How to Negotiate with the IRS
It can be alarmingly easy for both individuals and businesses to get behind in their taxes and suddenly find themselves in deep trouble with the IRS, the kind of trouble that can start a downward spiral from which it can be difficult to recover. If tax payers don’t pay what the IRS says they owe or negotiate a settlement with them, the IRS can place liens on their property, garnish their wages and seize their assets prior to auctioning them off at a fraction of their worth. The IRS can also issue bank levies that require banks to submit money up to the tax amount owed from the debtor’s account to the IRS within 21 days. It is little wonder that a run-in with the IRS can be frightening to the point of immobilization. But there is help, and it is possible to settle with the IRS. Everyone should know this vital information on how to negotiate with the IRS.
1. Get Organized
The first thing to do when finding oneself a target of the IRS is to face the problem head-on. Read through your IRS notices and organize them in a file. Putting IRS notices in a drawer is a sure road to disaster, because this is a problem that will not go away.
2. Get Professional Legal Help
If you cannot pay what the IRS demands or if it is a great deal of money, you should not hesitate to get professional legal help and learn your options. There are many options for settling with the IRS, but the IRS does not make it easy. Procedures must be followed to the letter, and even an incomplete form can mean the difference between settling and getting on with your life and having your assets seized.
Unfortunately, there are a lot of scams that take advantage of people when they are in bad financial situations, so be cautious. Consult with a reputable tax attorney. You should be able to meet directly with the attorney, either in person or over the phone.
Remember, make sure you speak directly to a tax attorney before you hire one. The less reputable firms employ salespeople to get you to sign up, and will not actually let you speak to an attorney until after you’ve paid thousands of dollars, or never at all. Make sure it’s the tax attorney telling you what you they can and can not do for you, not some commission salesperson.
3. Act now
The longer you wait, the more you may owe the IRS in penalties. It is best for IRS tax settlements to be pursued as soon as possible.
4. Request an Abatement
It is often possible to get penalties and interest reduced when negotiating with the IRS, particularly if you can show reasons that you do not think the money was owed or that you were the victim of some catastrophic family event, unexpected unemployment or illness. Penalties may amount to 15 to 20 percent of the balance the IRS says you owe, so getting those removed is a substantial savings. You can file Form 843 to make this request, but bear in mind if don’t think you owe the taxes at all, or not as much as the IRS claims, then abatement alone is not for you. Even if you do think you owe the taxes, you may be able to negotiate a better deal than reducing only penalties and interest as explained below.
5. Bargain for Time
If you are not too far over your head, think you owe the tax, have not yet racked up substantial penalties and can pay in full relatively quickly, you may just need a short extension. You can go online to complete an application for this kind of extension or you can call the IRS at 1-800-829-1040.
6. Installment Agreements Enable Payment Over Time
An IRS Installment Agreement is a very common type of IRS settlement that enables you to make several payments over time, often over five years. The terms granted by the IRS depend on specific circumstances, amount owed, assets, liabilities and income. You can go online to complete Form 9465 to request this kind of settlement. If you owe more than $50,000 in tax, interest and penalties, a Collection of Information Statement Form 433 is also required:
Personal: Form 433-F
Self-Employed: Form 433A
Corporations, LLCs and partnerships: Form 433B
7. Partial Payment Installment Agreements Permit Payment of Less than the Total
A Partial Payment Installment Agreement (PPIC) is just an Installment Agreement where the IRS has agreed to accept less than the full amount owed. The IRS will not agree to a PPIC unless it is clear the monthly payments you can make will not cover your total taxes due over a course of many years. Those who have a substantial tax debt would be very wise to consult a seasoned tax attorney who is knowledgeable about calculating what might be accepted by the IRS given individual circumstances. This is just a starting point for negotiating the best possible deal.
The debt must be at least $10,000 for the debtor to be eligible, and they must complete a Collection of Information Statement. Approval may be conditional upon liquidation of valuable assets in order to pay some of the back taxes due.
8. Offers in Compromise Can Substantially Reduce Payments
An Offer in Compromise is when you make the IRS an offer of an amount you will pay them, typically a fraction of what you owe. Payment is in a lump sum or over a short term. You will need to convince the IRS that this is the best way for them to get money from you, and that it is highly unlikely you will be able to pay more without considerable expense to the IRS. You would benefit from hiring a good tax attorney to make an Offer of Compromise, more so than any other type of settlement. There are a lot of hurdles and requirements to overcome with this option; in fact the IRS only accepts 15% of Offers of Compromise. Other concerns are that penalties and interest continue to accrue while the IRS is considering your offer, and the offer itself must be submitted with 20% payment of the debt. That will not be refunded no matter how the IRS rules.
There are three requirements, and these are more finely detailed in our article Offer in Compromise, Michigan Tax Settlements. These requirements are:
Doubt as to Liability
Effective Tax Administration (extreme financial hardship to pay the entire amount)
9. Currently Not Collectible Status Can put Collections on Hold
If you are completely unable to pay the IRS at the present time, you may be able to obtain currently not collectible status. In order to stop liens and property seizures, you can apply for a collection appeal, which will give you the chance to present your proposed resolution in lieu of losing your property.
10. Pay Attention to the Expiration of the Statue of Limitations.
Many people do not realize that the IRS does have a time limit for collections, albeit a long one. The IRS must collect all monies owed within 10 years from the date of assessment. A tax attorney can advise you about strategies of putting off the IRS until the time limit has passed.
11. Bankruptcy May – or May Not – Provide Relief
Some taxes are absolved in bankruptcy, but some are not, and, of course, there are repercussions to fling bankruptcy that can follow you for years. Consult a tax lawyer about how bankruptcy would affect your individual tax situation.
One Best Piece of Advice for Negotiating IRS Tax Settlements
This article has endeavored to give tax payers some idea of both their rights and their options, but negotiating successful IRS Tax Settlements, particularly favorable Offers in Compromise, is quite complicated. The settlement a tax payer makes will have a huge impact on their lives and the lives of their family for many years. It makes sense to consult an expert tax attorney here in the Detroit, Michigan, area, one who is specializes in tax problems, just as you would to go a neurosurgeon rather than a GP for brain surgery.