What To Do if You Receive This Unexpected Letter From the IRS

SAVING & SPENDING - TAXES
You might get a collection letter from the IRS — here's what to do if you do.
Updated April 11, 2024
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The IRS is once again sending out collection letters after almost two years. The automated reminder letter started going out in January to more than 3.7 million taxpayers. Receiving a collection letter from the IRS can be a source of anxiety for many taxpayers. However, it’s important not to stress or ignore these important notices. For many, the collection notices might not be as large of a problem as they anticipate.

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IRS resumes sending collection letters

fizkes/Adobe student reading paper letter

The resumption of IRS collection letters, specifically the "LT38 Notice," marks a significant development in tax collection efforts. These automated reminders serve to inform taxpayers of their outstanding tax liabilities and provide options for resolving them. After a hiatus of two years due to pandemic-related disruptions, the IRS is once again sending out these notices to over 3.7 million taxpayers with unresolved tax debts.

These notices are usually a notification of back taxes that you still owe to the IRS, meaning there can be penalties if you do not pay them.

It's not an audit, but don't ignore it

Malik/peopleimages.com/Adobe tax crisis in living room

Receiving an IRS collection letter does not necessarily indicate an impending audit. Instead, these notices focus on updating taxpayers about their outstanding balances and offering solutions for repayment. Ignoring these letters can exacerbate the situation, leading to additional penalties and interest charges. Therefore, prompt action is essential when dealing with IRS collection letters.

If you receive one of these letters, the first step is to carefully read its contents and understand the details of your outstanding tax debt. To avoid procrastination, reach out to your tax professional or prepare to address the notice independently. Taking proactive steps can prevent further complications and expedite the resolution process.

Your notice may also include information on missing returns. If you have missed a tax return, it’s important to file it right away. Additionally, if you believe there has been a mistake and you have indeed already paid taxes owed, you will need to submit proof. The IRS also says if you have paid your taxes owed in the last 21 days, you can disregard a received LT38 Notice.

Tips for reducing tax debt

Kittiphan/Adobe couple checking bills taxes

For individuals facing tax debt, there are several strategies to mitigate financial burdens and navigate the repayment process effectively:

  • Consult with a tax professional. Seeking guidance from a certified public accountant or tax advisor can provide valuable insights into your tax situation and help develop a plan for resolving outstanding debts.
  • Review your tax returns. Thoroughly examine the tax return referenced in the IRS collection letter to ensure accuracy and identify any discrepancies that may require clarification.
  • Communicate with the IRS. If you disagree with the amount stated in the notice or believe there has been an error in the assessment of your tax debt, contact the IRS to discuss your concerns and seek clarification.
  • Explore payment options. The IRS offers various payment arrangements and installment plans to assist taxpayers in managing their tax liabilities. Utilize online resources such as the Online Payment Agreement tool on IRS.gov to explore available options and initiate arrangements.
  • Take advantage of penalty relief. Eligible taxpayers affected by delayed collection notices may qualify for penalty relief, resulting in potential savings on penalty fees. Explore options for penalty relief and ensure compliance with IRS guidelines to maximize benefits.

Bottom line

pkstock/Adobe filing online taxes before deadline

Receiving a collection letter from the IRS can be stressful, but it's essential to approach it with diligence and proactive steps. Ignoring these notices can lead to escalating penalties and interest charges, underscoring the importance of timely action and compliance with IRS requirements.

By understanding the nature of these notices, seeking professional guidance, and exploring available repayment options, taxpayers can effectively get out of debt and prevent further repercussions.

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Author Details

Georgina Tzanetos Georgina Tzanetos is a former financial advisor who has been active in financial media for the past six years. She holds a master's in political economy from NYU, where she studied distressed labor markets.

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