Can I Negotiate Myself?
The short answer is yes, you can negotiate with the IRS. You can work with the IRS directly and successfully to complete a tax settlement, but taking advantage of a free consultation from a qualified professional before you start is a good way to get a favorable settlement that you can live with. Deciding on going alone, or working with an IRS certified and approved Enrolled Agent or a qualified Tax Negotiator can be a difficult choice to make. But working with someone who has experience can make a huge difference in the outcome of the negotiation and the amount of your settlement.
How much will the IRS Settle for?
Maybe less than you think! The IRS assigns agents to collect back taxes from taxpayers. Their goal is to increase tax revenues and collect as much as possible. They will take advantage of every tool and opportunity they have available to meet their goals. Often this means the taxpayer doesn’t get the best deal they could get. The goal of an IRS Tax Negotiator is to get a negotiated settlement that minimizes your back tax debt as much as possible and create a payment plan that allows you to successfully pay off the remaining debt.
Can I Get a Negotiated Settlement?
The goal of your negotiation is to end up with an agreement that you can live with and financially complete to pay off your tax debt. Sometimes the reality of the situation means that you may have to take some uncomfortable steps like liquidating assets — selling possessions, cashing in retirement savings, etc. The agreement you want is known as an Offer in Compromise (OIC). It is simply an agreement between you and the IRS to settle your tax debt for less than you owe. This program is sometimes referred to as a “Fresh Start“. The payment options can be in the form of a lump sum payment offer of the amount you owe, or a payment plan where you agree to pay a certain amount every month. The IRS has guidelines for what it will accept and how many months of payments they will allow. Remember that YOU make this offer and the IRS will choose to reject it or agree to it.
After completing the Offer in Compromise Form 656 you should be able to determine what you can reasonably offer to the IRS. This is the area where an experienced tax professional can make a major difference. The application fee that the IRS charges to evaluate your offer is $150. Making mistakes and having your offer rejected can be costly. The $150 does not count toward your tax liability. It is just the application fee.
Negotiate with the IRS. How Do I Prepare?
When you’re ready to negotiate with the IRS the first thing you need to do is be sure that your required tax returns are filed. Make any estimated payments due to the IRS, and make any tax deposits due if you are a business owner with employees. Next, get started by looking over Form 656 and gathering the documents you will need to answer all the questions. They want documentation of bank accounts, investments, credit card balances and available credit, how much you owe and your income.
I Can’t Pay. Now What?
If you’ve gone through all the steps and completed Form 656 but it seems like you still cannot pay what the IRS considers a reasonable amount, you may still have some options. The IRS may request that you find other ways to pay off the debt. Those include taking out a loan, second mortgage, liquidating investments or cashing in your retirement savings. The IRS will usually consider any reasonable offer of settlement. They want you to clear up your debt and will work with you to get you back on track with a “Fresh Start”. You may also be eligible for assistance from the Taxpayer Advocate Service for help if you have tried unsuccessfully to reach an agreement with the IRS and your tax problems are causing financial difficulties. They are there to help you.