Negotiating Tax Liabilities with the Internal Revenue Service (IRS)
Have you ever been indebted to the Internal Revenue Service? The good news is that you can negotiate outstanding tax liability with the IRS. Keep reading to learn more!
Can You Negotiate With the IRS?
The Internal Revenue Service (IRS) has become more willing to work out solutions to late tax payments in recent years. But, it is often necessary to be proactive and address the problem rather than ignoring the IRS or waiting for the problem to go away.
Although dealing with the IRS generally involves submitting legal documents to authority in order to prove one’s position, certain elements can be negotiated. That is especially the case when the law is not clear on a certain subject or if the documentation doesn’t exist. You can also negotiate back taxes and settle on a reasonable way to pay them off.
How Does the IRS Handle Late Payments?
If you owe the IRS, know they won’t immediately pursue you. In fact, months may pass until the IRS begins collection efforts. It will start with letters asking you to pay your taxes.
If you ignore them, at some point, the IRS can contact your employer and garnish your wages, or in other words, require your employer to withhold money from your paycheck and send it to the IRS for your tax debt.
The IRS can also seize your property for sale to cover your unpaid taxes. In short, negotiating with the IRS can be a far better option.
HOW TO NEGOTIATE BACK TAXES WITH IRS
In 2011, the IRS started its Fresh Start Program, which allows you to negotiate your tax liabilities or debts in the following ways:
- You can propose an installment agreement plan.
- You can opt for tax relief with an Offer in Compromise (OIC).
- You can ask the IRS to postpone collection until your financial situation improves.
To be eligible for an installment agreement plan, you have to be up-to-date with all your tax filings. If you fail to file or to pay, you won’t qualify for a payment program. If you have a tax debt, you may negotiate with the IRS to pay the taxes you owe within an extended time frame.
When you request a payment plan or an installment agreement, the IRS is typically forbidden from levying and their time to collect is prolonged while an Installment Agreement (IA) is pending.
REDUCE YOUR TAX BILL WITH AN OFFER IN COMPROMISE
This option is best for people who cannot offset their entire tax liability. Therefore it is a good option if paying your debt would cause you financial hardship or if you are from a low-income family.
To determine your eligibility, the Internal Revenue Service will consider the following factors:
- Your ability to pay
- Your anticipated future income
- Your expenses
- Your asset equity
THE TAX DEBT NEGOTIATION PROCESS
To negotiate your IRS tax debt under the Offer in Compromise, you need to be sure you qualify. The IRS has a pre-qualifier that can help you determine if you qualify ahead of time to make things easy. If you do not qualify, the IRS will refund your application fee.
Once you are sure you qualify, you need to determine a minimum offer amount. This amount is the bare minimum that the IRS will accept. The IRS defines this amount using the financial declarations you made in Form 433. To improve your chances, consider consulting with an IRS Tax Attorney.
The most important part of negotiating your entire tax liability is to start filing early. When you file early, you will be able to avoid the fines that come with the late payment of taxes.
Your application must be convincing. First, the IRS needs to know how soon you intend to pay the required estimated tax payments.
Also, your payment plan should follow IRS guidelines and should not take too long. An ideal installment payment plan falls within six months or two years.
Notes on Negotiation Process
It’s not so easy to negotiate with the IRS and settle a tax debt for a lot less than you owe. It can occur only in cases where a taxpayer clearly doesn’t have the income or assets to pay off the tax debt in a reasonable time. If you have the money or will likely have it in the future, no amount of negotiating will convince the IRS to settle for less than you owe.
If you want to negotiate your tax debt, the IRS will look at your assets and income to determine your “reasonable collection potential.” That means you have to provide detailed information about your financial situation on IRS Form 433-A or Form 433-B, including verifiable information about your cash, assets, income, and debt, as well as anticipated future income.
Your financial condition directly affects whether the IRS will accept your suggested payment option. Nevertheless, you should be prepared and control information given to the IRS. On the other hand, you shouldn’t give up quickly or give any information to the IRS that won’t help your case unless specifically asked.
You might also need the help of a tax professional. Perhaps an Oklahoma Tax Attorney could help you navigate the negotiation process.
FREQUENTLY ASKED QUESTIONS
DOES THE IRS OFFER TAX RELIEF?
Under the Offer in Compromise program, you might qualify for tax relief. That means you pay less than you owe the IRS in unpaid taxes.
CAN YOU NEGOTIATE WITH THE IRS ON BACK TAXES?
Yes, the IRS accepts negotiations for a taxpayer’s tax liabilities. However, the debts will not disappear; instead, you get a more manageable payment plan for your IRS debts.
HOW DO I NEGOTIATE BACK TAX PAYMENTS WITH THE IRS
It involves a long process that starts with obtaining a form and paying the required application fee. You will find step-by-step instructions on the IRS website.
You might have to seek professional help from a tax attorney.
WILL THE IRS SETTLE FOR A LESSER AMOUNT?
Yes, the IRS can reduce your tax debt under the OIC program but only if you meet the requirements.
WHAT PERCENTAGE WILL THE IRS SETTLE FOR?
The taxpayer must offer 20% of his total tax debt as an initial payment to the IRS.
DOES THE IRS FORGIVE BACK TAXES?
The IRS can forgive back taxes, but it happens on rare occasions.
HOW MUCH SHOULD I OFFER IN COMPROMISE TO THE IRS?
Your offer should equal the IRS reasonable collection potential calculated for you or more.