Can IRS Private Collection Agency Report to Credit Bureaus?

The IRS Private Debt Collection Program

The Internal Revenue Service uses a Private Debt Collection (PDC) program to manage certain overdue tax accounts. This program allows the IRS to assign specific unpaid tax liabilities to private collection agencies (PCAs) to handle collection activities. The program addresses debts the IRS is no longer actively pursuing with its own resources, often because the taxpayer has not responded to previous contact.

Not all tax debts are eligible for this program. The IRS excludes accounts if they involve:

• Deceased individuals or minors under the age of 18
• Taxpayers currently serving in a combat zone
• Victims of tax-related identity theft
• Accounts already under an installment agreement, Offer in Compromise, or an innocent spouse case

This policy ensures that taxpayers already engaged in a resolution process with the IRS are not transferred.

Before a private agency can contact you, the IRS is required to send a Notice CP40, which informs you that your account has been assigned to a specific PCA. Following the IRS notice, the assigned collection agency will send its own introductory letter. This letter includes a unique taxpayer authentication number to help you verify that the contact is legitimate.

Rules on Reporting Tax Debt to Credit Bureaus

Private collection agencies working on behalf of the IRS are explicitly forbidden from reporting federal tax debts to consumer credit bureaus. This prohibition is a specific and binding term within the contract these agencies sign with the Internal Revenue Service. The rule is designed to protect taxpayer privacy and prevent the kind of credit damage that can occur with other types of consumer debt. This is a significant departure from how these same agencies handle other delinquent accounts.

The legal foundation for this protection is the Taxpayer Bill of Rights, which guarantees a taxpayer’s right to privacy and confidentiality regarding their tax matters. While a PCA may use a credit report for limited purposes, such as to find a current address or phone number through a soft inquiry, they cannot report the existence of the tax debt itself. A soft inquiry does not impact your credit score, so the collection activity on your federal tax account will not appear as a negative item on your credit history with Experian, Equifax, or TransUnion.

The Notice of Federal Tax Lien and Credit Reporting

It is important to distinguish between the actions of a private collection agency and the enforcement tools available to the IRS itself. A Notice of Federal Tax Lien (NFTL) is a public document filed by the IRS, not a PCA, which establishes the government’s legal claim to your property as security for a tax debt. This notice serves to protect the government’s interest and establishes its priority against other creditors.

A significant change in credit reporting practices occurred in 2018, when the three major credit bureaus removed all tax lien information from consumer credit reports. This means that even if the IRS files an NFTL against you, it will no longer appear on your standard credit report. Consequently, the lien will not directly lower your credit score.

Despite its removal from credit reports, an NFTL remains a public record. This means that while it won’t be seen by a company pulling a routine credit check, it can be discovered through other means. Lenders conducting more thorough background checks for a mortgage or a business loan often search public records and would be able to find the filed tax lien. The existence of an NFTL could therefore still influence a lender’s decision.

Your Rights When Dealing with a Private Collection Agency

When a private collection agency is collecting a federal tax debt, it must adhere to the Fair Debt Collection Practices Act (FDCPA). This federal law provides taxpayers with specific protections against abusive, unfair, or deceptive collection practices. For instance, the FDCPA prohibits collectors from calling at unreasonable hours, using obscene language, or making threats of actions they cannot legally take. You also have the right to dispute the validity of the debt in writing.

If you believe a PCA is violating your rights or is incorrectly attempting to report the debt to a credit bureau, you can report the misconduct. The IRS provides a specific process for filing a complaint against a private collection agency. This ensures that the agencies are held accountable to their IRS contract and federal law.

You should never make a payment directly to the private collection agency. All payments for federal tax debts, even those assigned to a PCA, must be made payable to the “U.S. Treasury.” Payments should be submitted through official IRS channels, such as the IRS.gov/payments portal, or via mail as directed by the agency’s official correspondence.