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IRS Sending More "Soft Notices"

The IRS is sending taxpayers more "soft notices," and is trying to decide whether or not to continue the increase in use of the notices. It is not unusual for Orange County tax lawyers to get questions about how to react to these "soft notices."

"Soft notices" are written notices from the IRS, on Form CP 2057, that requires no action on a taxpayer's part but encourage the taxpayer to check their return for mistakes. The notices aim to improve voluntary compliance. The notices ask taxpayers to review their returns, and if they underreported their income, to file an amended return.

A soft notice provides information for the taxpayer to check against their tax return to see if the return was correct. The notice then tells the taxpayer what they should do if they find a problem, but the taxpayer is not required to pay more taxes, provide documentation, or file an amended return.

The IRS is involved in a multi-year initiative to address under-reporting discrepancies.

An automated notification system is triggered by differences in information provided by taxpayers and related information provided by their employers and financial institutions.

If determined to be successful, the soft notices initiative, which is currently a pilot project, could be made a permanent part of combating under-reporting.

The Treasury Inspector General for Tax Administration (TIGTA) recommended that the IRS establish criteria for determining what will constitute success for the initiative and ensure all costs are quantified for determining the net benefit of implementing the soft notice process in the Automated Under-Reporter program. The IRS has agreed to this recommendation.

Source; WebCPA "IRS Could Prod Taxpayers with More 'Soft Notices'" 9/20/2010

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