Strategies for Negotiating Tax Debt Options When You Owe the IRS

Denver tax lawyer Steven Anderson often hears from people with tax debt who think they can call up the Internal Revenue Service (IRS) and offer 40 cents on the dollar and be done with it—usually because they’ve heard a misleading ad on the radio. “There are a lot of quasi-professionals claiming to get you out for pennies on the dollar,” says Anderson, of Anderson & Jahde. “Oftentimes, they’ll take $5,000 to $10,000, and nothing happens. We’ve had countless clients over the years who have suffered that fate.”

Kelly Politte, an attorney specializing in tax controversies at Politte Law Offices, agrees. “If it sounds too good to be true, it is,” she says.

Anderson urges the same caution to taxpayers who think they can negotiate with an IRS collections agent on their own. “The IRS is not going to help you,” he says. “If they’ve got a debt to collect, they’re not going to tell you as a taxpayer that owes them money what options or solutions might be available to you, so don’t be naive about that. They have strict financial guidelines. The only way you’re going to negotiate down tax debt is if you fall within those strict guidelines.”

Reach out to an experienced lawyer for advice on tax relief options and IRS negotiations.

Taking a DIY Approach to Resolving IRS Tax Debt

Politte helps people understand their options—including those strict IRS guidelines for negotiating a tax debt—and when it makes sense to sense to go it alone. “A good attorney will turn away clients if they see the client can handle something themselves or if it’s not cost-effective to hire an attorney,” she says. “I’ve done that plenty of times, said, ‘This is as easy as doing ABC. Go do that, and then call me if that doesn’t work.’”

A smaller debt, up to $20,000, is usually not worth the cost of hiring a lawyer. In those cases, Politte recommends paying what you owe or requesting a payment plan. With a standard installment agreement, you divide your debt by 72 and pay equal monthly installments for six years.

It’s a phone call to the IRS that’s manageable for taxpayers to make themselves—as is a call to request first-time penalty abatement relief from a late payment or filing penalty, no questions asked, if it’s your first offense. Still, Politte advises taking notes, getting the employee’s name and ID number, and being wary about what information you give. “It’s illegal to mislead or lie to the IRS, but people should realize you’re talking to a collections person, a repo man, and take care to not be giving additional avenues for collection the IRS wasn’t planning on pursuing,” she says.

Payment Plans and Compromises

If you can’t afford to pay the debt, you can seek an installment agreement to set the payment at an amount you can afford (for up to 10 years, at which point any remaining debt expires and does not have to be paid) or settle the debt for less than what you owe through the IRS offer in compromise (OIC) program.

Those are the options misleading mailers refer to without explaining that most people won’t qualify, Politte says, since the IRS requires you to be near poverty levels to do so. For an OIC, you can’t have more equity in your assets than what you owe in tax debt. So the first thing Politte asks anyone who calls about their tax debt is: Do you own a home, and what’s the balance on the mortgage? “I recommend anyone who doesn’t have much equity in their assets or a lot of cash in their bank accounts to consider calling a tax attorney to see if they qualify for an offer in compromise,” she says.

When To Get a Professional Help

If you do submit an OIC or partial payment plan, it’s wise to do so with a lawyer who has experience challenging denials in court. “Attorneys would know what expenses are allowable and what are not,” Politte says. “You’ll never find two people working in the IRS on offers in compromise who are consistent with each other. I’ve had some fight me over whether my clients even have children. Others fight you over the equity in your house. Others will say your rent is not a necessary expense. Some will say it is. If you don’t know the law, it’s very easy for taxpayers to get bulldozed by the IRS.”

Currently Not Collectible Status

If a taxpayer does not qualify for those options, another temporary solution could be to have the account placed in currently not collectible status. “It means the IRS leaves you alone for a period,” says Anderson. “They may review that every year or two, but at least you’re not on an installment payment program.”

When you are on an installment agreement with the IRS, you can’t pay late or miss a payment. “Oftentimes, I will tell clients that if they can shift creditors, if they can borrow money from another creditor to pay off the IRS, you’re much better off because the IRS is a very powerful creditor, and you’d rather get out of that situation,” Anderson says. “An installment agreement with the IRS requires you to stay in full compliance.”

The most important step is to make sure you agree with the amount the IRS claims you owe, Anderson says. Taxpayers have powerful tools available to them in the Collection Due Process hearing and the Collection Appeals Program. Taxpayers receive a certified letter notifying them of the right to file these appeals. If they do so within 30 days, it stops the collection actions while the process is pending.

“If you get a certified letter from the IRS, don’t do like some of our clients have done in the past and not pick it up,” Anderson adds. “They’re afraid they can’t deal with it, so they don’t pick it up. Pretty soon, their bank account or their wages get levied, and all their cash is gone, and they could have stopped it.”

Get Legal Help for Your Tax Problems

For legal advice regarding tax debt relief options, reach out to a qualified tax law attorney in your area.