IRS resumes sending collection notices
Letters were suspended during the pandemic
DETROIT – Internal Revenue Service collection letters are arriving in mailboxes once again. And if you get one, tax professionals say, please, don’t throw it in a drawer and ignore it.
The automated reminder notices resumed in January and are set to go out in the regular mail on a staggered basis over the next several months. More than 3.7 million taxpayers in the IRS automated collection system are expected to receive these reminder notices.
“Taxpayers are urged to first read the notice carefully, then if there are any questions call the number on the notice itself,” said Luis Garcia, a spokesperson for the IRS in Detroit.
It’s not an audit
The IRS is sending out what it calls an “LT38 Notice” to let you know that during the pandemic some collection notices were suspended. This isn’t a letter to inform you of an audit. Instead, the IRS is resuming the reminders and providing an update on your outstanding balance and options to resolve the debt.
The IRS also states that if you paid your balance owed in full within the last 21 days, you can disregard the LT38 you received in the mail.
Many tax filers could be shocked to spot a letter in the mail because the IRS hasn’t been sending out these types of reminders for two years. They most likely received an initial notice that went out well before 2022. But many people might have lost that original paperwork.
Some might find it confusing because the IRS had sent out some automated notices in error back in 2021 and again for some people in 2022.
Typically, the IRS first sends out a CP14 Notice for an unpaid tax balance and then typically sends a series of reminder letters to follow up.
The notices that stopped were reminders, which would have normally been issued as a follow-up after the initial notice. These notices involved taxpayers who had an outstanding tax bill for tax year 2020 and or 2021.
Don’t ignore the letter
Eric D. Bischer, certified public accountant and senior manager for Andrews Hooper Pavlik PLC in Bloomfield Hills, Michigan, said taxpayers who receive a reminder letter from the IRS want to bring it to the attention of their tax preparer as soon as possible.
Tax professionals, he said, can address what is owed in taxes and how to settle up accordingly.
Someone who prepares their own taxes, he said, needs to understand that this notice will relate to tax years during the pandemic. Review your records and go back to the tax return the IRS references in the letter. And figure out what move you’ll make next to pay what you owe.
If you don’t agree with what the IRS says you owe in the reminder letter, Bischer recommends calling the IRS to talk with a representative and ensure a previous payment made wasn’t applied to the wrong year by the agency.
Important information on notice
The reminder letter being sent out alerts the taxpayers of what they owe, outlines ways to pay and gives a detailed amount of any penalty relief that the person might be receiving.
“If your notice indicates you have missing tax returns, file the missing returns as soon as possible,” according to an alert from the IRS.
It is wise to pay what you can now to reduce interest and penalties. Taxpayers who are unable to pay their full balance due can visit IRS.gov/payments to make arrangements to resolve their bills.
Some installment agreements and payment plans are available at no cost through the IRS. See IRS.gov/payments/ for details. The IRS notes that your specific tax situation will determine which payment options are available to you.
The IRS has expanded the availability of self-service tools, such as the document upload tool and online payment plans, which can often help taxpayers resolve their tax problem without needing to speak to an IRS representative, Garcia said.
Most taxpayers, Garcia said, qualify to set up a payment agreement with the IRS using the Online Payment Agreement tool.
In December, the IRS announced it would waive some failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021.
The failure-to-pay penalty will resume April 1 for eligible taxpayers.
The IRS estimates that 5 million tax returns – filed by 4.7 million individuals, businesses, trusts, estates and tax-exempt organizations – are eligible for some type of penalty relief.
Only those who owed less than $100,000 in back taxes for specific tax years 2020 and 2021 would see such penalty relief.
The break, which adds up to $1 billion in relief, applies to individuals, businesses and tax-exempt organizations that were not sent automated collection reminder notices during the pandemic. The IRS noted that most of those receiving the penalty relief make less than $400,000 a year.
Nearly 70% of the individual taxpayers receiving penalty relief have income under $100,000 per year, the IRS said.
Taxpayers could save on average about a bit more than $200 per return, thanks to the waiving of a key penalty.
Taxpayers who already paid this penalty involving the 2020 and 2021 returns would get a refund if they qualified. The IRS will issue a refund or credit the payment toward another outstanding tax liability.
It’s essential to realize that interest does keep building on the unpaid tax debt involved here.
The IRS is not waiving interest on unpaid taxes, just the failure-to-pay penalty. No relief is being given for failure to file a return.
The failure to pay penalty is complicated but amounts to 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The penalty won’t exceed 25% of your unpaid taxes.