What IRS Private Collection Agencies Can and Cannot Do

When an IRS employee calls about a debt, there is a whole enforcement system behind the call: liens, levies, seizures, passport certification. When a private collection agency calls, almost none of that system is in its hands. It can ask, explain, arrange and gather information. Everything else stays with the IRS.

That difference changes how you should respond. Here is the agency's job description, and the limits around it.

What the statute lets agencies do

IRC 6306(b)(1) defines a qualified tax collection contract as one for the services of a person, other than a Treasury employee:

• to locate and contact any taxpayer the IRS specifies;
• to request full payment of the amount of federal tax the IRS specifies, and, if you cannot pay in full, to offer an installment agreement providing for full payment over a period not to exceed 7 years; and
• to obtain financial information the IRS specifies about the taxpayer.

Publication 4518 adds that the agency will send a letter confirming assignment, contact you, explain payment options and help you choose one. If you believe you already paid, it says to work with the agency employee to identify the payment so the IRS can research where it was applied. Notice the word "specifies" running through the statute. The account, the amount, and the financial information requested all come from the IRS. The agency does not decide what you owe; it works the balance the IRS hands it, and a dispute about the balance itself goes back to the IRS.

What agencies cannot do

Several limits come straight from the statute and the IRS's own guidance:

• No enforcement. Publication 4518 says agencies cannot take any type of enforcement action, such as filing a notice of federal tax lien or issuing a levy. The IRS keeps that authority.
• Nothing an IRS employee could not do. IRC 6306(b)(2) prohibits contractors from any act or omission IRS employees are prohibited from in similar work.
• No threats or intimidation. IRC 6306(g) applies the Fair Debt Collection Practices Act, and Publication 4518 says its provisions prohibit threatening or intimidating taxpayers.
• No payments to the agency. Publication 4518 says to make all payments to the IRS.
• No subcontractor contact. IRC 6306(b)(3) prohibits subcontractors from contacting taxpayers, providing quality assurance services or writing collection notices.
• No collection on excluded accounts. IRC 6306(d) bars agencies from working pending offers and installment agreements, innocent spouse cases, and accounts of certain taxpayers, covered in accounts excluded from private collection.

And while the statute does not say it in one sentence, its structure makes the point: the agency's authority is to request full payment or arrange full payment over time. Decisions such as accepting an offer in compromise, placing an account in hardship status, or abating penalties are IRS decisions, not contractor services under IRC 6306(b).

The agency payment plan is not an IRS installment agreement

This is the detail with the most practical consequence. IRM 5.1.12.18.4 says a payment arrangement with a private agency is not an installment agreement under IRC 6159, and the account remains in the same inactive collection status rather than the status used for IRS installment agreements.

Several protections in the Code are tied specifically to section 6159 agreements, such as the bar on levy while an installment agreement is in effect under IRC 6331(k)(2) and the passport certification exclusion in IRC 7345(b)(2)(A). Whether and how any of those apply to a private agency arrangement is not something the statute addresses directly. If those protections matter to you, for example because your balance is near the passport threshold or the IRS has already levied, consider asking to have the account returned to the IRS and requesting a section 6159 agreement there.

Your rights in dealing with an agency

Beyond the prohibitions, you have affirmative rights:

• Opt out. Publication 4518 and IRM 5.1.12.18.5 say you can ask, in writing to the agency, to stop working with it, and the account returns to the IRS.
• Verification. Both your IRS letter and the agency's letter carry a taxpayer authentication number, explained in how to verify a private collector.
• Representation. Publication 4518 points to Publication 1, which explains your right to retain representation.
• Damages. IRC 6306(k) cross-references IRC 7433A, which provides for damages for certain unauthorized collection actions by persons performing services under these contracts.
• Taxpayer Assistance Orders. IRC 6306(k) also cross-references IRC 7811(g), which applies Taxpayer Assistance Orders to private collection contractors.
• Complaints. Publication 4518 directs complaints and misconduct reports to the TIGTA hotline at 1-800-366-4484.

IRC 6306(f) says the United States is not liable for any act or omission of a contractor, which is why the specific remedy in IRC 7433A matters.

Which collection rules govern the agency

IRC 6306(g) applies the Fair Debt Collection Practices Act to these contracts "except to the extent superseded by section 6304, section 7602(c), or by any other provision" of the Internal Revenue Code. Section 6304 contains the tax code's own fair collection practices rules, and section 7602(c) governs contacts with third parties. So the agency works under a blend of consumer debt collection law and tax collection law, and where the tax rules are more specific, they control.

The statute also limits how the contractor is organized. IRC 6306(b)(3) and (4) bar subcontractors from contacting taxpayers, providing quality assurance or writing collection notices, and allow them to perform other services only with IRS approval. The person you speak with should be an employee of the contracted agency itself.

And if you were affected by a federally declared disaster, IRC 6306(i) lets the IRS set procedures under which you can request relief from immediate collection by the contractor and return of the account to the IRS.

When to stay with the agency and when to leave

Staying can make sense when the balance is modest, you can pay it in full or over a few years, and you do not need any of the IRS's discretionary tools. The agency can set up a plan, and every dollar you pay is credited to your account; IRC 6306(e) says the amount credited is determined without regard to the IRS's retention of fees.

Leaving makes sense when you need something the agency cannot provide: an offer in compromise, hardship status, penalty abatement, an innocent spouse determination, or the specific protections of a section 6159 agreement. It also makes sense if you qualify for an exclusion the IRS missed. Filing a processable offer returns the account to IRS assignment automatically, according to IRM 5.1.12.18.4. Otherwise, the written opt-out request to the agency does it.

The firm's main site has an overview of offers in compromise, which is the most common reason to bring an account back. A private collector is a messenger with a payment book. Treat the call accordingly: verify it, take what is useful, and do not mistake it for the place where your case gets decided.

The IRS is still there

Assignment to a private agency does not make the IRS disappear. Publication 4518 notes the IRS retains its legal authority to take enforcement actions to collect an overdue account. An account can be recalled to the IRS, and the IRS's own tools, from liens and levies to passport certification, remain available against an unresolved balance. IRM 5.1.12.18.4 describes separate account codes for an account the IRS recalls and an account the agency returns, so your transcript will show which way it went. Either way, once the account is back with the IRS, the ordinary collection notices and timelines resume.

The best use of the private collection phase is often to resolve the account before it returns to active IRS enforcement. The worst use is to ignore the calls because the caller "can't do anything." The caller cannot. The agency behind the contract can still send it back to people who can.