IRS Notice LT36; Urgent: You Have An Outstanding Tax Issue
The IRS started sending Notice LT36 to current and retired federal employees who may not be current with their federal tax filing obligations or have back tax obligations that have not been addressed.
Under the Federal Employee / Retiree Delinquency Initiative, the IRS is reminding federal employees to pay their tax liabilities promptly, not just as a matter of law, but perhaps as part of their obligation to employment. Notice LT36 informs federal employees that “Congress has mandated that federal employees serve as stewards of the law” and under the Code of Federal Regulations federal employees “shall satisfy in good faith their obligations as citizens, including all just financial obligations, especially those – such as federal state or local taxes – that are imposed by law.” 5 C.F.R. § 2635.101(b)(12).
Federal employees and retirees who received Notice LT36 are instructed to take immediate action:
- Access their online account at IRS.gov/Account to determine their liability
- Pay their tax balance due
- Apply for a payment plan
- File outstanding tax returns
Federal Employee / Retiree Delinquency Initiative (“FERDI”)
The Federal Employee / Retiree Delinquency Initiative (“FERDI”) is an initiative to collect outstanding tax liabilities from federal employees, retirees, military personnel (Active Duty, National Guard and Reserve) and Department of Defense employees. I.R.M. 5.1.7.1. Those who do not take steps to address their outstanding tax issues may find themselves subject to IRS levy procedures, including the garnishment of wages, pension benefits and Social Security benefits. I.R.M. 5.1.7.8.3.2.
What To Do If You Receive IRS Notice LT36
Don’t Ignore The Notice!
Ignoring IRS letters won’t make your tax issue disappear. If you do not address your tax liability with the IRS, collections enforcement will begin against you. Collection actions can include tax liens on your property, garnishment of wages, pension benefits or Social Security benefits, and even seizing of assets.
Having outstanding tax liabilities as a federal employee puts your job at risk. If your position requires a security clearance, your clearance maybe rescinded, jeopardizing your career.
Step One: Check Your Tax Filing And Payment History
Check your account with the IRS online to be sure you have a tax return filing or tax payment obligations. It is possible that you received the Notice in error. If you do have a tax return filing requirement, or owe back taxes, take steps to correct the tax issue.
If you have an outstanding tax filing requirement, our post on How to Get Back into IRS Compliance may be instructive.
Step Two: Request Penalty Abatement
Interest and penalties will likely be assessed against you for your outstanding tax debt. You might be eligible to request the removal of penalties, for example, as part of the IRS’s first time abatement policy or abatement for reasonable cause.
First-Time Penalty Abatement
You may qualify for First Time Abatement for a penalty if you have a history of good tax compliance. The penalties eligible to be abated under this policy are (i) failure to file penalty, (ii) failure to pay penalty, and (iii) failure to deposit penalty. To be eligible for abatement, you must comply, meaning you have to be current with your tax filing obligations. Abatement under this policy only occurs once and it will apply to the oldest tax year.
Reasonable Cause
For reasonable cause to exist, the taxpayer must have exercised ordinary care but was nonetheless unable to comply with their tax return filing requirement. It may be just as instructive to look at what is not reasonable cause. The following do not qualify as reasonable cause: (i) not having enough money to pay the taxes due or financial difficulty; (ii) not understanding the filing requirement; (iii) procrastination; (iv) reliance on bad advice from non-tax professionals.
Step Three: Pay Your Tax Obligation
If you cannot pay the tax liability in full, there are payment options.
Installment Agreements
An installment agreement allows you to pay off your tax liability in monthly installments. The IRS would rather you make small, monthly payments rather than waiting for you to pay a lump sum in the future.
Offer in Compromise
If you cannot afford to pay the tax liability in full, you might be eligible for an offer in compromise. This requires a review of your income and available asset to determine if you qualify to pay less that owed. Federal employees may face more scrutiny when applying for an offer in compromise. The IRS Internal Revenue Manual states, “due to the sensitivity of issues related to the tax delinquencies of federal employees, public policy implications must be considered in all cases.” I.R.M. 5.1.7.8.3.1.
Currently Non-Collectible
Depending on your financial situation, if it is determined that you cannot afford to pay anything toward your tax liability, the IRS will stop collection actions. The tax debt does not go away. This option may prove difficult for federal employees.
Help is Available
If you need help with your tax matter, the tax professionals at McDowell Law Group are here to guide you every step of the way. From reviewing your IRS transcripts to negotiating with the IRS on your behalf, we can help you get into compliance. Contact us today to schedule a consultation and start your path toward compliance and peace of mind.