October 21, 2020

Although the IRS is persistent when it comes to collecting debts owed, such as unpaid taxes, they also contract with a number of private collection agencies tasked with sending out notices and contacting people who owe back taxes. This can make the collection process a bit muddled and confusing, because there are many scammers out there claiming that people owe debts to the IRS, attempting them to trick them into paying up. These scams can be tricky and financially ruining. In order to ensure that you’re working with legitimate people contracted by the IRS, as well as paying on an actual tax debt, there are several steps that you should take when a collections notice appears in your mailbox.

What You Should Do If You Receive a Collection Notice

In order to prevent people from falling prey to scammers who claim they are working with the IRS to collect back taxes, they have set up a number of safeguards. If you receive a notice from the IRS or one of their contracted collection companies, there are a number of things that you should do in order to not only ensure that the debt is legitimate but also to make the proper payment arrangements to cover any debts that you do indeed owe.

1) Don’t Panic

It can be incredibly scary to receive a notice stating that you owe the IRS money. No matter the size of the debt, it’s common to have a visceral, panicky reaction. Thoughts of having to pay back thousands of dollars or of celebrities ending up in jail over unpaid taxes tend to race through people’s heads. However, instead of panicking and worrying about having your bank accounts or personal property seized, simply stop and take a deep breath before proceeding.

In reality, the IRS isn’t as scary as many of these stories make you believe. They don’t want to have to seize people’s belongings or put them in jail and neither do the collection agencies that they work with. All that the IRS wants is the money owed to them, and they’ll be willing to set up payment plans and even audit your taxes from the year in question to see if you truly owe the debt as claimed.

When you receive a notice from either the IRS – or one of their four private debt collection companies mentioned before – sit down, don’t panic, and calmly sift through the following steps before taking any urgent action.

2) Make Sure the Notice Is Really from the IRS

The most important thing to do is ensure that the notice really is from the IRS. There are a lot of scammers out there who claim that you owe back taxes when you truly don’t. What these people want is to feed on your fear (see step number one) and have you open up your bank account to them. This isn’t right, so it’s crucial to take the steps necessary to verify that you owe the debt.

  • Look for the Taxpayer Authentication Number – When an IRS debt is assigned to a private collection agency, a notice is sent out to the taxpayer. This notice, called a CP40, will not only inform you that you owe back taxes, but it will also contain an identifier known as a Taxpayer Authentication Number. The only people who have access to this number are you, the IRS, and the private collection agency. (Also, your tax preparer or CPA will have access as well if you show them the notice.) The private collection agency will reference this number in all of their communication with you. This is how you can tell if the information is legitimate. Anyone who doesn’t have this number, yet claims that you owe the IRS money is not legitimate.
  • Ask for Your Tax Transcript for That Year – Further, in order to determine whether or not you actually owe money to the IRS, you can ask for your tax transcript for the year in question. Not only will it inform you of how much you owe, which should match the amount on your notification, but it will contain a code stating that your debt was sent to a private collection agency. Look for code 971.
  • Check the Name of the Collection Agency – Finally, double-check the name and address of the collection agency. It should perfectly match the ones authorized by the IRS. Remember that there are only four of these companies, and any misspellings or mismatched addresses may be signs that your notice is not legitimate.

3) Pay Attention to the Language That They Use

Once you determine that the debt is legitimate and you reach out to the collection company, pay attention to the language that they use. The private debt collection firms authorized by the IRS will never ask for payment via gift cards or Western Union. They will have access to your Taxpayer Authentication Number and are allowed to set up a payment plan between you and the IRS. They will never threaten you or claim that they will take legal action. Instead, they are simply there to facilitate the payment process and make sure that you follow through and pay the IRS the money that its owed. In fact, you won’t even pay them directly. They’ll help you set up and send the payments directly to the IRS instead. Any requested action other than this is a red flag.

4) Consider a Payment Plan

The IRS is not unreasonable (as they are portrayed to be) and is extremely receptive to the idea of payment plans. They do charge interest, and you will have a certain number of years, usually five or seven, to pay off the debt. While direct automated payments are preferred, some people choose to use money orders or checks to settle their debts throughout the length of the payment plan. Remember that if you owe money to the IRS and can’t make the payment all at once, it’s well within your rights to ask for a payment plan that fits your budget.

5) Contact a Tax Professional

If you are worried about having to work with a private debt collector or even the IRS to pay your back taxes, simply contact a tax professional. A tax expert who is well-versed with IRS dealings will help you through every part of the process, from filing an appeal on the amount due to getting everything in place for an IRS audit. While you may feel as though you can go it alone in these matters, it’s always better to work with a trusted professional who has plenty of experience in settling these debts with the IRS. After all, the IRS has plenty of people in their corner; you need to have someone in yours.

If you received a notice from a private debt collection firm claiming that you owe money to the IRS, the tax advisors at the Enterprise Consultants Group can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.


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