If you have unpaid taxes or have not filed some of your returns, the IRS will send you an LT40 notice before it starts a levy. Find out what this notice means and how to respond to it below.
Why Did I Receive IRS Notice LT40?
The IRS mails LT40 when you owe back taxes and have not responded to previous letters for delinquent taxes and missing returns.
Typically, it is sent after the IRS has already sent several balance due notices and before the IRS starts a levy to seize funds and/or property.
Does LT40 Mean the IRS Will Garnish My Wages or Levy My Back Account or Other Property?
Although an LT40 letter is not a levy or garnishment itself, it is a sign that the IRS is preparing to use those options to collect your tax debt.
More specifically, LT40 is a notice that the IRS intends to contact third parties imminently to collect back taxes. They cannot formally contact others regarding your tax debt without notifying you first.
For example, to levy funds in your bank account or garnish your wages, sending LT40 satisfies the IRS requirement to inform you before they contact your bank or your employer and the levy begins.
What Third Parties Can the IRS Contact to Seize My Money and Property If I Have a Levy?
Once the LT40 is issued, the IRS can contact a variety of parties, including (but not limited to):
- Your employer to garnish your wages
- Your bank to take money from your checking or savings accounts
- Your mortgage company to levy your home
- Other financial institutions where you have accounts that can be seized, such as for Social Security payments and pension/retirement funds
According to the IRS, it can contact the relevant third parties for up to a year after sending the LT40 notice. They will give you a list of all the parties contacted within the year at the end of the year.
How Much Time Do I Have Once I Receive the LT40 Notice to File Missing Returns and Pay Taxes?
For most notices, the IRS expects a response within 30 days – whether that is making a tax payment, requesting a payment plan or other tax relief, or disputing the notice.
It is especially important to respond quickly to LT40 notices as it is a sign that the IRS is preparing to levy your property or garnish your wages in the next few months.
Start by ensuring the information in the LT40 is accurate. If it is accurate, file missing returns and pay back taxes or set up a payment plan within the 30-day window to prevent a levy and any further collections activity from the IRS.
If you have already filed returns and paid taxes, but the notice indicates otherwise, contact the IRS to dispute the LT40.
Can I Stop the Levy If I Can’t Pay My Taxes In Full Now?
If you receive an LT40 notice and cannot pay your taxes in full right now, you do have options. First, the IRS always encourages people to pay what they can when they file their return if they cannot pay the entire amount.
Any amount you pay helps reduce the penalties and interest that the IRS adds to your tax debt.
You can contact the IRS to set up an installment agreement or Offer in Compromise (OIC) payment plan. These plans allow you to pay off your tax debt with smaller monthly payments over time instead of a single payment.
In some cases, they will even agree to a settlement amount that is less than the full tax liability when you submit an OIC.
The IRS also has programs that reduce levy activity in cases where no tax payments can be made at the current time, and levies or garnishments will create financial hardship for an individual or family.
If you believe that you fall into this category, you can apply for Currently Not Collectible (CNC) relief. Although CNC is temporary, collections will be paused.
For installment agreements, OIC, and CNC, you do have to be current on your tax filing obligations, so even if you cannot pay your taxes, you need to file your returns.
At Wiztax, we can help you prepare and submit an Offer in Compromise, so that you only have to pay part of your tax debt when the IRS approves the offer, and the rest is forgiven.
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