No one likes to owe the IRS.
The balance owed seems to linger over your head, and each year you pray that your next return will yield a refund rather than more owed to the IRS. You work hard to pay off the balance; you even take extra from your paycheck. But the penalties and interest make it next to impossible to pay it all off.
Most people are surprised to find that the IRS is willing to work with them to pay off their debt. Some are more shocked to see that the IRS will negotiate taxes.
The IRS offers tax relief to consumers in high debt. They do this because ultimately, they want their money – and sometimes that means taking a compromise on the balance due.
Before picking a method of negotiation, you need first to ask yourself three critical questions:
- How much do I owe the IRS?
- How does my financial situation in the future look?
- Do I know my options for relief from the IRS?
If you cannot answer all three confidently, it is time to explore your options and make an informed decision. Naturally, consulting with a tax attorney is vital.
A tax attorney evaluates your current balance, future finances, and helps find a solution that works for you so that you can get out from under the IRS.
What Options Do Bergen County Residents Have for Negotiating Back Taxes?
As we have discussed, the IRS wants you to pay the taxes due. Despite the stigma surrounding the IRS, they are easy to work with as long as you pick the right negotiation tactic and follow the rules. Each option you have lists specific deadlines and information you must provide. Therefore, if you follow this, you should come out victorious.
Here are the most common ways to negotiate back taxes with the IRS:
Negotiate Settlement through an Offer in Compromise (OIC)
The OIC is an IRS program that allows taxpayers to settle their taxes due for less than what they owe. Note that the IRS will only usually accept an OIC when they know the taxpayer is unlikely to ever pay back the full amount. If you have the resources to repay your balance in full, the IRS will not approve a reduction.
Here is another catch to the OIC: the IRS already has a minimum collectible amount in their record. This is the amount they know that they could collect from you. When you create an OIC, the negotiated amount must be higher than this minimum.
OICs typically go like this:
- You prove to the IRS you cannot pay the entire balance due in 120 months.
- You offer to the IRS a repayment amount for the maximum that you could afford.
- The IRS confirms the maximum is what they estimate to be the maximum collectible amount from you.
- You pay the agreed sum, and the IRS stops collection efforts. If liens are present, the IRS removes them.
Not all taxpayers qualify for an OIC. It is best to work with a tax attorney to see if you are eligible for this form of negotiation.
Bargaining for More Time via Installment Agreements
If you do not have the money upfront to pay an OIC offer or you do not qualify, an installment agreement is your next option. You must not owe more than $50,000 to the IRS to qualify.
You are bargaining for time with the IRS, but you are not negotiating the balance. You pay the balance in a set monthly amount. You can make extra payments to pay it off quicker, and your minimum payment must ensure the balance is paid in a three year period.
What if I Owe More than $50,000?
If you owe more than $50,000, you might qualify for the hybrid, which is the Partial Payment Installment Agreement. The PPIA is a merger of a traditional installment agreement and an OIC. You pay the IRS as much as you can at a monthly rate for ten years. Once the ten year mark hits, the IRS forgives the remaining balance.
Negotiating against Penalties
While you might not be able to settle the total due, you can negotiate penalties. Using the Penalty Abatement, your attorney may be able to get rid of any penalties. Penalties are not interest. Therefore, the IRS can still charge monthly interest to your taxpayer account.
You cannot ask for a Penalty Abatement annually. Instead, taxpayers qualify for a first-time abatement, while others may qualify for a reasonable cause relief.
Tips When Working the IRS
You now know your options; the next step is to understand how to work with the IRS correctly. It is in your best interest to work with an attorney anytime you need to negotiate with the IRS or you wish to remove fees and negotiate a settlement. While you are dealing with the IRS alone, remember the following:
- Be Honest: Never lie to the IRS or purposely omit information. It is a federal crime that is subject to penalties and possibly jail time. Furthermore, lying ensures the IRS doesn’t work with you in the future.
- Disclose What Is Asked and Nothing More: While you cannot lie or hide things, you also do not need to hand over everything to the IRS. Only disclose what they specifically request and nothing more. Handing over more information might just increase your tax burden.
- Pay Attention to Deadlines: Any documentation you receive from the IRS has a deadline. Do not ignore that deadline. If you need more time, contact the IRS and acknowledge your receipt of the document and that you need an extension. The worst thing you could do is to ignore them outright.
Hire a Tax Attorney
All too often, taxpayers make the mistake of trying to negotiate with the IRS alone. You can save yourself the hassles and reduce the risk of errors by speaking with an attorney.
An attorney knows what options are available, and they can tell you right away which you qualify for.