The IRS has fully resumed its tax collection activities following a pause during the pandemic. In our CPA practice, we have observed a notable rise in the number of clients receiving IRS notices throughout 2026, especially IRS Notice LT38. This notice serves as a notification that the taxpayer has outstanding tax debts that require immediate attention to avoid increasing penalties, accumulating interest, and potential enforced collection actions such as wage garnishments or bank levies.

Key Takeaways

• The LT38 notice signals the IRS has resumed and is actively continuing collection efforts for unpaid tax balance. Penalties and interest on outstanding amounts are once again accruing daily.
• It is critical to respond promptly to the LT38 notice to avoid escalating penalties, interest, and potential enforced IRS actions such as levies or wage garnishments.
• Familiarizing yourself with available options, such as installment agreements, currently not collectible status, or offers in compromise, can help you manage and resolve your tax debt effectively before more severe IRS actions occur.

LT38 Notice: Prepare for IRS Collection Actions

An IRS LT38 notice is not an audit notice; it is a formal reminder that you have an unpaid tax balance and that the IRS has resumed collection actions after the pandemic pause. If you received one, or you are an individual, business owner, or joint filer at risk of IRS collection, this means you need to review the balance and respond quickly.

Understanding IRS notices, including LT38, is essential because they explain what you owe, why the notice was issued, and what options may still be available, including penalty relief, repayment plans, disputes, and hardship-based solutions, especially when working with a firm that focuses on tax return preparation and planning services. The notice summarizes your unpaid balance and the potential interest and penalties, and it may also affect joint filers who need to sort out who is responsible for the debt.

This is not just another piece of mail; the LT38 notice is a warning to address tax debt now before the IRS moves to stronger collection action. Read it carefully, follow the instructions, and act promptly to limit additional penalties, interest, and complications.

Introduction to the IRS LT38 Notice

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, and may trigger enforced collection actions. If the balance remains unresolved, the IRS may garnish wages, seize bank accounts, or levy state tax refunds. Addressing outstanding balances promptly is crucial to avoid these issues, which is why understanding programs like the IRS Offer in Compromise can be so important for some taxpayers.

Why Did You Receive an LT38 Notice?

Receiving an LT38 notice indicates that IRS collection notices 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.

Missing tax returns can also trigger an LT38 notice, as the IRS may send notices to compel filing and potentially lead to substitute assessments; you must be in filing compliance before requesting tax relief options. 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.

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. As IRS collections are active again, 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. To resolve your account more quickly, use IRS online services on the IRS website.

Ignoring IRS communications can lead to severe complications and increased financial burdens.

Steps to Take Immediately

Upon receiving an LT38 notice, first file any unfiled returns or other missing tax items identified in the letter. If automatic relief applies, taxpayers do not need to submit forms to receive automatic penalty relief. If a return is reported as missing tax and it has been over ten weeks since you sent it, resend a signed copy. Contact the number provided on the notice, and do not wait to call or contact 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 can, pay in full. If you cannot pay the balance in full, then you should consider an installment agreement with the IRS if you owe less than $50,000 to make your tax payments over time, potentially coordinated with ongoing tax preparation in Chicago or your local area to keep you compliant going forward.

Payment options include online payments or using mail-in payment vouchers specified in the LT38 notice. The LT38 notice also includes a QR code that links to the IRS website for online payments. Payments can take up to 21 days to post to your account. Paying promptly can also help protect any refund you may be entitled to from later offsets or account adjustments. Paying what you can and entering into a payment plan if you owe less than $50,000 can help you spread out what you owe through monthly payments and 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

 

Automatic penalty relief may help you avoid or reduce a pay penalty, but it only applies to failure-to-pay penalties and does not remove failure-to-file penalties.

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, making it important for small business owners to have reliable accounting services tailored for small businesses to stay ahead of obligations.

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, and it often goes hand in hand with guidance from a top accountant for business taxes who understands IRS collection procedures.

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, it can help stop collection action such as wage garnishment or seizure of bank accounts while your financial situation is reviewed. 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 total tax debt 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. You generally need to be current with filing, including any missing tax returns, before the IRS will consider this type of tax relief.

Given the relatively low approval rates for an Offer in Compromise, it is essential to work with a knowledgeable CPA, tax attorney, or other tax professional when applying, such as a top East Atlanta CPA firm for small business success that regularly handles complex IRS matters. 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, such as a CPA firm in Midtown Atlanta experienced in IRS representation and complex tax problems.

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 tied to the total amount owed on the joint account.

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 Internal Revenue Service collection practices, including the resumption of collection letters like LT38 after the pandemic.

Understanding these notices, which outline outstanding balances, available penalty relief, and options for repayment, is crucial, but no automatic penalty relief is available for balances over $100,000. Pay your tax bill in full or make payment arrangements as soon as possible to avoid additional interest and penalties. Use the IRS website’s online payment options, including the QR code shown on the LT38 notice, or return the payment voucher by mail. The IRS has returned to normal operations, so prompt action matters.

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.

 

FAQs

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.

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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