If you receive an IRS Notice LT16, the IRS is trying to collect unpaid taxes from you. The Notice LT16 informs you that you have an outstanding tax balance for one or more tax years and tells you how much you owe (to include penalties and interest), when payment is due, and how to pay. This notice might also inform you that you have unfiled tax returns.
Why Was Notice LT16 Sent?
There are several reasons why a taxpayer received a Notice LT16. If you never filed a tax return for the tax year(s) stated in the notice, the IRS might have filed a Substitute for Return to assess tax against you.
You may receive this notice even if you filed your tax return and failed to pay the balance due when you filed. The IRS often makes changes to your tax return, resulting in a balance due. It may also be the case that penalties and interest were previously assessed and remain unpaid.
What Will the IRS Do Next?
The Notice LT16 is not the IRS’s first attempt to contact you. This is the beginning of IRS’s increased efforts to collect your outstanding tax balance. If you fail to take action, the IRS will send further collection notices to you requesting payment for the tax balance owing.
Enforcement action by the IRS will follow, which can include levying your bank accounts or wage garnishments. Enforcement action also includes filing of a notice of federal tax lien. The IRS may also certify taxpayers with seriously delinquent tax debts to the State Department which can result in the revocation of one’s passport.
What are the Next Steps?
Begin my reading the notice carefully. The notice explains how much you owe for the tax year(s) at issue, the original tax due, interest assessed and penalties. If you filed a tax return, compare the IRS notice to your tax return and tax records. A review of your IRS account transcript and wage and income transcript is an important step in determining why any discrepancy exists.
If You Disagree With The IRS
There are many reasons why the IRS notice may be incorrect. Estimated payments can be misapplied or not applied at all. Tax records provided to the IRS, such as W-2s and 1099s are at time incorrect and corrected forms are not always processed timely. If you disagree with the IRS, you must actively address the matter. An explanation to them must follow with supporting
documents and information.
If you did not file a tax return, and the IRS filed a Substitute for Return, it might be in your interest to file a correct tax return. It is often the case that the Substitute for Return results in a higher tax liability. (Click here for more on Substitute for Returns)
If the IRS Notice is Correct
If you agree with the IRS’s assessment, then arrangements must be made to make payment. If you cannot afford the tax due, then there are payment options available to avoid the IRS initiating collections against you. Payment options depend on how much you owe and your current financial situation. Each option has different requirements, and some have fees.
Offer In Compromise
An Offer In Compromise is one possible option. With an offer in compromise, the IRS accepts a lower amount than the tax debt owed. Contrary to what many people think, this is not a negotiation. Specific criteria must be met by the taxpayer in order to be eligible for an offer in compromise.
Installment Agreement
An installment agreement with the IRS allows you to pay your tax liability in monthly installments over time. Your monthly payment is based on a review of your assets and current income. The IRS will not take collection actions against you while you remain compliant with the installment payments. Interest will continue to accrue while you are paying your tax liability.
With an installment agreement, the IRS does not suspend interest and penalty charges. Each will continue to be assessed until the balance is paid in full or the time to collect has expired. You can make additional voluntary payments at any time.
Currently non-collectible status
If you cannot pay based on your current earnings the IRS may put you in a non-collectible status. To qualify, you must demonstrate that paying the tax debt would prevent you from meeting basic living expenses. Your tax liability does not go away, but the IRS will not actively engage in collection efforts. Applicable penalties and interest will continue to accrue.
Get Professional Help With Your IRS LT16 Notice
If you need assistance with your tax debt, the experienced tax professionals at McDowell Law Group are here to guide you every step of the way. We will work with you to determine your tax compliance issue and provide you with options to best resolve your tax issue – either through an installment payment agreement, offer in compromise, penalty abatement, or other tax relief options available specific to your situation. Contact us today to schedule a consultation and start your path toward compliance and peace of mind.
Other Sources of Information:
The IRS: https://www.irs.gov/individuals/understanding-your-lt16-notice
The Taxpayer Advocate Service: https://www.taxpayeradvocate.irs.gov/notices/lt-16/