The IRS Handed Your Debt to a Private Collector.
They Have the Same Authority. They're More Aggressive.

In 2017 the IRS began using private collection agencies (PCAs) to pursue certain overdue tax debts. When your account is assigned to a PCA, you receive the CP40 from the IRS and a separate letter from the agency itself. Both are legitimate — but the dynamic changes significantly.

Private collectors are authorized to request payment arrangements, but they are not authorized to offer Offer in Compromise, Currently Not Collectible status, penalty abatement, or most other IRS resolution programs. They want payment. Their job is to collect — not to find the best outcome for you.

What most people don't know: you have the right to request that your account be returned to the IRS rather than handled by the private collector. You also have the right to representation, which means the collector must stop contacting you directly once you have a licensed representative on file. The IRS resolution programs that reduce or eliminate your debt remain fully available to you regardless of which collector has your account.

The CP40 does not directly add new penalties — those accrued during the standard IRS collection sequence before the account was transferred. However, private collection agencies work under an IRS contract that includes specific rules about what they can collect: the full balance, including all assessed penalties and interest to the transfer date, plus any interest that continues to accrue while the balance remains outstanding.

One important dynamic at the CP40 stage: the IRS has already determined this account is worth pursuing through a third-party program, which means the balance meets the minimum threshold for referral (generally $100 or more) and the account has aged past the point where the IRS's own collectors are prioritizing it. The risk of this status is inertia — accounts in PCA status that are ignored tend to remain open and accruing interest indefinitely, with periodic collection attempts from the assigned agency.

Interest continues to accrue at the federal rate throughout the PCA period. A $15,000 balance assigned to a PCA for 3 years at 7.5% annual interest will be $18,500 by the time it cycles back to the IRS or is resolved. Resolving during the PCA period — rather than waiting it out — reduces total cost.

The IRS's Private Debt Collection program was authorized by Congress in 2015 and is administered under strict rules. The IRS assigns accounts to one of several approved agencies — currently including CBE Group, Coast Professional, and ConServe — under contracts that prohibit unfair collection practices and limit what the agencies can do. PCAs cannot file liens, issue levies, or take enforcement action. They can only contact you and negotiate payment arrangements.

A key consumer protection: you have the right to request that the IRS withdraw your account from the PCA and return it to direct IRS collection. Withdrawal requests are honored in specific circumstances, including if you are in a low-income category, if you are represented by a licensed professional, or if you are currently working through a bankruptcy proceeding. A POA filed by a licensed representative often triggers automatic withdrawal and return of the account to IRS handling — where more resolution options are available.

PCAs are incentivized to collect — they earn a commission on amounts they recover. This creates a dynamic where they may push for payment arrangements that are not in your best interest relative to what the IRS itself would accept. The full range of IRS resolution programs — OIC, CNC status, penalty abatement, installment agreements with favorable terms — are only accessible directly through the IRS, not through the PCA.