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What’s a “soft letter” from the IRS?

You get a notice in the mail from the IRS. Your heart sinks to your stomach. Is this an audit?

The odds are high that you’ve actually received a “soft letter” instead. While you can heave an immediate sigh of relief, your troubles really aren’t over just because this isn’t a notice of an audit — yet.

Soft letters are tax enforcement tools the IRS uses

Essentially, a soft letter is a compliance tool the IRS uses to encourage filers to abide by the tax codes. At a minimum, they may seek to educate you about your tax responsibilities under a specific part of the law.

Informally, those soft letters are a notice that the IRS is watching you. You’re being given a chance to come clean about an issue or correct a mistake before an audit starts. If that happens to shake up a few people and net the IRS a little money through “voluntary compliance”, it saves the agency a lot of trouble.

Soft letters may also request documents related to one or more tax periods. That’s when things get a lot trickier. Since you aren’t officially being audited, your rights and protections from the agency’s overreach are not in place.

Soft letters are prompted by all kinds of things

The IRS increasingly has sophisticated financial tools and information available that helps identify possible areas where taxpayers are skirting the rules. Many of those tools are kept tightly under wraps — so you may have no idea where their information is coming from.

The only safe move in this situation is to seek experienced legal assistance with your tax issues. While you may not be facing an audit today, one could easily be in your future.