Received an LT38 notice? The IRS is resuming efforts to collect your overdue taxes. Immediate action is needed to avoid further penalties and interest.
In our Atlanta-based CPA practice, we have noticed a significant increase in the number of clients receiving IRS notices during 2024, including the LT38 Notice in particular.
Our firm’s experience is meaningful in light of the fact that more than 5,000 IRS customer service representatives were hired in 2023. We believe that the IRS is positioned to become more aggressive about collecting back taxes in 2024 and 2025.
Key Takeaways
- The LT38 notice signals the resumption of IRS collection actions for outstanding tax balances, effective April 1, 2024, with penalties starting to accrue again.
- Taxpayers who received an LT38 notice must respond promptly to address unpaid balances, as ignoring it could lead to severe penalties and additional IRS actions.
- Automatic penalty relief for unpaid taxes under $100,000 from tax years 2020 and 2021 is available for eligible taxpayers, reducing potential penalties and interest.
- Assessed taxes under a certain threshold may qualify for penalty relief, easing the burden for people who are trying to get caught up on their back taxes.
LT38 Notice: Prepare for IRS Collection Actions
Receiving an LT38 notice can be an upsetting experience, but understanding its significance and acting promptly is very important. The LT38 notice informs taxpayers about their outstanding tax balances and the revival of IRS collection notices, which had been paused during the pandemic. Starting April 1, 2024, penalties for unpaid taxes will begin accumulating again, so dealing with these issues immediately is crucial.
Understanding IRS notices, including the LT38 notice, is essential as they outline outstanding balances, available penalty relief, and options for repayment, urging taxpayers to take action to avoid penalties.
The LT38 notice summarizes the unpaid balance and potential interest and penalties. Carefully reading the notice and following its instructions can help mitigate the financial impact.
This is not just another piece of mail; it is a final notice that demands your attention and prompt response to avoid further complications. So don’t procrastinate.
Introduction to the IRS LT38 Notice
During the COVID-19 pandemic, the IRS paused collection actions, giving taxpayers a temporary break. In 2024, these efforts resumed, affecting over 3.7 million taxpayers. The LT38 notice serves as a stark reminder that collection activities are back in full swing, emphasizing the need for taxpayers to stay alert and proactive.
Ignoring an LT38 notice can lead to serious consequences, including additional penalties and interest. Addressing outstanding balances promptly is crucial to avoid these issues.
What is an LT38 Notice?
An LT38 notice is a communication from the IRS about outstanding tax balances and the revival of collection notices, indicating a return to regular collection processes after a pandemic-related pause. It provides a summary of unpaid balances, including assessed taxes, interest, and penalties that may apply, which start accruing daily from the due date of the return.
For tax years 2020 and 2021, certain penalties for failure to pay were automatically relieved due to a temporary suspension of notices. The LT38 notice tells taxpayers to address their tax debt promptly and comply with their tax responsibilities to avoid a failure to pay penalty.
Why Did You Receive an LT38 Notice?
Receiving an LT38 notice indicates that IRS collection notices, previously suspended due to the pandemic, are resuming. The notice signals the IRS’s renewed focus on collecting back taxes, meaning they believe you owe taxes, penalties, or interest for specific tax periods.
Unfiled tax returns can also trigger an LT38 notice, as the IRS may send notices to compel filing, potentially leading to substitute assessments. Paying the outstanding balance promptly stops additional interest and penalties from accruing.
Ignoring the notice can lead to more severe IRS collection actions, further penalties, and increased interest. Responding and paying in full as soon as possible is essential.
Understanding Penalty Relief on an LT38 Notice
Penalty relief is crucial for managing your tax debt effectively. The IRS has established criteria for penalty relief during the resumption of collection efforts. For tax years 2020 and 2021, certain penalties for failure to pay were automatically relieved due to a temporary suspension of notices. Assessed taxes under a certain threshold may qualify for penalty relief.
Taxpayers who qualify for this relief will not see failure-to-pay penalties in their LT38 notice for those years. Understanding the specifics of automatic penalty relief and the rules for qualification will help taxpayers to deal with their tax responsibilities more efficiently.
Automatic Penalty Relief for 2020-2021
The IRS is offering automatic penalty relief for failure-to-pay penalties on unpaid balances under $100,000 from tax years 2020 and 2021. This relief applies to taxpayers with annual incomes below $400,000 and is granted automatically, so eligible taxpayers do not need to take any action to receive it.
This automatic relief is valid until March 31 and significantly reduces penalties and interest that would otherwise accrue. For those who qualify, this can be substantial financial relief, easing the impact of the pandemic on their tax liabilities.
Who Qualifies for Penalty Relief?
Penalty relief is available to individuals, businesses, trusts, or estates with liabilities under $100,000 from 2020 and/or 2021. First-time offenders and those who can demonstrate reasonable cause for late payment may also receive waivers.
Exclusions from Automatic Penalty Relief
Not all taxpayers qualify for automatic penalty relief. If your assessed tax balance for 2020 and 2021 exceeds $100,000 or you owe taxes from other years, you are excluded from this relief. Additionally, the IRS does not provide automatic relief for failure-to-file penalties, regardless of the tax years involved.
Taxpayers who do not qualify for automatic penalty relief should consult with their CPA or other tax professional for alternative strategies. Exploring these options can help manage tax liabilities more effectively and avoid further complications.
How to Respond to an LT38 Notice
Responding promptly to an LT38 notice is crucial to avoid increased penalties and interest on your outstanding tax balance. The IRS may start sending collection letters shortly after issuing the LT38 notice, including reminders and final notices. Reading an IRS notice carefully and contacting the IRS with any questions or disagreements is essential, especially to prevent an IRS levy or future property levies.
Ignoring IRS communications can lead to severe complications and increased financial burdens.
Steps to Take Immediately
Upon receiving an LT38 notice, first file any outstanding returns noted in the letter. If a return is reported as missing and it has been over ten weeks since you sent it, resend a signed copy. Contact the number provided on the notice or call your CPA if you have any uncertainties.
Be prepared to discuss your income, expenses, and assets when contacting the IRS about financial hardship. If you have recently set up a payment plan, you may disregard the LT38 notice, but confirming with the IRS is always a good idea.
Payment Options After Receiving LT38 Notice
Paying your back taxes is crucial to avoid accruing additional interest and penalties. If you cannot pay the balance in full, then you should consider an installment agreement with the IRS to make your tax payments over time.
Payment options include online payments or using mail-in payment vouchers specified in the LT38 notice. Paying what you can and entering into a payment plan if necessary helps minimize the financial impact of penalties and interest.
Disputing the Balance Due
If you disagree with the balance due on your LT38 notice, you have several options:
- Amend your tax return
- Appeal IRS changes
- Request abatement for penalties
- Challenge the computation
- Innocent spouse relief
Addressing discrepancies immediately and directly with the IRS is essential. By taking these steps, you can ensure your tax liabilities are accurate.
Financial Hardship and the Tax Debt LT38 Notice
Financial hardship can significantly impact your ability to manage tax debt. Interest on unpaid taxes starts accruing daily from the due date of the return. The LT38 notice informs taxpayers that penalties for unpaid taxes will start accumulating again after previously being paused.
Assessed taxes can be a significant burden during financial hardship and may qualify for penalty relief.
If you believe you cannot afford to pay your tax debt, you may qualify for temporary relief by declaring your account as currently not collectible. This status prevents further collection actions, such as tax levies, until your financial situation improves.
Claiming Currently Not Collectible Status
Claiming currently not collectible status can be a viable option if you are unable to pay your tax debt. To qualify, you must prove that you have no assets and no income. Providing details of your income and expenses using IRS Form 433-F is necessary to be granted this status.
Once your account is classified as currently not collectible, the IRS stops all collection actions until your financial situation improves. The notices will stop coming in the mail. However, the IRS periodically reviews your financial situation to reassess your ability to pay.
Exploring an Offer in Compromise
An Offer in Compromise allows taxpayers to settle their tax debts for less than the full amount owed. An experienced CPA should be able to tell you if you are likely to qualify for an offer, based on your facts and circumstances.
Given the relatively low approval rates for an Offer in Compromise, it is essential to work with a knowledgeable CPA or other tax professional when applying. This option can provide significant relief if your financial situation meets the criteria.
Additional Considerations
Several additional considerations can impact how you handle an LT38 notice. Joint filers may each receive separate LT38 notices regarding their responsibilities for tax liabilities. Both parties involved in a joint filing might need to address the notices independently.
Victims of identity theft who receive an LT38 notice must take specific actions to protect their rights and respond to the IRS. It is crucial to respond promptly to an IRS notice in cases of identity theft to prevent further complications. Reporting identity theft to the IRS is essential. Consider working with a CPA or other tax professional for guidance.
Joint Filers and LT38 Notices
Joint filers receive separate LT38 notices because each spouse is individually accountable for the tax liability. This means that despite filing a joint tax return, each partner may receive an LT38 notice due to individual responsibilities for the total tax liability.
Both spouses must address their respective notices to manage their tax debt effectively. Understanding this dual responsibility is crucial for joint filers to avoid further complications. Be sure to consult with an experienced CPA in situations of divorce.
Staying Informed and Taking Action
Staying informed and taking proactive steps is key to managing your tax liabilities effectively. Pay attention to any IRS notice you receive, as these notices inform you about recent changes in IRS collection practices, including the resumption of collection letters like LT-38 after the pandemic.
Understanding these notices, which outline outstanding balances, available penalty relief, and options for repayment, is crucial. Pay your tax bill in full or make payment arrangements as soon as possible to avoid additional interest and penalties. Utilize online payment options or return the payment voucher by mail.
Consulting a CPA or other tax professional will simplify the process especially in complicated situations.
Summary
In summary, receiving an LT38 notice is a serious matter that requires immediate attention. Understanding what the notice entails, why you received it, and how to respond can help you manage your tax debt effectively. From exploring penalty relief options to addressing financial hardship, taking informed and proactive steps is crucial.
Managing assessed taxes is essential to avoid penalties and interest, as the IRS imposes failure-to-pay penalties on accounts when taxes are not paid by the due date.
Remember, the IRS is resuming collection actions in 2024, and penalties for unpaid taxes have started to accumulate again. By staying informed, taking action promptly, and seeking professional guidance when necessary, you can work through this challenging situation and minimize the impact on your financial situation.
Frequently Asked Questions
What should I do if I receive an LT38 notice?
If you receive an LT38 notice, read it carefully, confirm that all returns are filed, and reach out to the IRS for assistance or to arrange a payment plan if necessary.
Who qualifies for automatic penalty relief for 2020-2021?
Taxpayers with unpaid balances under $100,000 and annual incomes below $400,000 qualify for automatic penalty relief for 2020-2021. This provision aims to ease the burden on eligible individuals during challenging financial circumstances.
What options are available if I’m experiencing financial hardship?
If you’re experiencing financial hardship, consider claiming currently not collectible status or exploring an Offer in Compromise to effectively manage your tax debt. These options can help ease your financial burdens based on your specific circumstances.
How are joint filers affected by LT38 notices?
Joint filers may receive separate LT38 notices because each spouse is individually responsible for the tax liability. This is particularly important with joint tax returns followed by a divorce or separation.
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Call us at 678-235-5460 (Atlanta) or 773-828-0551 (Chicago) to discuss your tax and accounting matters in detail. Or email me directly at gary.massey@masseyandcompanycpa.com. Our friendly CPAs, Enrolled Agents and tax advisers are here to help you through every step of the way.
Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, sales tax, and small business accounting and bookkeeping.
