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Hundreds of thousands of current and retired federal employees recently received a new wave of IRS notices prompting urgent resolution of their outstanding tax liabilities, a move that a former Tax Court attorney says comes at an interesting time as the administration looks to continue reducing the size of the government workforce.
LT36 Notices
“According to our records, you are one of approximately 525,000 current or retired federal employees who are noncompliant with respect to their federal tax obligations as of April 30, 2025,” is the first line of a partially redacted IRS Notice LT36 reviewed by Checkpoint, dated June 23.
Speaking with Checkpoint in an interview July 18, Frost Law Director Jessica Marine said her practice saw a small handful of the new notices reach clients the third week of June. Another 20 came in the week after.
The one-page notice does not disclose the amount of tax owed or other details on what type of tax deficiency is at issue. It does tell recipients that government employees should “lead by example” and pay their balances “promptly.” Should the taxpayer not “timely” comply, the notice promises that the IRS “will follow up with you directly.”
A scannable QR code is provided within Notice LT36 that directs to the login and signup page for online IRS accounts. There, taxpayers can view their balance and tax returns filed. The notice instructs taxpayers to pay online or to apply for a payment plan.
Timing
Marine, who was a part of the federal workforce as recently as this April, commented that the timing of the LT36 notices struck her “as a little bit suspect.” This is because the “brand new” notice came out “less than a month” after the Office of Personnel Management (OPM) “released its new guidance fast-tracking employee dismissal.”
Given “what has been happening with this current administration and the federal workforce and the push to downsize, it did concern me that this was going to be a bigger push, a stronger push to enforce … this action against federal employees, up to and including termination.”
She noted it would be “100% legal” for employees who do not comply with the notice to be terminated. As a tax controversy veteran with over a decade of experience in government – especially at the Tax Court – Marine said she was “quite sensitive” to this development and “raised the flag” at her firm.
FERDI
Although the notice itself is new, the program through its release is not. Dubbed the Federal Employee/Retiree Delinquency Initiative, or FERDI, this unit was established about 20 years ago and “is solely dedicated to collecting past due taxes from” every federal employee, Marine said, and “there must be a significant number of people in that category to warrant having a whole unit at the IRS dedicated” to it.
Marine explained that historically, the “most” the IRS “would do is a 15% levy on your payments coming from the federal government.” This includes contractor wages and pension payments. While non-government taxpayers are “entitled to certain notices, certain hearing rights,” and other usual procedures, this does not extend to government workers.
“If you’re a federal employee, they don’t have to do all that,” said Marine. “They have this superpower where they could take 15%, and the law that basically made employees subject to this heightened collection action has been on the books for a while.”
During her time in an executive position in the Tax Court, Marine observed that the “worst case scenario” for a government employee with owed taxes was a levy if they were not already in a payment plan. “I was a part of the tranche that would be enforcing this … you wouldn’t fire anyone over owing taxes. You’d get them into a payment plan.“
Uncertainty
It is unclear when terminations would begin, or to what degree entering into a payment plan would help an employee’s chances in avoiding termination. Normally, if Marine had a federal employee client with a tax liability, a payment plan would be more than sufficient to prevent wage garnishment or other enforcement activities.
“We don’t know at this point if something worse is going to them, so we did make a push,” she said. “We alerted all of our clients who are in this situation, even if they’re in a payment plan.” Marine clarified that some clients who were already in payment plans still received a Notice LT36.
State agencies are meant to have discretion on employee terminations, but the level of OPM’s involvement in pushing for reductions-in-force government-wide this year raises questions over agency authority when it comes to OPM guidance. “Maybe OPM gets to make that decision,” Marine said of potential terminations. “There’s a lot of unknowns around this.”
The notice lists a number to call should a taxpayer have a question or disagreement, but Marine expressed skepticism about “who that’s going to or if anybody’s even going to answer the phone.” She asserted that anyone receiving a Notice LT36 should “really seek legal counsel” as soon as possible.
