Private Debt Collection Basics: Why a Stranger May Call About Your IRS Bill
Private debt collection is the programme under which the Internal Revenue Service hands certain overdue tax accounts to outside agencies. The caller is not an IRS employee. Nevertheless, the call can be entirely genuine, and the debt behind it can be real.
For a wealthy American living in Britain, the first contact often comes as a shock. The letters went to an old American address. The call arrives on a British mobile, sometimes late in the evening. Moreover, the bill itself may be one you have never seen, because the IRS built it without you.
At TaxYork, we prepare US UK tax returns for high-net-worth individuals, investors, investment bankers and company owners. Consequently, we see these calls from the client's side. This guide explains how private debt collection works, what the agencies can and cannot do and what you should do in the first fortnight.
What Private Debt Collection Means in Law
The legal basis is section 6306 of the Internal Revenue Code. Since a 2015 Act of Congress, that section has required the IRS to use outside contractors for all "inactive tax receivables". The IRS therefore has no choice in the matter. If your account fits the definition and no exclusion applies, the law sends it out.
The contractors have a narrow job. Specifically, the statute lets them locate and contact you, ask for full payment and offer an instalment arrangement of up to seven years. They work for the IRS under contract. However, they hold none of its enforcement powers.
Why the Programme Catches Expats
Private debt collection targets accounts that have gone quiet. An American who moved to London years ago, changed address and stopped opening post from the IRS fits that profile exactly. As a result, clients who thought an old problem had faded sometimes find that it has simply changed hands.
Which Accounts the IRS Assigns to Private Debt Collection
The statute defines the accounts precisely. Three routes lead into private debt collection, and a fixed list of exclusions keeps certain taxpayers out.
The Three Routes Into the Programme
Under section 6306(c), a tax receivable becomes "inactive" in one of three ways. First, the IRS removes it from active inventory for lack of resources or because it cannot locate the taxpayer. Second, more than two years pass since assessment without the account being assigned to an IRS employee. Third, an assigned account goes more than 365 days without any interaction with the taxpayer or a third party.
Each route describes a familiar expat pattern. For instance, the IRS may fail to locate you because its file still shows a New York flat you sold in 2017. Alternatively, a small balance may sit unassigned for years while interest builds. The IRS page on accounts assigned to private collection agencies confirms that older, inactive accounts are the target.
The Accounts the Law Keeps Out
Section 6306(d) bars certain accounts from private debt collection. The IRS may not assign an account that is subject to a pending or active offer in compromise or instalment agreement. Likewise, it may not assign an innocent spouse case, or an account under examination, litigation, criminal investigation or levy. An account subject to a proper exercise of appeal rights is also excluded.
Further exclusions turn on the person. They cover taxpayers who are deceased, under 18, in a designated combat zone or victims of tax-related identity theft. They also cover people whose income is substantially all disability or supplemental security benefits. Finally, an individual whose adjusted gross income does not exceed 200 per cent of the poverty level is excluded. That last test will rarely help a high earner.
Is a Foreign Address an Exclusion?
Clients often assume that living abroad keeps them out of private debt collection. We have found nothing to support that view. Neither the statute nor the IRS's published list of exclusions mentions a foreign address. Therefore, you should not treat a London address as protection. In practice, many expat accounts still carry an old American address in any case, so the question never arises.
One further point matters. The IRS collection manual states that an account already in the programme will be recalled if it later meets an exclusion. Hence an instalment agreement with the IRS itself, or a pending offer in compromise, takes the account back from the agency.
How the Process Works: Two Letters Before Any Call
The IRS designed the private debt collection sequence to help you tell a real contractor from a fraudster. The order of events is therefore your first test.
Notice CP40 From the IRS
The IRS writes first. Its Notice CP40 tells you that your unpaid balance has been assigned and names the agency. It also carries a taxpayer authentication number. According to the manual, this is a unique ten-digit identifier that replaces your Social Security number in the process. The IRS encloses Publication 4518, which explains what to expect.
The Agency's Own Letter
Next, the agency sends its own letter confirming the assignment. That letter repeats the same authentication number. Importantly, the IRS states that the agency will not telephone you before it has sent this letter. Where you have a representative on file, the IRS says that both letters go to the representative as well.
The Two-Party Verification
On a genuine call, both sides prove who they are. The agency first asks for your name and address of record. Then you and the caller exchange portions of the authentication number. Consequently, a caller who cannot supply the other part of the number has failed the test. Keep both letters, because you cannot complete the check without them.
Why Expats Miss the Letters
Here the system breaks down for Americans abroad. The IRS writes to your last known address. If that address is years out of date, the CP40 and the agency's letter never reach you. The call on your British mobile is then the first you hear of private debt collection, and you have no number to check it against.
In that position, do not verify the caller on the telephone. Instead, verify the assignment yourself. The IRS suggests using its Get Transcript service to obtain an account transcript. An assigned account shows an entry reading "Collection referred to a private debt collection agency" and a second entry for the CP40. Additionally, update your address on Form 8822 so that future notices reach you.
What the Agencies Can and Cannot Do
The limits on private debt collection are strict. Understanding them removes most of the pressure from the call.
What They Can Do
The agencies under contract with the IRS may contact you by letter and telephone. They may ask whether you can pay in full. According to the Taxpayer Advocate Service guide to the programme, they can ask whether you can pay within 120 days. If you cannot, they may offer a payment arrangement that clears the debt within seven years or before the collection period expires, whichever is earlier. They may not charge you a fee for setting it up.
What They Cannot Do
They cannot enforce. In private debt collection, the power to seize stays with the IRS. Publication 4518 states that the agencies cannot file a notice of federal tax lien or issue a levy. Furthermore, the Taxpayer Advocate Service confirms that they cannot issue a summons or report your tax debt to credit rating agencies. The IRS adds that they will not collect financial information from you. Nor can they accept or reject an offer in compromise, or decide that your account is currently not collectible.
They also cannot change the amount. An agency has no authority to examine a return, apply a foreign tax credit or abate a penalty. Therefore, if the bill is wrong, the agency is the wrong audience. Only the IRS can correct it.
The Conduct Rules That Bind Them
Section 6306(g) applies the Fair Debt Collection Practices Act to these contracts. In addition, the contract must forbid any act that an IRS employee may not commit. One such rule sits in section 6304. A collector must assume that the convenient time to call is after 8 a.m. and before 9 p.m., local time at the taxpayer's location. For a client in London, that means British time, not Eastern time. The same section restricts contact with a taxpayer who has a known representative.
Remedies exist as well. Section 7433A lets a taxpayer sue the contractor, rather than the government, for unauthorised collection actions. Meanwhile, complaints go to the Treasury Inspector General for Tax Administration through its hotline.
How to Pay and How to Spot a Scam
Fraudsters exploit private debt collection because the public knows that outsiders now collect for the IRS. Fortunately, the payment rules give you a reliable test.
Payment Goes Only to the United States Treasury
No genuine agency will ask you to pay it. The IRS states that you make every payment to the IRS. A cheque is payable to the United States Treasury and goes to an IRS address. Electronic payments run through the IRS payments page. Accordingly, any request to pay a company or an individual is a fraud.
From Britain, the practical options narrow. The IRS direct debit service needs an American bank account, and a sterling cheque is no use. Our guide to paying the IRS from a UK bank account sets out the routes that work.
The Signs of a Scam
The IRS lists the warning signs on its tax scams page. Impersonators demand payment "now or else" and threaten arrest or deportation. They do not let you question the amount. By contrast, a real agency under contract with the IRS will not threaten you.
The IRS also says that you will never be asked to pay with a gift card, a prepaid debit card or cryptocurrency, or to make a wire transfer. Additionally, it gives one simple rule. If anyone other than the agency named in your IRS letter calls about your tax debt, it is a scam.
Checking the Agency's Name
We do not name the contractors here, because the list changes when contracts end. Instead, check the caller's company against the IRS private debt collection page, which lists the agencies currently under contract with their telephone numbers. Then call the number on that page, not the number the caller gave you. Their freephone numbers may not connect from a British line, so allow for an international call.
Opting Out of Private Debt Collection in Writing
You are not obliged to deal with the agency, because private debt collection depends on your co-operation. However, a telephone refusal is not enough.
The Written Request
Publication 4518 is clear. If you do not wish to work with the assigned agency, you must submit that request in writing to the agency. The Taxpayer Advocate Service adds that you may ask the agency to return your account to the IRS. The underlying rule is section 1692c of the Fair Debt Collection Practices Act. Once a collector receives written notice to cease communication, it must stop, apart from limited closing notices.
Keep the letter short. State your name, the authentication number and your wish that the agency stop contacting you and return the account to the IRS. Do not include your full Social Security number or bank details. Send it by a tracked international service and keep a copy.
The 60-Day Hold
A softer option exists. According to the Taxpayer Advocate Service, if you tell the agency orally that you plan to contact the IRS about alternatives, the agency places a 60-day hold on the account. Collection may resume if you have reached no agreement by then. Because IRS processes often take longer than 60 days, the written request is usually the safer course.
What Opting Out Does Not Do
Opting out of private debt collection does not reduce the debt. Interest and penalties continue to accrue, as IRS Topic 201 explains. Moreover, the account returns to the IRS, which does hold lien and levy powers. Therefore, treat the opt-out as the start of a plan, not the end of one.
The Expat Angle: Old Assessments, the Collection Clock and Your Passport
Four issues make private debt collection different for an American in Britain. Each one changes the right response.
The Bill May Be Wrong
Many expat balances come from a substitute for return. Where a taxpayer does not file, section 6020(b) lets the IRS prepare a return from the information it holds. That return typically reflects American income reported by banks and brokers. It will not include a foreign tax credit for UK tax, because the IRS does not know what you paid here. Similarly, it may tax the gross proceeds of a share sale, with no cost deducted.
Filing an accurate original return can replace those figures. Indeed, the IRS passport manual gives an example in which a filed return cuts a substitute assessment of $66,000 to $30,000. Our guide to the substitute for return for Americans abroad explains the process. Hence the first question on any private debt collection call is whether the balance is right.
The Collection Clock May Not Be Running
The IRS generally has ten years from assessment to collect, under section 6502. Some clients hope to wait that period out. For expats, that hope is usually misplaced. Under section 6503(c), the collection period is suspended while the taxpayer is outside the United States for a continuous period of at least six months. Consequently, years spent in London may not count at all.
Your Passport Is Exposed
A seriously delinquent tax debt can cost you your passport. For 2026 the IRS passport page sets the threshold at more than $66,000, including assessed penalties and interest. The agencies have no role in certification. Nevertheless, the same debt sits behind both processes, so a call about private debt collection is a warning. Our article on IRS passport revocation for tax debt covers the detail.
Enforcement Against UK Assets Is Limited
The US-UK double taxation convention, published on the UK government's treaty page, contains no article on mutual assistance in collection. HMRC therefore does not collect American tax debts in Britain. However, that limit protects less than it seems. The IRS can still reach American accounts, American property and future refunds. We explain the boundaries in our guide to IRS collection abroad and UK assets.
Case Study: An Investment Banker and a $171,300 Balance
The following illustrative case study uses a composite client. It shows why, in private debt collection, the amount deserves the first look rather than the caller.
The Facts
Marcus is a dual national US UK citizen and a managing director at an investment bank in London. He moved from New York in 2016 and filed US returns each year except 2020. In that year he sold shares in an American brokerage account for $410,000. The broker reported the proceeds to the IRS. Marcus never filed, and the IRS prepared a substitute for return that taxed the full $410,000 with no cost deducted.
By August 2026 the balance, with penalties and interest, stands at $171,300. The IRS sends a CP40 to his former Manhattan address. The agency's letter follows to the same place. Neither reaches him. In September a caller rings his British mobile at 9.40 p.m. and asks him to confirm his address.
The Response
Marcus declines to confirm anything and calls us the next morning. We obtain his account transcript. It shows the substitute assessment and an entry confirming referral to a private agency. The call was therefore genuine, although it came after 9 p.m. British time.
We then act on three fronts. First, we send the agency a tracked letter asking it to cease contact and return the account. Second, we file Form 8822 with his London address and a Form 2848 power of attorney. Third, we prepare his original 2020 return. The shares cost $371,000, so the true gain is $39,000, not $410,000.
The Outcome
Once the IRS processes the return, the tax on the true figures is $7,800. With penalties and interest, Marcus pays $11,900 to the United States Treasury from his American account. The saving against the original balance is $159,400. Additionally, his debt never approaches the $66,000 passport threshold again. Had he agreed a seven-year arrangement on the telephone, he would have begun paying a bill that was fourteen times too large.
How TaxYork Can Help
We provide comprehensive US personal tax services and UK tax return preparation for wealthy clients with cross-border lives. When a client receives a private debt collection call, we start with the transcripts. We confirm whether the assignment is real, which years it covers and how the IRS arrived at the figure.
Where the balance rests on missed US tax returns, we prepare the accurate returns, including the foreign tax credit for UK tax. We also draft the written request to the agency and update your address and representation with the IRS. For clients who face IRS enforcement afterwards, our guides to the collection due process hearing and the Collection Appeals Program explain the next steps.
Conclusion
Private debt collection is lawful, limited and easy to misread. The agencies can ask, but they cannot enforce. They can arrange payment, but they cannot correct the bill. For Americans in Britain, the greater risks lie elsewhere: an inflated assessment, a collection clock that has stopped and a passport that depends on the balance.
Therefore, do not pay or promise anything on the first private debt collection call. Instead, verify the assignment through your own transcript, check the amount against a properly prepared return and put any request to the agency in writing. Above all, pay only the United States Treasury.
Contact Us
If you have received a private debt collection letter or call about an IRS balance, contact us today. Email hello@taxyork.com or call 020 3488 8606. Please have the date of the call and any letters to hand, and do not give the caller bank details in the meantime.
Disclaimer
This article provides general information only and does not constitute tax, legal or financial advice. Tax rules change, and their application depends on your individual circumstances. The case study is illustrative and does not describe an actual client. The tax, penalty and interest figures in the examples are assumptions. You should obtain professional guidance on your specific situation before acting. TaxYork accepts no liability for any loss arising from reliance on this article.