LT-38: The IRS Is Coming for Back Taxes in 2024
During the COVID-19 pandemic, the IRS stopped sending out most collection letters, but that break is over - The IRS is resuming business as usual, and that includes sending out automatic notices about unpaid taxes. To alert taxpayers of the situation, the agency is sending out notice LT-38.
IRS notice LT-38 also tells taxpayers about the IRS's automatic penalty relief for qualifying tax debts from 2020 or 2021. The IRS is giving out $1 billion in penalty relief, but if taxpayers don't make arrangements, penalties will resume in April 2024. To get help now, use TaxCure to search for a local tax pro, or keep reading to learn more.
What is IRS Notice LT-38?
LT-38 is a letter that the IRS is sending out to tell people about the resumption of collection notices. The header of the notice says, "Reminder, You have a balance due; IRS has ways to help you." Then, the letter explains why the IRS stopped sending out collection letters and that collections are resuming as usual. Here is a sample of a LT38.
What does LT-38 mean?
LT-38 means that you need to take action on your tax debt. The IRS is resuming collection actions. In short, that means that if you don't pay your bill, the IRS may garnish your wages, seize your bank accounts, or take your assets.
Don't panic yet. You have time, and in most cases, the IRS will send you several more notices before resorting to those collection actions. However, if you don't make arrangements on your tax bill, the IRS will add penalties to your account.
In most cases, when you have unpaid taxes, the IRS assesses failure-to-pay penalties on your account every month, until they get up to 25% of your balance. If you owe $100,000 or less in assessed taxes from 2020 or 2021, however, the IRS has given you automatic penalty relief, and you have until March 31 to make arrangements on your tax debt. The IRS will start adding penalties to these accounts on April 1, 2024.
How does the penalty relief on LT-38 work
Individuals and businesses that owe less than $100,000 in assessed tax from 2020 or 2021 qualify for automatic relief of the failure-to-pay penalty. This penalty applies monthly, and it is 0.5% of your tax bill. You don't have to apply for the relief. The IRS has automatically removed the penalties, and the penalties are not reflected in the balance on your LT-38 letter.
However, if you owe back taxes for a trust or estate, you do not qualify for this automatic relief. Similarly, businesses and individuals with assessed balances over $100,000 from those tax years also do not qualify. Similarly, taxpayers who owe balances from 2022 or years before 2020 also do not get the automated relief. If you fall into these categories, consider talking with a tax pro about other penalty abatement options.
What to do if you receive LT-38
If you receive this notice, the IRS says that you should file any outstanding returns noted in the letter. Then, you should pay your tax bill in full, or make payment arrangements on your tax debt.
How to pay after receiving an LT-38 notice
To make a payment after receiving your notice, you can scan the QR code on the notice. This takes you to IRS.gov/payments. Just follow the prompts to pay with a bank debit or a credit/debit card. You can pay without signing in, or you can create an account (requires ID and phone camera) to make a payment and see your balance.
If you prefer the mail, you can return the payment voucher that comes with your LT-38 notice. Write your Social Security Number or business EIN on the check to ensure it gets credited correctly. Make sure to mail the check to the address noted on the letter. The IRS accepts payments at many different addresses, and if you send your money to the wrong one, there will be processing delays.
What if you can't afford to pay in full?
If you cannot afford to pay your tax bill in full, the IRS offers several different payment options. The requirements vary for these programs. You can apply for many of them on your own, and if you prefer to get help (especially for the complicated options), reach out to a tax professional:
- Installment agreement - make monthly payments on the tax debt. You can apply online if you owe less than $50,000 in tax, penalties, and interest.
- Partial payment installment agreement - make the largest monthly payments you can afford until the tax collection period expires (about 10 years after you file). Then, the IRS waives the remaining balance.
- Offer in compromise - make a lump sum payment or up to 24 monthly payments. Prove that you're paying the most possible out of your assets and income (based on the IRS's financial standards). The IRS waives the rest of the debt.
- Currently not collectible (CNC) - Let the IRS know that paying your tax bill will cause economic hardship. Then, the agency will stop all collection actions until your financial situation improves.
Sometimes, the best option is obvious. For example, if you owe a few grand and you know that you can afford to pay it off monthly, then, an installment agreement is the best option. If you have no assets and no income, it's pretty straightforward to get CNC status.
However, some situations are a bit trickier. To figure out the best option for your situation, talk with a tax pro. They'll learn about your finances, whether or not you have state tax debt as well, and then, they'll guide you toward the best solution.
What if you have questions?
If you have questions about notice LT-38, you can contact the IRS directly at 800-829-7650. This phone number should appear on your notice. Your call will be directed to the IRS call centers that handle accounts in the automated system. You can also chat with the IRS online during business hours — go to IRS.gov/lt38 and hit the "chat" button. Alternatively, reach out to a tax pro with questions.
What if you don't agree with the balance due?
If you don't agree with the balance due, there are a few different steps you can explore based on the situation. For example, if you don't agree with the assessed tax shown, you may need to amend your tax return or appeal a change the IRS made to your return. If you don't agree with the penalties due, you may be able to request abatement, or you can challenge the computation if relevant.
There are a few other reasons that you may disagree with the balance due. In particular, if the IRS filed a substitute for return for any of the years shown on LT-38, you are likely to disagree with the tax due, and a tax pro can help you address the situation. If you think that your spouse should be responsible for their bill on their own, you may want to look into innocent spouse relief.
Your Rights When You Receive LT-38
Taxpayers have rights when dealing with the IRS. When you receive LT-38 or any other communication from the IRS, you have the right to be informed - that's actually the role of this letter, to inform you that the IRS plans to restart collection actions soon.
You also have the right to only quality service and the right to appeal IRS decisions. If you believe that the IRS has not upheld your rights, reach out to a tax attorney or contact the Taxpayers Advocate Office.
IRS Automated Notices Resuming in 2024
When the IRS resumes sending out notices in the Spring of 2024, the agency's automated collection system (ACS) will start sending out a variety of notices. Here are some of the notices you're going to start seeing throughout the rest of 2024:
- CP59 - You have an unfiled tax return
- CP518 - Final notice of your unfiled tax return.
- CP2566 - The IRS has filed a return for you based on documents received from other parties, with no business deductions or credits.
- CP14 - Notice of balance due
- CP501 - Reminder of balance due.
- CP503 - Second reminder of balance due
- CP504 - IRS levy of state tax refund.
The IRS sends many different notices and it often creates new notices. Don't be surprised if you receive notices that are not on this list.
FAQs About LT-38
Still have questions? Here are some of the questions that people have when they receive this notice. If your concern is not addressed, please use the TaxCure marketplace to find a tax pro. Then, contact them directly with questions.
Which penalties is the IRS forgiving?
As of January 2024, the IRS is forgiving the failure-to-pay penalty on assessed balances of $100,000 or less from tax years 2020 and 2021. This is the late payment penalty. The IRS has not announced plans to remove late filing penalties (failure-to-file penalties) from these tax years.
Why isn't there penalty relief on my LT-38?
If your LT-38 doesn't provide you with penalty relief, you may owe more than the $100,000 threshold for tax years 2020 and 2021. Additionally, if your LT-38 covers older tax years such as 2015, you won't see penalty relief for those years.
How to get penalty relief on 2020 and 2021 taxes?
If you qualify, you will get the relief automatically. There is nothing to do. However, if you don't qualify for automatic relief, you can apply for penalty relief based on reasonable cause or first-time abatement.
Why did both me and my spouse receive LT-38?
You and your spouse will both receive your own LT-38 notices even if you filed a joint tax return.
Why did I receive LT-38 even though I'm on a payment plan?
If you recently set up your payment plan, disregard LT-38. If you've been making payments for more than a month, contact the IRS directly to see why you received this notice.
What if I need to send documents to respond to LT-38?
If you need to send documents to the IRS after receiving this notice, you can upload them with the IRS Documentation Upload Tool, or you can mail them to ACS Support, PO Box 24017, Fresno, CA 93779-4017.
Before sending documents, make sure that you understand what the IRS wants to receive. Although sample LT-38 letters have these instructions, they don't request any documents. If you send in documents, send copies and keep your originals.
What is IRS.gov/lt38?
IRS.gov/lt38 is the short URL that takes you to the IRS webpage about notice LT38. When you type in the short URL, it will direct you to www.irs.gov/individuals/understanding-your-lt38-notice.
Get Help Today
The IRS is ramping up collection actions, and eventually, it's going to involve a lot more than scary notices in the mailbox. To get help, don't get tricked into calling one of the big tax relief firms — the reviews claim the big companies are the best, but extra analysis shows that the big firms are really the worst option when you need tax help.
What should you do instead? Get help from a local tax pro. Unfortunately, finding a local CPA, EA, or tax attorney can feel like looking for a needle in a haystack. But TaxCure makes the process easy. You can search our directory of curated tax professionals to find one in your local area, and then, you can narrow down your results based on your tax problem. Finally, you can read reviews and call tax pros for consultations. Don't wait - get help today.