Tax Blog

What Is The CP40 IRS Notice?

By Kelly Hanley, Esq.

If you’ve received a Notice CP40 from the Internal Revenue Service (IRS), you’ve likely been struck by a flood of questions: What does this mean? Why did I receive it? How should I respond? As a tax attorney with over two decades of experience, I’ve helped hundreds of individuals and businesses navigate the murky waters of IRS notices, and today, we’re pulling back the veil on the notorious CP40.

Understanding the Stage: What is an IRS Notice CP40?

A Notice CP40 is a letter that the IRS sends to taxpayers when their tax debt has been assigned to a private collection agency (PCA). But this isn’t a random event; it’s a part of a deliberate, albeit sometimes confusing, process the IRS employs to collect debts. Before we delve into the peculiarities of the CP40, let’s first set the stage by unraveling the broader context of the IRS’ debt collection machinery.

In 2015, Congress passed the Fixing America’s Surface Transportation Act, or FAST Act, which required the IRS to use PCAs to recover certain overdue tax debts. Thus, the IRS started contracting with private companies to assist in collecting these lingering debts. However, before a debt is passed on to a PCA, the IRS follows a sequential process:

  1. The IRS first issues a CP14 notice, indicating that you owe tax on unpaid balance.
  2. If the debt is not addressed, the IRS issues a series of additional notices.
  3. Finally, if you’ve not resolved the debt or created an installment agreement, the IRS will send you a CP40, indicating that your case has been handed over to a PCA.

Decoding the Form: A Closer Look at Notice CP40

Having understood the stage where the CP40 comes into play, let’s decipher what the notice specifically entails. When you receive a CP40, you’ll notice that it identifies the PCA that now controls your case. It also contains essential information about your rights as a taxpayer, the nature of your debt, and the means to resolve it. Understanding this form is crucial to take effective steps toward resolving your tax debt.

The CP40 essentially means that your tax debt has shifted hands from the IRS to a PCA. While this may feel intimidating, remember that PCAs are subject to strict regulations. For instance, they are prohibited from taking enforcement actions such as issuing a levy or filing a lien against your property.

In fact, the IRS issues news periodically about the specific PCAs it contracts with. As of 2021, the IRS worked with four PCAs:

  1. CBE Group
  2. Continental Service Group (ConServe)
  3. Performant Recovery, Inc.
  4. Pioneer Credit Recovery

So, if you receive a CP40, ensure the named PCA is one of these. If it’s not, you may be a target of a scam, and you should immediately report it to the IRS. The National Taxpayer Advocate has also written about this on her blog.

IRS Notice CP40: A Catalyst for Action

Receiving a CP40 can feel like a jolt. However, consider it a catalyst for action rather than a reason for despair. It’s a clarion call to address your tax debt, and there are several ways to respond.

Firstly, you can directly pay off your debt. But, if you can’t pay the full amount, consider arranging a payment plan. The PCA can facilitate an installment agreement if you owe less than $250,000. You also have the right to request a temporary pause on collection activities if you’re facing financial hardship.

Importantly, keep in mind that PCAs must respect your rights under the Fair Debt Collection Practices Act. They are not allowed to harass or intimidate you. They must follow ethical and professional practices in their communication and collection efforts.

Challenging Common Beliefs: Misconceptions About the CP40

In the tax community, there are numerous misconceptions about the CP40, and challenging these common beliefs can provide much-needed clarity. Firstly, receiving a CP40 does not mean you’re in legal trouble or that you’ve committed tax evasion. It’s merely an administrative step in the IRS debt collection process.

Secondly, while the IRS has handed over your case to a PCA, they still retain oversight. If you believe that the PCA is treating you unfairly, you can report them to the Treasury Inspector General for Tax Administration.

Finally, and perhaps most importantly, receiving a CP40 does not strip you of your rights as a taxpayer. You are still entitled to confidentiality, professional treatment, and to be informed about the tax collection process.

The Latest News: Recent Changes to the CP40 Process

It’s crucial to stay updated with the latest news about the CP40 process because the IRS frequently fine-tunes its collection methods. Recently, in response to the COVID-19 pandemic, the IRS temporarily halted the assignment of new debts to PCAs. However, as the situation stabilizes, the agency is likely to resume its typical procedures.

In conclusion, while receiving a CP40 notice can be daunting, understanding its purpose and your rights can empower you to take appropriate action. If you’re in doubt or feel overwhelmed by the process, remember that help is available. Tax professionals, like myself, are here to assist you navigate this challenging journey, ensuring you arrive at a solution that aligns with your financial capabilities and legal rights.

Need help with an IRS Form CP40?

Call The Tax Defenders today for a FREE attorney consultation. We’ll cover all of your options and walk you through the necessary steps to get this IRS issue resolved. Whether it be payment plans, offers in compromise, unfiled returns, IRS levies or wage garnishments, we have helped thousands of taxpayers just like you put your IRS worries behind you. Call today. 312-345-5440.

What debts can the IRS collect?

The IRS is authorized to collect certain types of debt by withholding your tax refund or forwarding it to your creditors. These debts comprise overdue federal taxes, state income taxes, unpaid child support, and debts to other federal entities, notably defaulted federal student loans. Ensure you settle these debts promptly to avoid IRS intervention.

How do I pay my CP40?

When faced with a CP40 notice, you have options for repayment. You can opt to pay the total outstanding amount directly to the IRS or the assigned collection agency. Alternatively, you may establish a payment plan with either entity, allowing for monthly installments. This arrangement, generally possible if you can clear the balance within seven years or prior to the Collection Statute Expiration Date (CSED), offers a manageable approach to handling your CP40. Other options, such as an Offer in Compromise, might be available, but you should check with a tax professional first.

What is an IRS CP140 notice?

An IRS CP140 notice is the business version of the CP40 (for individuals). It serves as your official notification that your tax debt case has been handed to a private collection agency. It includes the name and contact details of the assigned agency, serving as your point of reference for further communication.

What debts does the IRS required to collect?

The IRS is obligated to collect specific debts by retaining your tax refund or directing it to creditors. Such debts encompass past-due federal taxes, state income taxes, child support arrears, and debts owed to other federal entities, notably unmet federal student loans. Timely resolution of these debts can prevent IRS involvement.