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IRS Soft Letters. What You Need to Know...
IRS Soft Letters: What You Need to Know
An IRS campaign soft letter is a communication sent by the Internal Revenue Service (IRS) as part of their efforts to encourage "voluntary" compliance with tax laws. In reality, the IRS is bending the rules and using gray areas in the law, to goad taxpayers into "voluntarily" giving up information, so they can attack transactions, industries, and other areas they don't like. Gestapo much?
These soft letters are typically part of larger compliance "campaigns" targeting specific taxpayer groups, industries, or issues the IRS has identified as areas of concern or risk. These letters are frequently just the IRS "fishing" and trying to get information out of you. Whether or not you should respond depends on the type of letter.
Characteristics of a Soft Letter:
"Generally," soft letters take an informative and non-threatening tone (the reality is that sometimes these letters are extremely threatening). Unlike audit or collection notices, soft letters are written in a less formal and more advisory tone, but that doesn't mean you should ignore them. It also doesn't mean you should respond. The IRS "claims" the intent is to inform taxpayers about potential discrepancies or areas of non-compliance without initiating an enforcement action; they're hoping you will voluntarily do what they insinuate.
Targeted to Specific Issues:
Soft letters often address specific compliance issues, such as reporting of foreign accounts, cryptocurrency transactions, partnership income, or other areas the IRS is scrutinizing (again, industries, groups, or transactions the IRS does not like). However, the IRS will often use this process as a way to expand the scope of their operations.
Request for Voluntary Action:
The letter may request taxpayers to review their records and ensure they are compliant. In some cases, taxpayers are encouraged to amend their returns or provide additional information if necessary. However, be extremely cautious before you respond; in fact, we would advise that you reach out to us first: www.libertytaxdefenders.com.
Avoidance of Penalties:
By responding and correcting errors voluntarily, taxpayers may avoid harsher penalties that could arise from an audit or enforcement action. However, by responding, taxpayers may also provoke the wrath of the IRS and encourage a wider audit of their entire operation.
Educational Purpose:
Soft letters often "aim" to educate taxpayers about their obligations and how to correct potential issues while encouraging taxpayers to "voluntarily" submit information.
Common Examples of IRS Campaigns Involving Soft Letters include:
Cryptocurrency Transactions: Letters to taxpayers who may have failed to report cryptocurrency income (the IRS hates the crypto industry).
Foreign Account Reporting (FBAR): Letters to individuals who may not have reported foreign financial accounts as required (the IRS cannot stand anyone who dare invest money overseas; the nerve).
Pass-Through Entity Income: Letters to ensure accurate reporting of partnership or S corporation income (the IRS despises pass-through entities largely because very few of their employees actually understand how pass-through taxation works; yep, you read that right).
If you've received a "soft" letter from the IRS, please reach out to us immediately and let us advise you of your best course of action. 817-995-5008 or info@libertytaxdefenders.com.
We're here to help!
Cheers!
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