IRS Law Blog

If you receive an IRS letter CP40, rest easy.  You are no longer on the IRS’ radar.

Instead, your case is now the responsibility of a private debt collector.

The IRS letter CP40 reads:  “We assigned your overdue tax account to a private collection agency.”

But what does that really mean?

The IRS has decided it does not have the resources to come after you or it does not know how to contact or find you.  Files are assigned to private debt collectors when it has been more than a year since the IRS has tried to collect your taxes and your account is no longer in their active collection queue.

You have become a low priority to the IRS.  As a result, you will be assigned to one of four private debt collectors used by the IRS:  Conserve, Pioneer, Performant, or CBE Group.

The benefits that result from the CP40 and your assignment to a private debt collector include:

• No garnishment of your wages.
• No garnishment of your bank accounts.
• No garnishment of your retirement accounts.
• No worries about IRS seizure of your house and car.
• No filings of a tax lien or a notice of intent to levy against your property.
• No requirement to share your finances with the IRS.

The only actions private debt collectors can take are:

• Sending you a letter asking for payment.
• Calling you if they have your number and asking for payment.

Clearly, this not nearly as threatening as you being in the hands of the IRS.

If IRS agents are beasts, private debt collectors are puppy dogs.

Because of that, your response to a private debt collector is very different than how you would handle the IRS.

There will be no consequences if you do not respond to a private debt collector.   In fact, responding could make your situation worse.  If you respond, and cannot resolve your tax account with the private debt collector, your file will likely be sent back to the IRS.

Why get the IRS involved again when you could wait it out?

Waiting it out is to your benefit as the IRS has a 10 year statute of limitations on collection.  The statute starts when the IRS processes your tax return and places your tax debt on their books.  The IRS then has 10 years to collect.  When the 10 years expires, the IRS forgives everything you owe – taxes, penalties, and interest – and clears your account balance to zero.

While your file is sitting quietly and harmlessly with a private debt collector, the time left on the IRS statute of limitations to collect ticks away. Here’s how to find out when your 10 year collection period is up.

You now have a strategy to be done with the IRS:  Using the knowledge that you are at the bottom of the pile and everything is on hold to let the statute of limitations on collection expire.

An IRS letter CP40 placing your case with a private debt collector tells us the IRS has given up and lacks the resources and ability to come after you.  Don’t sweat it, this works to your advantage. You now have no pressure to pay and no risk of garnishment to your wages, accounts, or property.  In almost every situation, there is no need to respond to private debt collectors hired by the IRS.  Instead, while the IRS beasts are sleeping, look to the statute of limitations on collection as your key to resolution.