- The LT38 notice signals the IRS’s resumption of collection activities after a pandemic pause.
- Ignoring an LT38 notice can lead to severe consequences like bank levies and wage garnishments.
- Small business owners receiving an LT38 notice have options, including installment agreements and offers in compromise.
- Professional help can be crucial in navigating complex IRS rules and determining the best debt resolution option.
If you’re a small business owner and recently opened your mailbox to find an IRS LT38 notice, you’re not alone. These notices have become more common as the IRS resumes collection activities post-COVID. Many business owners may not know how to react to this letter, but the good news is that there are clear steps you can take to manage the situation.
Here are some key things you need to know and actionable advice to keep the IRS from knocking harder.
What Is an LT38 Notice?
To understand the LT38 notice, it helps to step back a bit. When COVID hit, the IRS paused many collection activities, effectively going silent on tax debt for over three years. Now that things are back in motion, they’re picking up where they left off. The LT38 is essentially a wake-up call, a warning shot.
The IRS isn’t just going to jump to seizing your assets right away, but they’re letting you know you need to take action — soon. So, what should you do when you receive this notice? Here’s where to start.
Step 1: Don’t Ignore the Notice — Take Immediate Action
When that LT38 notice lands in your lap, the worst thing you can do is nothing. Ignoring it won’t make it go away. First, you should take stock of where you stood with the IRS before the pandemic. Were you receiving letters like an LT11, CP90, or Form 1058? Those are critical because they’re final notices of intent to levy. If you received one before COVID, the IRS is already far along in its process, and you need to act fast.
It’s worth calling the IRS directly if unsure where you stand. You’ll want to know if they’ve issued any of those final notices because you have more breathing room if they haven’t. Either way, you can request a 60- to 90-day delay to give yourself time to get things in order.
Step 2: Explore Payment Options
Now that you’ve bought some time, the next step is figuring out how you will pay the IRS. The IRS offers several options, and the best one for you will depend on your situation:
- Installment Agreements: The IRS allows you to pay your debt over time through a payment plan. If you owe a significant amount, they’ll usually work with you to create a plan based on your ability to pay. Remember, the IRS will factor in how much time they have left to collect your debt — the collection statute of limitations. If the IRS has less time to collect, they may accept a shorter or smaller payment period.
- Offer in Compromise: If your financial situation is dire, you may qualify for an offer in compromise. This means you negotiate with the IRS to settle your debt for less than you owe based on what they realistically think they can collect from you.
- Uncollectible Status: In some cases, if you can prove to the IRS that you cannot pay anything, they may place you in “currently not collectible” status. This doesn’t erase the debt but stops the IRS from actively pursuing collection efforts — at least for a while.
Step 3: Know the IRS’s Enforcement Strategies
Understanding how the IRS enforces collection is crucial. Once they’ve sent you one of those final notices (LT11, CP90, CP91, or Form 1058), they can legally levy your bank accounts, garnish your wages, or place liens on your assets. These serious consequences can jeopardize your business, so it’s important to act before it gets to that point.
If you’re already at the stage where a levy is possible, time is of the essence. The sooner you can get a plan in place, the better. Once the IRS starts seizing your assets, they hold all the power — and that’s not where you want to be.
Step 4: Avoid Common Mistakes
One of the biggest misconceptions I see is the belief that if the IRS has left you alone for a few years, you’re in the clear. This couldn’t be further from the truth. The LT38 notice is their way of telling you, “We’re back, and we haven’t forgotten about your debt.” If you don’t respond, the IRS can escalate its efforts. The key here is to be proactive. The longer you wait, the fewer options you’ll have.
Another mistake? Trying to handle this situation without help. While you can call the IRS and set up a payment plan, understanding options like the statute of limitations or choosing between an offer in compromise and uncollectible status usually requires expert advice. A professional can guide you to the best course of action based on your financial situation.
Don’t Face the IRS Alone
If the LT38 notice is on your desk right now, remember it’s a warning, not a death sentence. But you have to act. Start by understanding where you stand with the IRS, exploring your payment options, and making sure you avoid common mistakes by seeking professional advice if you need it. By taking these steps, you’ll be much better positioned to resolve your tax debt without facing further penalties or legal action.
Stay proactive, stay informed, and stay ahead of the IRS.