IRS
FEBRUARY 02, 2025

IRS Notice LT40: What It Is and What To Do

IRS Notice LT40 is the Advisory Notice to Taxpayer of Need to Contact Third Parties that the IRS sends to a taxpayer when it intends to contact third parties — such as the taxpayer’s neighbors, bank, employer, or employees — to obtain or verify information or to take collection action against the taxpayer.

If you’ve received a Notice LT40 from the IRS, it generally means that the IRS is preparing to levy you within the next few months.

This is because:

  1. levy notices are sent to third parties — such as your employer or bank — instructing them to remit your funds to the IRS,
  2. such levy notices inherently involve the IRS contacting third parties with respect to the collection of your tax liability,
  3. and Internal Revenue Code Section 7602(c) requires that the IRS provide you with advance (specifically, at least 45 days prior to the contact) written notification — such as that found in Notice LT40 — that the IRS intends to contact third parties regarding your tax debt.

Therefore, due to IRC Section 7602(c)(1), the IRS may not issue a levy notice to a third party — such as your employer or your bank — until it has sent you advance written notice, and since Notice LT40 satisfies this statutory requirement, it’s more likely than not that if you received this notice, the IRS is preparing to take levy action against you.

Note that the IRS may include this advance written notification in your final notice of intent to levy, e.g., Notice LT11.

Here is a redacted Notice LT40 that the IRS sent one of our clients.

IRS Notice LT40 At a Glance

Notice Type:Reminder Notice
Generated By:IRS ACS
Preceded By:At Least One Other LT or CP Notice
Followed By:LT11 (If Not Already Issued)
Recommended Action:Pay Off Balance Due or Enter Into Resolution
 

IRS Notice LT40 Explained, Part by Part

Here is a full explanation of the Notice LT40, part by part.

Part 1: We May Contact Others For Information

IRS Notice LT40 We May Contact Others For Information

At the top of the LT40 Notice, the IRS gets to the point, informing you in bold letters that they may contact others for information, though you may call the IRS at the number at the top of the notice to review your account.

Part 2: Next Steps

IRS Notice LT40 Next Steps

Next, in a series of small-font paragraphs, the IRS informs you of the following things:

  • That the IRS typically deals directly with you or your power of attorney
  • That even so, the IRS may talk to third parties in order to obtain or verify information or to take collection action against you, such as via levy or seizure
  • That, in your specific case, the IRS intends to contact third parties and in doing so may need to provide them limited information about you, such as your name
  • That the law prohibits the IRS from disclosing more information to these third parties than is necessary
  • The period during which the IRS intends to contact third parties about your case (this period generally begins 46 days after the date of the Notice LT40 due to the statutory 45-days requirement described above)
  • That you have a right to request a list of the third parties the IRS contacted [this is a statutory right under Internal Revenue Code Section 7602(c)(2)]
  • That the IRS is authorized to take your property or rights to property as well as file a Notice of Federal Tax Lien against you
  • That, in order to avoid such enforcement action, you must pay off your balance or contact the IRS to make some alternative arrangement

Part 3: Billing Summary

IRS Notice LT40 Your Billing Summary

Next, the IRS provides you with a year-by-year summary of what they believe you owe.

Here is a quick legend on each of the column’s you’ll see for each tax year:

  • Tax period ending: This is the last day of the tax period — typically a year but in some cases a quarter — for which you have a balance due.
  • Form number: This is the type of tax form you filed (or for which the IRS filed a substitute for return) giving rise to the balance due.
  • Amount you owed: This is the amount of underlying tax liability owed on the return when filed.
  • Interest: This is the amount of interest the IRS has added to your initial balance.
  • Failure-to-pay penalty: This is the amount of failure-to-pay penalty the IRS has added to your initial balance. Note that you may be liable to other or additional penalties than the failure-to-pay penalty, and if so, these penalties would each have their own column here.
  • Total: This is the sum of the “amount you owed” as well as your accumulated interest and penalties.

Part 4: Penalties

IRS Notice LT40 Penalties

In the next section, the IRS explains the various penalties that it has assessed against you.

For example, the failure-to-pay penalty is a penalty that the IRS charges taxpayers who fail to pay their taxes for the year by their due date — typically April 15 of the following year.

The failure-to-pay penalty is equal to 0.5% of the unpaid tax amount per month or part of the month the taxes are unpaid, up to a maximum 25% penalty.

Note that if a taxpayer is liable for both the failure-to-file penalty and the failure-to-pay penalty for a given month, the IRS reduces the failure-to-file penalty for that month by the amount of the failure-to-pay penalty.

Part 5: Information on Penalty Removal or Reduction

IRS Notice LT40 Removal or Reduction of Penalties

IRS Notice LT40 Removal of Penalties Due to Erroneous Written Advice From the IRS

 

The IRS does allow for full or partial penalty abatement in certain circumstances — in the next section of the LT40 Notice, they provide some basic information about this process.

Part 6: Interest

IRS Notice LT40 Interest Charges

The IRS then breaks down the interest they have charged you by quarter.

Part 7: Additional Information

IRS Notice LT40 Additional Information

The next section of the LT40 Notice includes some additional information for you, such as:

Part 8: Taxpayer Rights and Sources For Assistance

IRS Notice LT40 Taxpayer Rights and Sources For Assistance

In this section, the IRS provides you with some information about the Taxpayer Bill of Rights, IRS Publication 1, Low-Income Taxpayer Clinics (LITC), and the Taxpayer Advocate Service.

Why the IRS Sends Notice LT40

The IRS sends Notice LT40 because it intends to contact third parties about your tax debt, and the tax code requires it to provide you with written notice before it does so.

The Notice LT40 you received serves as your written notice.

What You Should Do If You Receive an LT40 Notice

Below are the steps you should take after you receive an LT40 Notice.

For more information about each of these steps, check out our article How to Fight the IRS and Win.

Step 1: Check the LT40 Notice for accuracy.

Don’t assume that the IRS did their math correctly — review the IRS’s numbers against your own.

Step 2: Correct any errors with the IRS.

If you do find an error in the IRS’s math, take it up with them.

There should be a phone number in the LT40 Notice itself that you can call to discuss your disagreement with the IRS’s numbers.

You can always reach out to us at at 866-8000-TAX to go to bat against the IRS for you.

Step 3: Seek Penalty Abatement.

For most of our clients with penalties on their account, we at least seek some sort of penalty relief for them.

Sometimes the IRS grants it; sometimes they don’t.

But it’s generally at least worth a shot.

For more information about seeking abatement for the penalties on your account, check out this article.

Step 4: Pay the Balance Due OR Seek Tax Relief

Finally, you have to figure out what to do with the amount you owe the IRS after you’ve cleared up any disagreements with them concerning the amount as well as obtained any possible penalty relief for your account.

You can, of course, pay off your balance in full.  This will (obviously) stop future penalties and interest from accruing.

However, a better option — if you qualify for it — is an offer in compromise.  An offer in compromise is an agreement you make with the IRS in which the IRS agrees to accept a lower amount to satisfy your tax debt than you actually owe.

That said, not all taxpayers qualify for an offer in compromise, so there are other options, such as a temporary hardship placement called currently not collectible status as well as installment agreements for taxpayers who wish to pay their balance over time.

For an overview of how tax relief works, read our article What Is Tax Relief and How Does It Work?.