Striking the right deal with the IRS can pay off.
Negotiating a deal with the IRS can offer the tax debt help you need for making a payment – but you’ll need to have a strong argument and the information to support you claims.
When should I negotiate with the IRS?
Determining when it’s time to negotiate with the IRS over your debts generally comes down to your income and net worth versus the amount of money you owe in taxes.
More specifically, is your debt so large that you can’t effectively pay what the IRS demands while maintaining your living expenses? If so, it’s time to review your options.
What are my options?
You have a few, though the IRS is stringent in their requirements for eligibility.
Apply for a payment agreement
Under certain qualifying conditions, you could apply for an individual payment agreement. This agreement allows you to pay off your tax debt over time, with long-term and short-term payment plans available.
Generally, you may qualify for a long-term payment plan if you owe $50,000 or less in combined tax, penalties and interest, and you’ve filed all of your required tax returns. Short-term plans, on the other hand, require you owe less than $100,000 in associated taxes, though you must pay these plans off in full in 120 days or less.
You may also have to pay for setting up these agreements – with fees ranging from $0 to $225.
Submit an offer in compromise
If you can’t pay your full tax liability and the IRS thinks you can’t pay the full amount, you might be eligible for a debt reduction under an offer in compromise (OIC). Eligibility depends on your financial situation, including your ability to pay, income, expenses and asset equity.
To apply for an OIC, you must be current with all of your filing and payment requirements and pay the $186 application fee. You can access a pre-qualifier tool and the necessary application forms on the IRS website.
MUST READ: The number of OIC applications the IRS approves is quite low. In fact, less than 50% of OIC applications receive approval. Here are some quick tips for improving your odds of a successful approval:
- File all of your back returns. The IRS will only consider an OIC application if you’ve filed all of your taxes.
- Continue to pay any new tax debt. Though it’s tempting to put off paying all of your debt until you get a decision, the IRS will want to see you’re serious about paying off your debt.
- Have a compelling reason. The IRS won’t be swayed by the argument that you need more time. Concrete reasons you might need the OIC, such as disability, dependent care, or serious health issues are taken more seriously by the IRS.
Request currently not collectible (CNC) status
If you can demonstrate financial hardship to the IRS — meaning you can’t pay your tax debt after paying your living expenses — you might be able to apply for “currently not collectible” status. CNC status temporarily halts collection efforts from the IRS. To apply, file all prior tax returns, then fill out Form 433.
Request an extension
You might be eligible for a time extension if you would experience undue hardship by paying off the debt on time. To apply, file Form 1127 and offer a detailed explanation. If approved, you can gain an additional six months to pay off your taxes owed or up to 18 months to pay off a tax deficiency.
What are the pros and cons of negotiating with the IRS on my own?
- Save money. Negotiating with the IRS on your own saves you from paying tax professionals.
- Avoid scams. Some tax professionals take advantage by charging high fees with little results.
- Find a better deal. You know your financial situation better than anyone and can apply for the tax debt relief solution that works best for you.
- Inexperience. Navigating the paperwork and requirements can quickly become overwhelming.
- You’re responsible for finances. Getting your finances together and presenting them with a convincing argument takes time and energy.
- You might choose the wrong plan. Accidentally choosing a plan that the IRS won’t approve can set back your relief efforts.
Don’t want to go at it alone?
While facing the IRS head-on can save you money, not everyone has the time and means to tackle their own tax debt problems. If you’d like help building your case, a tax-relief company could be a viable solution, as well as exploring other debt relief options.
Frequently asked questions