CP40 Notice: IRS sending overdue tax accounts to collections

Your Guide to State, Local, Federal, Estate + International Taxation

CP40 Notice, IRS, taxTaxpayers hate to receive IRS letters and the new CP40 notice will be no different!

The IRS will soon be sending these to notify taxpayers that their overdue tax accounts have been assigned to a private collection agency. Posted on the IRS website is an example of a IRS CP40 notice.

Congress authorized the IRS at the end of 2015 to contract with private collection agencies to collect outstanding “inactive tax receivables.” The four contractors selected to work on collections may not request payment on debit cards in an attempt to help taxpayers tell legitimate contacts from collection agencies from phishing attempts.

The CP40 letter contains the name, address and phone number of the agency assigned to your account and the tax form and tax year(s) of the overdue amounts. The letter also includes information on your payment options.

An inactive tax receivable is any tax receivable that the IRS believes is potentially collectible but:

  • The IRS lacks the resources or ability to locate the taxpayer;
  • More than 1/3 of the statute of limitation has lapsed and the account has not been assigned for collection to an IRS employee; or
  • If assigned for collection, 365 days have passed without interaction with the taxpayer.

A tax receivable is not eligible for collection under a qualified tax collection contract if the receivable:

  • Is subject to a pending or active offer-in-compromise or installment agreement;
  • Is classified as an innocent spouse case;
  • Involves a taxpayer identified by IRS as being:
    • Deceased,
    • Under the age of 18,
    • In a designated combat zone, or
    • A victim of tax-related identity theft;
  • Is currently under examination, litigation, criminal investigation or levy; or
  • Is currently subject to a proper exercise of a right of appeal under the Code.

Be sure to respond immediately if you receive a CP40 notice!

Melinda Nelson, CPA