can do is send letters or call to encourage you to make payments or set up payment options.
They can’t garnish, levy, or file liens. If they threaten to take these actions, they’re violating your rights and their agreement with the IRS – report them to the IRS or contact a tax attorney.
The Role of Private Debt Collectors in the IRS
While the IRS uses collection agencies in dealing with inactive tax receivables, the actual duties, responsibilities, and authority of these agencies are quite limited.
Unlike the IRS itself, private debt collectors in partnership with the IRS also cannot:
- Enter into an Offer in Compromise with you
- Offer any sort of partial payment installment agreement for your uncollected tax burden
- Place your account into “currently not collectible” status due to hardship
- Consider claims for innocent spouse relief, which relieves you from paying additional taxes if your spouse understated taxes and you were not aware of the errors
Only the IRS can approve you for these programs.
Put simply, IRS debt collection agencies are mediators between you and the IRS. Their only purpose is to help the IRS connect with non-responsive taxpayers that they lack the resources to deal with on their own.
What Happens If You Ignore an IRS Collection Agency?
Ignoring a PCA doesn’t discharge your tax debt; keep in mind that this is still an IRS tax debt, and the IRS has full authority over it.
While the agency is a contractor and can’t enforce collection, the IRS can. Continued inaction from a tax account can lead to aggressive IRS collections such as levies, federal tax liens, and wage garnishment. If you have a serious delinquent tax debt, it can lead to passport revocation, too.
However, that doesn’t mean you have to deal with the collection agency. You can request that your account be sent back to the IRS so you can deal with them directly.
How to Know if the IRS is Using Collection Agencies for Your Back Taxes
The IRS will always notify you in the event that your back taxes are assigned to one of its collection agencies. In fact, the IRS is legally required to notify you through official IRS communications before the responsibility for collecting your tax debt is given to one of the three collection agencies it works with.
Here’s how the process of having your tax debt assigned to a collection agency works:
- The IRS sends an official CP40 notice informing you that your tax account has been assigned to a private collection agency.
- The IRS sends you Publication 4518, which explains what it means to have your account assigned to a collection agency and what you can expect.
- Then, and only then, your assigned collection agency will contact you, first by letter, then by phone.
If you don’t receive the letter, don’t engage – it may be a scam.
How to Tell a Legitimate IRS Collection Agency From a Scam
As we all know, there are a lot of scams that involve impersonating an IRS agent or an IRS collection agency in order to scare taxpayers who may be struggling with back taxes or other tax problems.
Here’s what to keep in mind to make sure you don’t let tax scammers intimidate and fool you:
- The IRS will only ever contact you with any important information—such as a private collection agency being assigned to your account—by certified mail, never by phone or email.
- Make sure to check any document from the IRS that arrives in the mail carefully to ensure the document is legitimate. For example, double-checking the return address can help uncover a fake.
- Your CP40 document will have a taxpayer authentication number, which will match the taxpayer authentication number included in the collection agency’s letter. The two numbers must match.
- You will only be contacted by one of the collection agencies currently under contract with the IRS.
- A legitimate collection agency will never ask you to use untraceable payment methods, such as gift cards or prepaid debit cards. Rather, their entire purpose is to collect payment for the IRS.
Here’s a summary table on what to expect while dealing with PCAs contracted by the IRS to protect yourself from scams:
| Situation | Legitimate IRS Process | Likely Scam |
|---|---|---|
| First contact | IRS sends CP40 by mail | Phone call, email, or text first |
| Agency name | One of the IRS-authorized contractors | Unknown company |
| Payment method | Payment to U.S. Treasury | Gift cards, crypto, wire |
| Settlement authority | Only the IRS negotiates | The agency claims it can settle |
Frequently Asked Questions (FAQ)
Here are answers to common questions on the IRS using PCAs:
Does the IRS really send your debt to collection agencies?
Yes, the IRS is required by law to assign inactive tax accounts to private collection agencies to assist with debt collection. This generally happens with inactive accounts.
What happens if the IRS sends you to collections?
You’ll first receive a CP40 letting you know that your tax account has been assigned to a PCA. You then receive a letter about the debt assignment from the PCA. The agency will keep calling and sending letters within its rights, encouraging you to make payments. However, the agency can’t enforce actions like levies or garnishments. If they have no luck collecting from you, they just send your account back to the IRS.
Can a private IRS collection agency garnish wages?
No, a private collection is not authorized to garnish wages from taxpayers. Only the IRS can garnish your wages, levy your bank account, or file tax liens.
Does the IRS sell debt to collectors?
No, the IRS retains the ownership of the tax debt. The IRS simply outsources the collection, but the contractors are still acting on behalf of the IRS. Your balance remains the same even after a PCA takes over your case, and your payments should still be made to the U.S Treasury. The IRS still has total control over your accounts and the resolution options you explore.
How do I verify an IRS collection agency letter?
Ensure the agency that contacts you is one of the IRS authorized contractors (ConServe, Coast Professional, or CBE Group). Verify their identity using the code on the CP40 notice you received about account assignment to third-party collections. If you’re still unsure, contact the IRS directly before sharing any personal information.
Is ConServe, CBE, or Coast Professional legitimate?
Yes, Conserve, CBE, and Coast Professional are the only private collection agencies that work with the IRS. They are still highly regulated by law on how to contact you, the frequency of calls, and the types of letters they can send. While they’re legit companies, don’t engage unless you’ve received a CP40 letter confirmation from the IRS.
Need Help Resolving Your Tax Debt?
Having back taxes weighing you down is never fun, but finding out your tax account has been assigned to an IRS collection agency doesn’t mean your situation has gotten worse. At Wiggam Law, we can help you deal with your tax burden, talk to the IRS and private collection agencies to negotiate various resolution strategies, and get your life back on track.
Call us today at (404)609-1300 or fill out our consultation form below to get started and find out what you can do to get the IRS and debt collection agencies off your back.
