The IRS Notice LT41 means that the Internal Revenue Service (IRS) may contact others for information. This means that the IRS may contact third parties to obtain and/or verify information regarding your tax account. This type of notice falls under the “Late Return” category.

 

 

REASONS WHY TAXPAYERS RECEIVE THIS NOTICE LT41

There are some reasons why taxpayers receive the IRS Notice LT41. They include:

  • You have an unfiled tax return for a specific year.
  • The IRS attempted to contact you regarding the unfiled return, but the return remains unfiled.
  • The IRS sent Notice LT41 to notify you that it may be necessary to contact third parties to obtain and/or verify information regarding your account. If the IRS makes these contacts, you will be sent a list of all contacts the IRS is required to report.

For the IRS to send you this notice, it means they have been telling you to file your tax returns for a specific year and you have failed to do so. The IRS will find other people who may have useful information concerning your tax return and they will end up filing your tax return for you. This process is known as “Substitute for Return”. Note that this isn’t always a good thing.

SUBSTITUTE FOR RETURN (SFR)

According to the Internal Revenue Service (IRS), if you fail to file your tax return, the IRS may file a substitute return for you. This return might not give you credit for deductions and exemptions you may be entitled to receive. If you don’t file a tax return that you were supposed to, the IRS can file a return for you, called a substitute for return (SFR).

The IRS will prepare the tax return based on information it has collected from third parties such as your employers, banks, and other sources. A Substitute for Return (SFR) has a filing status of single or married filing separately. This means you won’t get any exemptions, credits or deductions in your favor. It’s usually best to file your own return even if the IRS has already filed an SFR for you. You can still file your return to replace the SFR, to take advantage of a better filing status and any exemptions or credits you may be entitled to. The IRS typically reviews these replacement returns more carefully than returns that are filed by the due date. It isn’t pleasant for the IRS to file your tax returns. The downside to it is that you will owe the maximum possible taxes and penalties.

You will need to lower your taxes and penalties by filing a correct return, with all your deductions and credits, to replace the return filed by the IRS. The IRS can take 2-3 years to file a tax return for you, so you have time to act if you haven’t filed a return. Here’s what will happen:

  • The IRS will send a series of notices (starting about seven to eight months after the return was due) asking you to file.
  • If you don’t file, the IRS will then put you into a “tax delinquency investigation.”
  • If you still don’t file or explain why you don’t need to file during the investigation, the IRS can start filing a return for you (the SFR) – and start collecting on your tax bill.

The IRS may automate this process or send a local IRS revenue officer to get more information from you to file an SFR. Either way, the best move is to immediately file a tax return. If the IRS has already filed an SFR for you, you can reduce your tax bill by filing an accurate return to replace the SFR.

Note – After the IRS files an SFR, the IRS will scrutinize any tax return you file to replace the SFR they initially filed. It’s best to arrange your IRS Forms W-2 and 1099 from the IRS (these are called wage and income transcripts) and use them to make sure you properly report everything on your return. You should also make sure you’re prepared to back up any items on your return, since the IRS is more likely to audit your new return. A wage and income transcript shows data from information returns the IRS receives, such as Forms W-2, 1099, 1098 and Form 5498. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.

You can request your wage and income transcripts from the IRS. This transcript shows all your income information that your employers, banks, financial institutions, and other payers report to the IRS. Examples of income information reported to the IRS include:

  • Wages on IRS Form W-2
  • Non-employee compensation on Form 1099-MISC
  • Interest on Form 1099-INT
  • Retirement distributions on Form 1099-R
  • Sale of stocks on Form 1099-B

Thankfully, even after the IRS has filed a substitute return and assessed taxes, you can contest the amount through the audit reconsideration process. This process essentially involves filing the original delinquent return that triggered the SFR procedure. If your attempt to contest doesn’t succeed, you’ll need to pay the amount due and file a claim for a refund. If the IRS denies your claim, you can still file an appeal. Other viable options include filing an Offer in Compromise or Doubt as to Liability to mitigate or even eliminate your tax liability.

IRS policies state that the enforcement period for delinquent returns and filing requirements is not to be more than six years. However, the extent to which delinquency procedures will be enforced will depend upon the facts and circumstances of each case, and by reference to factors ensuring evenhanded administration of staffing and other IRS resources. 

NOTICE DEADLINE – There is no deadline specified in this notice. However, if you do not file a tax return for the tax year shown on the notice, the IRS will file one on your behalf. The return will be filed as single or married filing separately with no exemptions other than yourself. The IRS will not any include credits or deductions to which you may be entitled.