A tax negotiation allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

  • Ability to pay
  • Income
  • Expenses
  • Asset equity

We generally approve a tax negotiation when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting a tax negotiation. The tax negotiation program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications.

Are you wondering if it’s possible to negotiate tax debt with the IRS? The short answer is that yes, the IRS will allow you to settle your tax debt via a payment plan or debt relief. You often don’t even have to sit face-to-face with an IRS agent. The entire process can usually be taken care of in a few easy steps if you bring in a tax professional to help.

Let’s look at how to negotiate IRS tax debt using available relief options.

 

Can You Negotiate Tax Debt?

The IRS will sometimes let you pay much less than you actually owe in taxes using an option called Offer in Compromise (OIC). To qualify, you must convince the IRS that you’re unable to afford what you owe. You can make this reduced payment using
short-term installments or one lump sum.

An OIC won’t be on the table for everyone, but if you are denied one, you still have other options. The IRS may assign you a Currently Non Collectible (CNC) status if you can prove financial hardship. This option essentially negotiates your debt down to nothing temporarily. The actual length of your CNC status will depend on what the IRS assesses when it reviews your case in the future. It’s possible to ride out CNC status until your debt expires.

A negotiation by default sometimes occurs if your debt reaches its expiration date. Many people don’t realize that tax debt has a statute of limitations. This period usually lasts for 10 years following your date of assessment. You will be free from your debt and any accompanying penalties if the IRS hasn’t intervened already. Of course, it’s important to get the help of a tax professional if you believe your debt is about to expire because the moves you make today could impact what happens next.

You may also negotiate an Installment Agreement (IA) with the IRS. If approved for this option, you will pay a manageable chunk every month until your debt is paid off. A payment plan is actually the most common solution when determining how to negotiate tax debt with IRS agents.

Another alternative is Innocent Spouse relief. You can apply for this if you’re facing penalties due to a tax return filed on your behalf by a current or former spouse. Innocent Spouse status can apply in cases where errors were fraudulent or accidental.

 

How Does Tax Negotiation Work?

The IRS will review your application for the form of debt negotiation you select. Keep in mind that each option has its own list of requirements. This is why it’s highly recommended that you seek the help of professional tax experts before reaching out to
the IRS. Hastily applying for a program could cause your request to be rejected due to errors. What’s more, the program you apply to may not be a good fit. You also risk providing the IRS with details that contradict your claim that you’re unable to pay your tax debt in full.

You will mostly be free of serious penalties like interest fees and liens once you are approved for a relief program. It’s also possible to negotiate to have an order for a wage garnishment revoked.

 

How to Negotiate Tax Debt With the IRS

Negotiating tax debt with the IRS typically means submitting the right application forms and all accompanying documentation. However, you may need to handle your case on an in-person basis if you’d like to appeal an IRS judgment.

The first step to negotiating your tax debt is getting a tax expert working on your behalf. Your tax advocate will look over your situation, let you know which option is best, and get your application in as quickly as possible.

 

Can I Negotiate My Tax Debt With the IRS?

Every taxpayer is eligible to negotiate tax debt, but not every option is available to every taxpayer. Things like your income level, debt amount, and circumstances will determine which options are appropriate for you.

The one thing that everyone has in common is that they cannot qualify for tax debt negotiations unless they are current with all tax returns. If you have unfiled returns, make sure to get them taken care of before attempting negotiations with the IRS.

 

MAKE SURE YOU ARE ELIGIBLE:

The IRS will return any newly filed tax negotiation application if you have not filed all required tax returns and have not made any required estimated payments. Any application fee included with the tax negotiation will also be returned. Any initial payment required with the returned application will be applied to reduce your balance due. This policy does not apply to current year tax returns if there is a valid extension on file.

You are not eligible if you are in an open bankruptcy proceeding. Use the tac negotiation Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.

 

SUBMIT YOUR APPLICATION:

Find forms for submitting an application and step-by-step instructions in Form 656-B, tax negotiation Booklet . Your completed offer package will include:

  • Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
  • Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
  • $205 application fee (non-refundable); and
  • Initial payment (non-refundable) for each Form 656.

SELECT A PAYMENT:

Your initial payment will vary based on your offer and the payment option you choose: 

Lump Sum Cash: Submit an initial payment of 20 percent of the total offer amount with your application. If your offer is accepted, you will receive written confirmation. Any remaining balance due on the offer is paid in five or fewer payments.

Periodic Payment: Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.

If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer. See your application package for details.

 

UNDERSTAND THE PROCESS WHILE YOUR OFFER IS BEING EVALUATED:

  • Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
  • A Notice of Federal Tax Lien may be filed;
  • Other collection activities are suspended;
  • The legal assessment and collection period is extended;
  • Make all required payments associated with your offer;
  • You are not required to make payments on an existing installment agreement; and
  • Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.

IF YOUR OFFER IS ACCEPTED:

  • You must meet all the Offer Terms listed in Section 7 of Form 656, including filing all required tax returns and making all payments;
  • Any refunds due within the calendar year in which your offer is accepted will be applied to your tax debt;
  • Federal tax liens are not released until your offer terms are satisfied; and\
  • Certain offer information is available for public review by requesting a copy of a public inspection file.

IF YOUR OFFER IS REJECTED:

  • You may appeal a rejection within 30 days using Request for Appeal of tax negotiation, Form 13711.
  • The IRS Independent Office of Appeals provides additional assistance on appealing your rejected offer