If you’ve received IRS Notice LT40, the IRS is warning you that it may contact third parties—like your bank, employer, customers, or even neighbors—to gather information or take collection action against you. In practical terms, LT40 is often a sign that the IRS is gearing up for levy action in the coming months.

Below, we break down what IRS Notice LT40 means, why you received it, and what steps you should take right now to protect yourself.

IRS Notice LT40 At a Glance

IRS Notice LT40 Explained, Part by Part

Part 1: “We May Contact Others for Information”

At the top of IRS Notice LT40, the IRS states in bold that it may contact others for information about you.

This means the IRS is putting you on notice that it may reach out to third parties—including your employer, bank, vendors, or other people connected to you—to:

• Verify information you’ve given the IRS
• Obtain new information about your income, assets, or lifestyle
• Prepare for collection actions such as levies or seizures

You’ll also see a phone number at the top of the notice you can call to review your account.

Part 2: Next Steps (Third-Party Contacts and Your Rights)

In the “Next steps” section, the IRS explains several key points in small print:

• The IRS generally deals directly with you or your authorized representative (power of attorney).
• Even so, it may contact third parties to obtain or verify information or to take collection action against you.
• In your case, the IRS intends to contact third parties and may have to share limited information such as your name and the fact you owe a tax debt.
• The law prohibits the IRS from disclosing more than is necessary to these third parties.
• The notice lists the period of time during which the IRS expects to contact third parties. This period usually begins 46 days after the date on the LT40, because Internal Revenue Code § 7602(c) requires the IRS to give you at least 45 days of advance written notice before contacting third parties about your tax debt.
• You have the right to request a list of third parties the IRS actually contacted about your case.
• The IRS is authorized to take your property or rights to property and file a Notice of Federal Tax Lien if the debt is not addressed.
• To avoid enforcement action, you must either pay in full or contact the IRS to arrange an alternative (such as an installment agreement or other resolution).

Part 3: Your Billing Summary

In the Billing Summary section, IRS Notice LT40 provides a year-by-year breakdown of the balance the IRS believes you owe.

For each tax period, you’ll typically see:

• Tax period ending – The last day of the year or quarter for which you owe.
• Form number – The tax form tied to the balance (Form 1040, 1120, 941, etc.).
• Amount you owed – The original tax liability when filed or assessed.
• Interest – Accrued interest added to your tax.
• Failure-to-pay penalty – Penalty for not paying on time (other penalties may also appear in their own columns).
• Total – The sum of tax, penalties, and interest for that period.

Use this section to compare the IRS’s figures against your own records and returns.

Part 4: Penalties

Next, IRS Notice LT40 explains the penalties being charged on your account. Common penalties include:

• Failure-to-pay penalty
  • Typically 0.5% of the unpaid tax per month or part of a month the tax remains unpaid
  • Can increase to 1% during certain enforced collection periods
  • Capped at 25% of the unpaid tax

If you were also late filing your return, the IRS may have assessed a failure-to-file penalty, which is generally much more severe than the failure-to-pay penalty. When both apply in the same month, the IRS reduces the failure-to-file penalty by the failure-to-pay rate for that month.

Part 5: Information on Penalty Removal or Reduction

The LT40 notice includes a section on removal or reduction of penalties.

In certain situations, you may qualify for penalty abatement, such as:

• First-time penalty abatement
• Reasonable cause (serious illness, natural disaster, etc.)
• Reliance on written IRS advice that turned out to be incorrect

For written-advice penalty relief, the IRS generally looks for all of the following:

1. You wrote to the IRS requesting written advice on a specific tax issue.
2. You provided complete and accurate information.
3. The IRS provided written advice.
4. You reasonably relied on that advice and were penalized as a result.

If any of this applies, you may be able to get some or all of your penalties removed.

Part 6: Interest

The Interest section breaks down how much interest the IRS has charged over time, often by quarter.

Interest:

• Is required by law on unpaid tax balances
• Is compounded daily
• Continues to accrue until the underlying balance is paid or resolved

If you’re a business with large unpaid balances, the effective interest cost can be substantial—another reason not to ignore IRS Notice LT40.

Part 7: Additional Information

In the Additional Information section, IRS Notice LT40 typically includes:

• A link to the IRS’s webpage about LT40 or third-party contacts
• Information on where to get forms, instructions, and publications
• Contact information (phone numbers and mailing addresses)
• A reminder to keep the notice for your records

Part 8: Taxpayer Rights and Sources for Assistance

Near the end, IRS Notice LT40 highlights your rights and support options, including:

• The Taxpayer Bill of Rights
• IRS Publication 1, which explains your rights and the IRS’s obligations
• Low-Income Taxpayer Clinics (LITCs), which may offer free or low-cost representation
• The Taxpayer Advocate Service, an independent organization within the IRS that helps taxpayers experiencing financial hardship or systemic issues

These resources can be especially valuable if you’re facing aggressive collection activity or are struggling to get clear answers from the IRS.

Why the IRS Sends IRS Notice LT40

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

In other words, LT40 is the IRS’s way of saying:

“We’re moving forward on collection. We may contact people and organizations connected to you, and we’re giving you the required warning before we do.”

Because levy notices to your employer or bank are third-party contacts, LT40 is often a warning sign that levy action is coming soon—especially if you’ve already received earlier notices like CP501, CP503, CP504, or LT11.

What You Should Do If You Receive IRS Notice LT40

For most taxpayers, doing nothing after an LT40 is the worst option. Here’s a structured way to respond.

Step 1: Check the LT40 Notice for Accuracy

Compare the IRS’s numbers to your own:

• Are the tax years correct?
• Does the tax owed match your filed return (or an assessment you recognize)?
• Are there missing payments you know you made?
• Do the penalties and interest seem consistent with your filing and payment history?

The IRS makes mistakes. Don’t assume their math is right.

Step 2: Correct Any Errors With the IRS

If you find errors on IRS Notice LT40:

• Call the phone number listed on the notice to discuss your disagreement.
• Be ready with:
  • Copies of your tax returns
  • Proof of payments (cancelled checks, bank statements, IRS account transcripts)
  • Any prior notices you’ve received

Be prepared for more than one call—these issues are rarely resolved in a single conversation. If you’d rather not deal with the IRS directly, a qualified tax professional (CPA, EA, or tax attorney) can handle this for you.

Step 3: Seek Penalty Abatement

If penalties make up a significant portion of your balance, ask whether you qualify for penalty abatement:

• First-time abatement
• Reasonable cause (medical issues, disaster, bad professional advice, etc.)
• Written IRS advice that turned out to be wrong

Even a partial reduction in penalties can make your overall resolution much more manageable.

Step 4: Pay the Balance Due or Seek Tax Relief

Once you’ve confirmed the balance and requested any penalty relief, you still have to deal with the remaining debt.

Common options include:

• Paying in full – Stops future penalties and interest; best if you have the cash or can borrow at a lower rate.
• Installment agreement – Monthly payment plan with the IRS based on what you can afford.
• Offer in compromise (OIC) – A settlement where the IRS agrees to accept less than you owe, if you qualify based on assets, income, and expenses.
• Currently not collectible (CNC) status – Temporary hardship status where the IRS pauses active collection because you can’t pay right now. Interest still accrues, but levies and garnishments stop while you’re in CNC.

If you’ve reached the LT40 stage, the IRS is clearly moving toward enforcement—so it’s important to choose a strategy and act quickly rather than waiting for the next letter.

Why You Need a CPA Firm – Not Just a “Tax Relief” Company – for IRS Notice LT40

By the time you receive IRS Notice LT40, the IRS is warning you that it may contact third parties—your bank, your employer, even vendors or customers—to gather information or move toward levy action. At this stage, you don’t just need someone to “argue with the IRS.” You need a firm that understands tax law, accounting, and your overall financial picture.

That’s what a licensed CPA firm like Corridor Consulting is built to do.

How Corridor Consulting CPAs Help With IRS Notice LT40

At Corridor Consulting, we don’t treat LT40 as just “another scary letter.” We:

• Reconcile the numbers – We compare your LT40 balance to IRS transcripts, prior returns, and your own records to confirm whether the IRS is right before you agree to anything.
• Look behind the notice – We review your books, entity structure, and prior filings to see what actually caused the tax problem in the first place.
• Map out all your options – We walk through realistic paths like installment agreements, offers in compromise, currently-not-collectible status, and penalty relief—matched to your income, assets, and long-term goals.
• Fix the root problems – Because we’re a CAS/CPA firm, we can help clean up bookkeeping, adjust estimated tax planning, and correct structural issues so you’re less likely to trigger future notices.
• Coordinate across your whole financial life – Many of our clients have pass-through entities, rentals, S corporations, or multiple income streams. We look at the whole picture, not just a single IRS notice.

You’re not just “fighting the IRS.” You’re rebuilding a safer, cleaner tax and accounting foundation around your life and business.

Why Many Tax Relief Firms Aren’t Enough

There are skilled tax attorneys and EAs out there—but a lot of heavily advertised “tax relief” outfits simply aren’t designed to give you the depth of help LT40 really calls for:

• They’re often sales-driven call centers, where the person who sold you the engagement is not the person who handles your case.
• Much of the work is pushed to junior staff or outsourced “case managers” who don’t know your business, your books, or your long-term goals.
• They typically do not fix your bookkeeping, payroll, or entity structure—which means the same problems that caused IRS Notice LT40 can easily come back.
• Their messaging leans hard on “pennies on the dollar” promises, even though only a small portion of taxpayers financially qualify for that kind of result.

In other words, you might get forms filed, but no one is taking professional responsibility for making sure your tax, accounting, and business decisions actually work together.

Why Corridor Consulting Is Different

As a licensed CPA firm, Corridor Consulting is:

• Regulated and accountable to state and professional ethics standards.
• Required to complete ongoing continuing education in tax, accounting, and practice standards.
• Experienced in both tax resolution and year-round accounting support, so we don’t just “put out the fire”—we help fireproof the building.

When LT40 shows up, it’s a signal that the IRS is preparing to involve third parties and potentially move toward levy. That’s the moment to have a CPA firm with real tax resolution experience in your corner—not just a marketing-driven “tax relief” brand.

Take the First Step With Corridor Consulting CPAs

If you’ve received IRS Notice LT40, the worst thing you can do is ignore it and hope it goes away. The second worst thing is to rush into a one-size-fits-all solution that doesn’t fit your actual situation.

At Corridor Consulting, we keep your first step simple and low-pressure:

1. Complete a short Discovery Chat Questionnaire
   • You share key details about your notice, your situation, and your concerns.
   • This helps us see whether you’re likely facing a simple issue or a more complex, multi-year problem.
2. Schedule a complimentary Discovery Chat
   • In this initial conversation, we’ll:
     • Clarify what your LT40 notice really means in your specific case
     • Talk through your immediate risks (levy, lien, third-party contacts)
     • Outline the realistic resolution paths that might apply to you
   • This is about education and clarity, not a hard sell.
3. Decide whether to move forward with a full Case Evaluation
   • If we both agree there’s a good fit, we’ll quote a separate, paid Case Evaluation before any transcript or in-depth work begins.
   • As part of that evaluation, we:
     • Pull and analyze your IRS transcripts
     • Confirm the accuracy of the balances the IRS is showing
     • Identify any errors, missed filings, or penalty relief opportunities
     • Design a resolution strategy and outline next steps

You’ll know where you stand, what your options are, and what it will take to move forward—before committing to a full engagement.

Additional IRS Resources for IRS Notice LT40

For more background on your rights and the IRS collection process, you may find these resources helpful:

• IRS – Taxpayer Bill of Rights
• IRS Publication 1 – Your Rights as a Taxpayer
• IRS – Third Party Contacts (Internal Revenue Manual and guidance pages)
• Taxpayer Advocate Service – Get Help