IRS LT38 Notice
IRS is Resuming Collections Against You
LT38: Why Is the IRS Contacting Me About Past Due Taxes Now?
If you haven’t received a notice about your unpaid taxes for a while, you may have thought that the IRS forgot about your bill, but that is not the case. The IRS temporarily stopped sending collection notices during the COVID-19 pandemic. But as of 2024, the agency is ramping up collection efforts.
First, the IRS plans to send out LT38 to let taxpayers know that collections are starting again. This notice outlines some automatic penalty relief and explains when penalties are starting again and how to get back into compliance with the IRS. After this notice goes out, the agency will start sending out other notices. Then, it will start applying penalties to certain accounts and moving forward with involuntary collections.
Have you recently received this IRS notice? Here’s what you need to know.
Defining Notice LT-38: Why Did You Receive This Notice
Don’t panic. This notice just means that the IRS is resuming collection actions on your unpaid taxes. The top of the notice says, “Reminder, you have a balance due; IRS has ways to help you.”
That’s true if you are behind on your taxes, there are many ways to get on top of the situation. The IRS is very willing to work with taxpayers. That said, if you ignore your tax debt, you risk facing wage garnishments, asset seizures, and other collection actions.
Penalty Relief With LT38
LT38 also explains automatic penalty relief available to qualifying taxpayers who owe taxes from tax years 2020 or 2021. If you have an assessed tax liability of $100,000 or less from one of these years, you qualify for relief from the failure-to-pay penalty. You don’t have to do anything. The relief is automatic.
If you act quickly, you should be able to rectify the situation before the IRS starts adding on other penalties. The IRS plans to start assessing penalties on these accounts again, starting on April 1, 20024.
Which taxpayers qualify for relief on LT38?
You qualify for relief if you incurred a failure-to-pay (aka late payment) penalty on your tax returns from 2020 and/or 2021. Additionally, you only qualify if your tax liability from these years is $100,000 or less (not counting penalties and interest). Individuals and businesses can qualify, as well as trusts or estates.
Why don’t I see penalty relief on LT-38?
The IRS is not offering automatic penalty relief for late payments on tax year 2022 returns or on returns filed for tax years before 2020. However, the IRS is sending this notice to people with unpaid tax bills from those years. If you don’t see any penalty relief, that may be because your tax debt is from a year that doesn’t qualify for relief.
Is the IRS providing relief for failure-to-file penalties?
At the time of writing, no, the IRS is not offering automatic relief for failure to file penalties, even if they are associated with tax years 2020 and/or 2021. If you have incurred both failure to file and failure to pay penalties, you will only get relief from the latter.
Are there other ways to apply for penalty relief?
If you did not qualify for the automatic relief, you may still be able to get relief by making a request to the IRS. The IRS waives penalties for first-time offenders and for people who had reasonable cause to pay or file late.
How to respond to LT-38
You don’t have to respond to this notice, but if you have received it, you should take action to resolve your unpaid taxes as soon as possible. The options vary based on your situation. Here are the main IRS resolution options:
- Installment agreement – Make monthly payments until you pay off the debt in full. If you’re dealing with 2020 or 2021 taxes, the IRS will waive the penalties as stated above, but they will restart on April 1st, 2024. while you’re making monthly payments, the failure to pay penalty is 0.25% of your balance every month. For example, if you owe $10,000, it’s $25 per month. Without a payment plan, this penalty can get up to 1% per month.
- Offer in compromise – If you don’t have assets or income to pay your debt in full or make monthly payments, you may be able to settle through an offer in compromise. You will share details about your finances, and then, the IRS will determine how much you should pay to settle the debt. Once you pay the settlement, you won’t incur any more penalties or interest, but if you default by taking certain actions during the next five years (for example, if you incur another large tax liability that you can’t pay), the IRS can retroactively rescind this arrangement.
- Currently not collectible – if you prove that you cannot pay anything, the IRS may mark your account as not collectible. All collection actions will stop, but penalties and interest will continue to accrue. if your finances improve, you will need to start making payments, but if not, the debt may just expire.
There are also other options that can help in very specific situations. For example, the IRS’s innocent spouse program is designed to help people who incurred a tax liability due to their spouse’s actions and need relief.
Upcoming Notices to Expect
As explained above, LT38 serves as an announcement that the IRS plans to start sending out collection notices again. Here are some of the notices that may be hitting your mailbox if you have unpaid taxes or unfiled returns:
- CP59 – Unfiled tax return initial notice
- CP518 – Final notice of your unfiled tax return.
- CP2566 – Substitute for return has been created by the IRS because you have not filed a tax return.
- CP14 – Notice of tax liability balance due.
- CP501 – Reminder of tax liability balance due.
- CP503 – Second reminder of balance due.
- CP504 – IRS levy of state tax refund and warning of future property levies.
Because the IRS stopped collection actions for so long during and after COVID, many taxpayers got lulled into a false sense of security. But now is the time to take action. The IRS only has about 10 years to collect taxes after the assessment, and the agency is not going to give up on its money. The IRS has more collection rights than practically any other creditor in the United States, and over the next few months and years, you can expect to see a lot of collection actions, especially as the agency has earmarked increased funding just for collections.
Additional FAQs
Here are some additional questions that you may have if you received this notice. If you have other questions, please contact us directly.
What is IRS.gov/lt38?
This is a short URL that navigates to the IRS’s webpage about this notice. You can type this address into your browser to see what the IRS says about this notice.
Why did we get two LT-38 notices?
If you filed a tax return jointly with your spouse and you have an unpaid balance, you will each get your own LT38 letter. When you file jointly, you are jointly and severally liable for the tax bill.
What if I ignore this notice?
If you ignore this notice, you risk the IRS taking collection actions against you. Additionally, you will incur more penalties and interest on your unpaid balance.
Get Help With IRS Tax Debt Today
Being in debt is stressful, and it’s even more stressful when you owe unpaid taxes to the IRS. To get help now, contact us at the W Tax Group. We will look closely at your situation and help you find a sustainable, affordable solution that works with your personal needs and finances.
