How to Negotiate with the IRS to Reduce Amount Owed

How to Negotiate with the IRS to Reduce Amount Owed

Dealing with the IRS can be intimidating. If you owe back taxes, the thought of negotiating with them directly might seem daunting. But there are actually several ways you can work with the IRS to reduce the amount you owe. With some preparation and knowledge of the options, you can negotiate an affordable repayment plan or settlement.

Understand the IRS Fresh Start Program

In 2011, the IRS introduced the Fresh Start program to help taxpayers who owe back taxes. This program expanded installment agreements, offer in compromise options, and lien withdrawals. The goal is to make it easier for financially struggling taxpayers to pay back what they owe over time. Key parts of the Fresh Start program include:

• Relaxed rules for setting up installment agreements to spread out payments over 6 years
• Expanded eligibility for offer in compromise settlements that allow taxpayers to settle for less than the full amount
• Improved access to lien withdrawals after beginning payments

Knowing about the Fresh Start program can help you take advantage of the options available. The IRS wants to work with taxpayers, so you just have to reach out and open the negotiation.

Request an Installment Agreement

One of the most common ways to resolve IRS debt is through an installment agreement. This allows you to pay the full amount you owe over time through monthly payments. The IRS looks favorably on installment plans and expanded access to them through Fresh Start.

Some tips for requesting an installment agreement:

• Aim to pay off the debt within 6 years or less
• Propose a monthly payment amount equal to or higher than IRS guidelines based on your income and expenses
• Stick closely to the agreed payment schedule to avoid violations

Setting up an IRS payment plan takes some of the stress out of owing back taxes. You make regular monthly payments instead of a huge lump sum. Just be sure to not miss payments once the installment agreement is in place.

Submit an Offer in Compromise

If you can’t afford to pay your full tax debt through an installment plan, an offer in compromise allows you to settle for less. To qualify, you’ll have to demonstrate that you don’t have enough income, assets, or ability to pay to cover the full amount.

The process involves:

• Completing detailed financial disclosure forms about your income, expenses, assets, and liabilities
• Proposing a lump sum settlement amount based on what you can afford
• Waiting for the IRS to evaluate if your offer fits the requirements

This option requires proving your inability to pay the full debt. But it can finally resolve your tax issues at a reduced amount if you qualify and the IRS agrees.

Request Currently Not Collectible Status

If you truly can’t afford monthly payments right now, you can request that the IRS temporarily delay collection. To qualify, you must demonstrate that paying your tax debt would prevent you from meeting necessary living expenses.

This won’t make the debt go away. But it will stop IRS collection efforts and related penalties and interest charges until your financial situation improves. After a year or so delay, the IRS will re-evaluate your ability to pay.

File for Bankruptcy

Filing for bankruptcy won’t make your tax debt disappear. But it can help in certain situations, such as removing penalties or discharging income tax debt that is over 3 years old.

Chapter 7 bankruptcy can eliminate some tax penalties and discharge older tax debt. Chapter 13 bankruptcy allows you to repay debts through a court-approved payment plan over 3 to 5 years.

Bankruptcy won’t wipe your IRS debt completely clean. But it can provide some tax relief and let you negotiate other payment options for any remaining balance.

Request Penalty Abatement

If penalties and interest are making your tax debt unmanageable, you may be able to request penalty abatement. This involves asking the IRS to remove certain penalties that were added to your balance.

To qualify, you must demonstrate reasonable cause for why you couldn’t pay on time. For example, serious illness or other unforeseen circumstances. The IRS may agree to remove penalties as part of a negotiation.

Negotiate a Settlement for Less

If you owe a substantial amount to the IRS, you may be able to negotiate a settlement for a reduced amount. This involves working with the IRS directly or through a tax professional to come to a compromise.

The IRS wants to collect what is owed. But they also want to avoid drawn-out court battles. By providing financial documentation and showing inability to pay, you may convince them to settle for a percentage of the balance.

Get Professional Help

Dealing with the IRS on your own can be confusing and frustrating. Getting help from a tax professional or attorney experienced in negotiating IRS debt can make the process smoother.

Look for an expert who is:

• Established – Choose someone with a long track record and proven experience negotiating settlements.
• Affordable – Avoid firms advertising “pennies on the dollar” promises that often have hidden fees.
• Responsive – Look for responsiveness and clear communication every step of the way.

The right professional help can take the stress out of resolving IRS debt and get you the best possible settlement.

Steps to Take

Here are some steps to take in negotiating IRS debt relief:

1. Gather details on your current tax debt balance, including penalties and interest.
2. Calculate your current income, assets, expenses, and ability to pay.
3. Research payment plans and settlement options like Fresh Start installment agreements or offer in compromise.
4. Organize financial records to support your financial condition claims.
5. Contact and open negotiations with the IRS directly or with professional assistance.
6. Submit detailed documentation on your inability to fully pay balance.
7. Negotiate the lowest acceptable repayment or settlement terms.
8. Formalize the agreement in writing before making payments.
9. Adhere closely to repayment terms and never miss payments.

By following these steps, you can take control of your tax debt situation. The IRS can be reasonable to work with when you are proactive and cooperative. Evaluate all your options and negotiate the best possible solution.

With some preparation and persistence, you can settle your IRS debt for an amount you can actually afford. Knowing your rights and responsibilities is key. And don’t be afraid to get help from a tax relief pro if needed.