What is an IRS Soft Letter: How to Respond to the Warning

What is a Soft Letter ‘Warning’ from the IRS for Foreign Assets

What is a Soft Letter ‘Warning’ from the IRS for Foreign Assets?

An IRS soft letter is essentially a warning letter from the Internal Revenue Service that informs a taxpayer of issues with their previously filed U.S. tax returns that need to be resolved; otherwise, the IRS may issue fines and penalties for the missed or incorrect filings. An IRS soft letter is different from a penalty letter in which the Internal Revenue Service has already issued or assessed a penalty against the taxpayer — and it is also distinct from an audit or examination letter in which the IRS wants the taxpayer to provide the IRS with additional information, documents, etc. With a soft letter, the IRS is simply telling the taxpayer that they have information about the taxpayers’ previously filed returns that are inaccurate, and the taxpayers should resolve the issue. Let’s look at a few common issues that lead to soft letters.

FBAR (IRS Letter 3800)

The FBAR is used to report foreign bank and financial accounts to the United States government. While the form has been around for more than 50 years, with the introduction of FATCA (Form 8938) back in 2012 came a renewed interest in FBAR reporting. Since the Supreme Court case ruling in Bittner (2023), the IRS has become more limited in its power to assess penalties for taxpayers with non-willful civil tax violations. Nevertheless, the IRS has still been assessing penalties against taxpayers. Instead of being penalized outright, some IRS Agents will issue a warning letter instead, which is referred to as an IRS letter of 3800. As provided by the Internal Revenue manual (2025 update):

• • • “When there is an FBAR violation, the examiner will either issue the FBAR warning letter, Letter 3800, Warning for Report of Foreign Bank and Financial Accounts (FBAR) Apparent Violations, or determine a penalty.”

Form 8938/FATCA (IRS Letter 6291/6185)

Starting in 2012 (on the 2011 tax return), the IRS began requiring taxpayers to report their foreign accounts and assets directly to the IRS on Form 8938 (the FBAR is not technically an IRS form, even though the IRS is tasked with enforcement). Of all the different international information reporting forms, the Form 8938 is one form in which the IRS is a bit more lax in issuing penalties than other forms, such as Form 5471 or 3520. As a result, many taxpayers who have not previously filed the Form 8938 timely or accurately may receive a soft letter in place of a penalty.  In general, a Letter 6291/6185 provides the following notice:

• • • “Our records for the tax years above show you did not properly report the foreign financial accounts on form 8938 statement of specified foreign financial assets you held with [Bank Name].”

Cryptocurrency (IRS Letter 6174)

In addition to foreign account and asset reporting issues, another area of tax law in which the IRS has been sending soft letters is to report cryptocurrency transactions. Oftentimes, these cryptocurrency transactions are in a foreign country, and the taxpayer may not have been aware that they were required to report foreign crypto, or the crypto may be tax exempt in the foreign country, and so the taxpayer was not aware that they’re required to report it on their U.S. tax return. In general, a Letter 6174 will provide the following notice:

• • • “Why we’re writing to you: We have information that you have or had one or more accounts containing virtual currency but may not know the requirements for reporting transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies.”

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.