April 2021 Foodman website and JD Supra

An IRS “soft letter” is an IRS “tickler”.  IRS will send a “soft letter” to provide an opportunity for the Taxpayer to address an issue that could avoid the need for further IRS contact or examination.  If a Taxpayer does not respond, or the explanation is inadequate, the IRS could initiate an examination.  The soft letter is usually sent by the IRS by regular mail to the Taxpayer’s last known address. 

IRS Soft Letters:

  • Are usually sent to a Taxpayer to “informally” inquire about a tax position that the Taxpayer has taken.
  • Are considered a pre-audit tool.
  • Do not indicate the beginning of an IRS examination.
  • Do not request books and records.
  • Will request specific additional information about certain tax positions.
  • Although Taxpayers are not required to respond to Soft Letters, failure to respond could trigger an IRS examination.
  • Are meant to encourage voluntary self-correction. 
  • Can be used for a variety of issues and purposes (informing, educating, encouraging voluntary compliance or for the enforcement of an IRS compliance campaign).
  • According to the Taxpayer Advocate, the IRS states that soft letters come in many varieties and are tailored to the sophistication of the audience and issue(s) involved and that each letter will  specify options for Taxpayer action.  
  • IRS states that soft letters are a service to a non-compliant Taxpayer; providing an opportunity to comply to avoid an examination through compliance.

Taxpayers receiving IRS soft letters ought to contact an experienced tax professional.

If a Taxpayer does not respond to an IRS soft letter, or if the explanation provided by the Taxpayer is not acceptable to the IRS, the IRS may initiate an examination.  A Taxpayer may be under the “impression” of being compliant and nonetheless receive a soft letter.  Consequently, a Taxpayer require representation to review his or her records and/or provide a response to the IRS. 

It is best to contact a tax professional immediately upon receipt of a soft letter. 

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