Will the IRS Negotiate on Back Taxes?

The Internal Revenue Service (IRS) building in Washington, D.C., on April 15, 2019. Zach Gibson/Getty Images

You’ve probably seen those TV ads with companies claiming they can settle your tax debt for pennies on the dollar. The ad shows happy people saying they owed thousands of dollars but only had to pay hundreds.

These companies claim to have great negotiating skills. But will the Internal Revenue Service (IRS) really come down thousands of dollars on owed taxes? Will the agency come down at all? And what about your negotiating skills? Do you even need a company to negotiate with the IRS? If you have a tax debt, knowing your options for repayment is imperative.

Delinquent Taxpayers Have Three Options

You can take one of three avenues with the IRS if you owe back taxes. They are:

• installment agreement
• temporarily delay in collection
• Offer in Compromise

The installment plan is usually the route most taxpayers take. This works for those who think they can pay their taxes in full within an extended timeframe. You set up a payment plan that lasts three to six years. Unfortunately, interest and some penalty charges will continue to be added to the amount owed until the balance is paid in full. You will also be responsible for a setup fee.

When you have an installment plan, you cannot violate the terms of your arrangement. If you do, the IRS can attach and seize property you own.

A temporarily delay in collection is determined when you can’t pay any of your tax debt. The IRS may report the account is currently not collectible. Collection will be delayed temporarily until your financial condition improves. A temporarily delay in collection doesn’t mean the debt goes away. And the debt will increase because of interest and penalties until the debt is paid in full. The IRS will continually review your ability to pay.

Finally, a delinquent taxpayer can request an Offer in Compromise. This is when you negotiate the amount owed in taxes with the IRS.

Eligibility for Offer in Compromise

You must meet four qualifiers to be considered for an Offer in Compromise. You must have:

• filed all returns you are legally required to;
• received a bill for at least one tax debt included in your offer;
• made all required estimated tax payments for the current year; and
• if you are a business owner with employees, you made all required federal tax deposits for the current quarter and the two preceding quarters.

You also are not eligible for an Offer in Compromise if you are in an open bankruptcy proceeding. Resolution to your outstanding tax debts must occur within the context of your bankruptcy proceeding.

Three Reasons for Offer in Compromise

To obtain an Offer in Compromise, you‘ll have to convince the IRS that your offer is the most you’ll be able to pay. In other words, you’re not in a position for the IRS to collect any more from you.

It’s possible to be eligible for an Offer in Compromise if there is doubt about your tax liability. To do this, you'll need to understand the tax code.

The third way to obtain an Offer in Compromise is if forcing you to pay would be unfair. You may have the assets to pay, but there are extenuating circumstances. For example, if you are of advanced age or have a serious illness.

Preparation in Asking for an Offer in Compromise

The two main ways to prepare for the IRS when asking for an Offer in Compromise are to use common sense and not lie. When they ask for information, give it to them. But you only need to volunteer additional information if it helps your position. Give them only what they ask for.

Know what you’re going to ask for and have a plan of action before applying; be well organized. The clock is ticking, you have a limited time to supply them with information, or the IRS could reject your offer.

Always ask for more than you expect to receive and settle for what you want. But make sure you don’t commit too early in the process; you want to remain open and flexible. And most importantly, don’t give up.

The IRS has an Offer in Compromise Pre-Qualifier website. If you are an individual, it’s a tool to get you started. Or you can call 1-800-829-1040 to speak to an IRS representative.

You have the right to appeal an offer rejection. But you don’t have the right to appeal the return of an offer. Also, when you submit an offer, you must continue to file and pay all required tax returns. Failure to do this during the consideration will result in the IRS returning your offer.

Paying for Your Offer

There is a $205 application fee unless you meet the Low-Income Certification guidelines.

One form of payment is the lump-sum cash. This option requires 20 percent of the full offer to be paid upfront. The remaining balance must be paid in five or fewer payments within five months of acceptance.

The periodic payment requires the first payment when you make the offer. The remaining balance is paid monthly within six to 24 months in accordance with your offer terms. If you fail to make these payments while the offer is under consideration, the IRS may return the offer. You cannot repeal this decision.

Professional Tax Representatives Help

You may be tempted to call that 1-800 number you see on TV but resist. The IRS won’t settle your debt for pennies on the dollar. These “tax debt resolution firms” are usually scams.

But hiring a legitimate professional tax representative can help. They know how to weave their way through the tax jargon, and they can ensure you’re submitting the proper documentation on time.

They may help you swiftly find a resolution, saving you those interest and penalty fees.

The Epoch Times Copyright © 2023 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.