What are Soft Letters from the IRS?

IRS letterIf you receive a letter from the IRS, there is a decent chance it is a “soft  letter.” What exactly is that supposed to mean and what should you do about it?


A soft letter is a type of form letter sent by the Internal Revenue Service (IRS) that broaches a topic to encourage compliance. Such a letter could be a warning that scrutiny of your offshore tax or other investments is underway. It could also be a letter that offers education around some kind of offshore tax or business opportunity in which you are involved.


Essentially, the letters at their most benign can be considered a statement of “we know who you are and what you are doing.” Sometimes, the knowledge that you have caught the attention of the IRS is all that is needed to strengthen compliance and deter tax fraud.


In other instances, a soft letter can request production of documents and statements concerning one or more tax periods. The Taxpayer Advocate Service (TAS) is a watchdog agency within the IRS that works with taxpayers who are having difficulty in their dealings with the IRS. The agency offers support to:

  • Individuals who are incurring excessive cost and economic downturn as they try to work through a tax controversy with the IRS
  • Those who are experiencing repeated delays from the IRS or have not received a response by a date proposed by the IRS
  • More than 30 days has lapsed since you tried to initiate resolution of a tax problem with the IRS.


In commenting on soft letters sent to taxpayers concerning use of cryptocurrency, the agency notes:

Over the years, the IRS has issued taxpayers “soft letters” for a variety of issues and purposes, including informing, educating, and encouraging voluntary compliance. However, the IRS has recently begun using some soft letters as a means to bypass the rights and protections of the examination procedures.”


TAS goes on to note that soft letters come in a variety of forms and levels of sophistication geared to the audience. That said, the group also notes that some letters can cross over into requesting information that is more appropriately requested during an IRS investigation or civil tax audit.


While the true intent behind a soft letter can be murky, the action needed is clear. Do not respond to a soft letter without talking to a tax attorney or other tax professional. Measured response is appropriate if your tax practices or wealth strategies are being considered—or questioned—by the IRS.


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