IRS Campaign Soft Letters
What should you do if you receive an IRS Campaign soft letter? Talk to an experienced tax defense attorney to help you determine whether to respond and to discuss other strategies. During Dan’s prior government experience, he served as legal counsel for several Large Business & International Division (LB&I) Campaigns. Dan can help you decide how to handle an IRS Campaign soft letter.
What is a Campaign soft letter? The IRS sends taxpayers soft letters when it suspects but has no firm proof of tax reporting noncompliance. Soft letters may be used to “educate” taxpayers or they may demand that you submit information under penalties of perjury. Various current and past IRS campaigns have explicitly referred to soft letters as “treatment streams.” Most soft letters originate from the IRS’ Austin Campus and request a written response to Austin. LB&I personnel at the Austin Campus screen and review responses to soft letters.
The IRS National Taxpayer Advocate describes soft letters and the IRS’ abuse of soft letters this way:
The IRS’s use of “soft letters” to educate, inform, and encourage voluntary compliance is a useful IRS compliance and enforcement tool. However, the IRS’s soft letters have been including language aimed at compliant taxpayers that requires them to produce documents and a detailed supporting statement signed under penalties of perjury. The soft letters, which may cover more than one tax period, request information not included on a return and possibly cover years outside the statute of limitations for assessment. The information requested is akin to an IRS examination but without providing the taxpayer rights and protections afforded by an examination. One example of such a soft letter request is for a taxpayer who had reportable virtual currency transactions (Letter 6173). It is the National Taxpayer Advocate’s position that these intrusive requests violate taxpayers’ rights and should not appear in any soft letters or communications outside the examination process.
National Taxpayer Advocate, Fiscal Year 2021 Objectives Report to Congress, pg. 79 (bold added).