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Meadows, Collier, Reed, Cousins, Crouch & Ungerman, L.L.P.

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Dallas, TX 75202

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IRS Issuing "Soft Letters" to Taxpayers Suspected of Under-Reporting their Offshore Activities

By Anthony P. Daddino on November 16, 2017

IRS officials are making it known that the IRS is losing patience with taxpayers who have not come forward to fully report their offshore activities. Not only is the IRS doubling down on its efforts to audit taxpayers who withdrew or were denied entry into the IRS’ Offshore Voluntary Disclosure Program, the IRS recently announced a program whereby they will be sending not-so-subtle “soft” letters to taxpayers encouraging them to disclose (or else).

The IRS announced the use of these “soft letters” during a November 15th webinar, in which John Cardone, director of withholding and international individual compliance in the IRS’ Large Business and International Division, participated. The soft letters will vary, with some letters urging taxpayers to file amended returns or explain why the IRS’ suspicions are unfounded. Other letters will simply encourage taxpayers to apply for the IRS streamlined filing procedures. These procedures, which are less formal and less penal in nature compared to the IRS Offshore Voluntary Disclosure Program, are available to taxpayers who are willing to attest, under oath, that their failure to fully report and disclose their offshore activities was not willful. The IRS did not address whether receipt of a “soft letter” would prevent the taxpayer from participating in the OVDP, although it is likely that the IRS received the taxpayer’s information through a source that otherwise render the taxpayer ineligible for the OVDP, such as disclosure by a foreign bank, whistleblower, or other taxpayer that has made disclosure to the IRS.

For more information about the IRS’ use of these soft letters and how to advise your clients who received such letter, or for information on the IRS’ disclosure programs for offshore activities including the OVDP, streamlined filing procedures, or delinquency filing procedures, contact Anthony Daddino at (214) 749-2464 or adaddino@meadowscollier.com.