Ready for a shocker? Well, I think it’s important that people know that you can negotiate with the IRS. Not only can you negotiate, but if you do it well, you can turn an overwhelming debt into something reasonable. As someone who negotiates with the IRS on a daily basis, I find myself saying the words, “That’s not good enough,” time and time again.
Just because you might receive a letter with a printed amount doesn’t mean that amount is what you’re going to have to pay. If you take the time, energy, and – if the situation calls for it – expertise of hired representation, you’re more than likely to once again have some peace of mind as you whittle down your debt to something feasible. So whether you're dealing with tax audits, working with collections, or making your way through a criminal investigation, you can use proven strategies to dampen the impact of the IRS's influence in your life.
Navigating tax audits
Whenever you’re involved in a tax audit, you’re going to need to do something that’s going to go against everything you want to do – you’re going to have to start with the examiner’s point of view. Is this going to be difficult? Definitely. But in order to properly negotiate, you need to try and see things as the examiner is going to see them. What I’ve found with most examiners is that they tend to see the world as black and white. They’re upholding the law and bringing those who break it to justice. It’s not difficult to understand the sentiment, but life just doesn’t work that way.
So why would they think like that? Obviously, they’re also a part of this complex world; shouldn’t they understand that there are a million different reasons why something might go wrong? The answer might surprise you, but it makes sense: their training never told them otherwise. When they joined the IRS’s (admittedly small) ranks, they were trained in exactly what the IRS wanted them to see. Instead of seeing the taxpayers they’re auditing as people who made a mistake, it’s too easy for them to fall into the IRS’s perception that taxpayers are all trying to beat the system. Compassion is steamrolled as “justice” is brought down.
Unfortunately, the entire IRS staff missed compassion training day. All of this begs the question, how can I have successful negotiations when I’m seen as the bad guy? That’s the million-dollar question with the even more valuable answer.
First, you need to play the hand you’re dealt. You’re up against an incredibly powerful entity in the IRS. So, while you can’t outpower or outspend them, we can definitely play to our advantages. When you come across an examiner, you have to turn the situation so they’re able to see it as a chance to educate a taxpayer instead of punishing them. Instead of going in shouting and demanding that they go easy (which will get shut down really fast), you need to show them that a mistake was made. You didn’t know any better and need help getting back into compliance with the system. Not only that, but what you really need is someone to share the knowledge of what to do so you can avoid making more mistakes in the future.
Second, and possibly the most important negotiation technique, is to do the work. This one is short and sweet, but the impact is huge. If hired representation goes through your documents and finds that maybe you didn’t file for allowable expenses (sometimes even going as far as to lead to a refund), the IRS is going to feel the fire under their seat and have the motivation to negotiate.
Finally, if an examiner ever acts unprofessionally against a client or representation, it should be noted and brought to the attention of the treasury inspection general. Even if they don’t do anything about it, a note has been recorded, and that can absolutely be used in tax court. Hopefully this kind of unpleasantness never comes about, but if it does, use it to your advantage.
Dealing with collections
IRS Collections is changing, and it’s not a good change for taxpayers. Thanks to a radically decreased staff, collections notices are now being predominately sent by mail. Not only that, but due to the lack of staff manning the phones, these notices haven’t necessarily been sent on time. The IRS simply doesn’t have the manpower to answer all taxpayer calls.
Instead, there’s been a heavy reliance on ACS (automated collection services) in the past few years. Not only does it ensure that the IRS can send substantially more notices, but it also makes it incredibly difficult for taxpayers to negotiate. You can’t argue with a computer, after all! Once an IRS employee enters your personal information into the system, it uses a formula to decide what you should be able to pay each month.
Well, it’s often wrong. Just because it says you should be able to pay a certain amount doesn’t mean that you don’t have additional expenses that make meeting those requirements impossible. That’s when it’s necessary to get into conversations with collections staff and hammer out an agreement that is actually within the realm of possibility.
When you’re in collections, the last thing you want is for your debt to get any bigger. If you’re unable to pay the agreed upon payment amounts, that’s going to cause problems. Similarly, if you find that you’re not paying your current year’s taxes because you need to move those funds to pay your installment agreement, you’re looking at more problems down the road. This is why it’s so important that you don’t enter into a plan that you have a high likelihood of defaulting on.
When you decide to negotiate with the IRS for a reasonable installment amount, it’s absolutely imperative that you have all of the allowable expenses you can take. For smaller tax problems, where you might decide not to hire an attorney, you need to do all of the research you can to find everything you can claim as an expense. The IRS doesn’t allow everything, so it’s your job to find out what they’re accepting in your area. Are you going to be able to find all of the allowable expenses that a seasoned tax attorney would? It’s not likely. But, putting in the time and energy can save you from entering into an agreement that sets you up for failure.
Many law schools have tax clinics that help low-income taxpayers sort their tax problems. The law students working in these clinics are often incredible workers (quite a few of my staff solved cases for and helped run some of these clinics) that can help you move forward with your life.
Even if you’re a seasoned negotiator (think real estate, business, etc.), don’t be convinced that the IRS is going to respond well to your usual tactics. Not knowing the ins and outs of the tax code puts you at a disadvantage, and if the IRS thinks you’re all bark but no bite, they’re going to roll right over you. Heavily consider hiring professional tax representation to do what they do best.
Playing it smart with criminal investigations
If there’s anything that you take away, it should be a certainty that messing with the IRS is a bad idea. And I don’t mean in the sense that you’re in noncompliance (which is also a bad idea; after all, that’s how we got into this situation!), but more so in the way that you don’t want to poke the bear. The IRS doesn’t like when people treat them without some semblance of respect, and they sure as shooting don’t like unreasonable progress. One of the best ways to guarantee that you won’t be able to negotiate with the IRS is to frustrate them.
Lesson to be learned: don’t poke the bear! He might look all cute and furry, but get too close and you're bound to lose a limb.
Like I mentioned, you need more than unreasonable progress if you’re planning on having a working relationship with the IRS. If you’re trying to negotiate something that your opposition can see right through, you’re going to have a bad time. Intimidation is exceptionally ineffective when the IRS knows exactly what – and just as important, the possible lack of – options that you have. So, when negotiating with the IRS, it’s absolutely mandatory that you show you have taken proper steps to get back into compliance and are working towards a reasonable conclusion. If you’re stonewalling them and expecting them to cave to all of your demands, then there’s a very strong chance things are about to get really messy.
One thing that I tell my clients is that you can absolutely hide from the IRS… until you can’t. You can avoid the IRS, you can trick them, but eventually they’re going to catch on. Whether it’s while you’re alive (and worrying about every knock on the door), or when you’ve passed away and they decide to go after your spouse, they always come knocking.
But the good news is that every situation can be made better. Sometimes you might have progressed too far to avoid a criminal sentence, but that doesn’t mean that sentence can’t be negotiated. For a recent client, we were able to get his five-year, three-million dollar sentence down to one-and-a-half years and six-hundred thousand. Is it still sizable? It is. Is prison time still undesirable? Once again, yes. But the conclusion was far more favorable than how things stood at the onset.
Every situation can be made better; no matter what it is, it can be changed into something more favorable.
Negotiating criminal activity with the IRS, much like negotiating the audit process, comes down to framing. Showing the IRS that you made a mistake and are looking to reform is absolutely necessary to finding a way out of or substantially reducing a sentence. Negotiation is about telling a story that explains where you went wrong. This particular story uses the facts and figures to build a compelling narrative that pushes the IRS towards a more welcome conclusion.
When all is said and done
Negotiating is about telling the right story. It’s about picking the right information to support your facts and not volunteering information that’s going to hurt your cause. When the IRS asks you a question, you should absolutely answer it honestly. But that doesn’t mean you have to spill out every piece of information you have and watch as the IRS creates their own framework that twists that information against you. This is where a professional attorney can shine. By looking at your situations, the facts, the figures, and how you’ve interacted with the IRS up to this point, a seasoned attorney can help you create a picture that shows the IRS the mistakes you’ve made and what you’re doing to rectify it.
If you find yourself overwhelmed, don’t hesitate to reach out. Help is always available. Negotiating with the IRS is unlike any other negotiations, and it’s important that you get it right, because what happens during these negotiations can dictate what your future looks like. Do all the behind-the-scenes work, frame the story in a way that has you looking for a way to educate yourself, and – whatever you do – don’t poke the bear.