Income Tax Negotiation: How & When to Negotiate IRS Taxes

When Taxes Can Be Negotiated For Less & When They Can't

tax settlement

There are different types of IRS tax relief for people who owe back taxes. Income tax negotiation, or tax debt settlement, is sometimes used to satisfy a tax debt for less than the total amount owed. The formal name for this type of tax relief is an Offer in Compromise.

Just because you owe back taxes does not mean you will be able to negotiate or settle the debt. Each person's financial situation will be analyzed to determine eligibility for a tax settlement under an Offer in Compromise program, including assets, income, and living expenses. Working with a professional will increase your potential for getting approved for an IRS settlement than applying on your own. There is less than a 25% acceptance rate for tax settlements.

When you apply for an IRS tax settlement, you need to submit 20% of the proposed amount along with your Offer in Compromise application.  This amount is non-refundable, so you'll want to be sure you have a very good chance of being approved for the settlement or you'll be out that money, anyway.

When You Have a Good Chance of a Tax Settlement

If your financial situation is so poor that paying your owed taxes would make it impossible for you to recover, the IRS will consider a tax settlement. For example, a self employed business owner who falls behind on tax payments would be forced to sell the business and their assets to pay the taxes.  The result of this situation is an unemployed individual which in turn costs other taxpayers more money to support him or her than if the IRS simply allowed the individual to settle their taxes for less than the amount owed and continue working in their business.

Types of Tax Negotiation and Settlements

The two main ways the IRS allows individuals to satisfy their tax debt for less than the total balance are the Offer in Compromise or Partial Payment Installment Agreement. The Offer in Compromise is the settlement offer and allows you to relieve your tax liability for much less than you owe. A partial payment installment agreement is a payment plan with smaller payments than the regular installment plan offered by the IRS and typically the statute of limitations on the tax debt is reached before the full amount is collected – meaning the rest of the balance is no longer owed.

Additionally, the IRS will allow most people to reduce the amount of taxes owed with a penalty abatement. This is offered to people who can show a justifiable reason for not filing or paying their taxes on time.

When You Do Not have a Good Chance of a Tax Settlement

If you file an Offer in Compromise requesting a settlement and the IRS doesn't believe settling will benefit taxpayers, you're going to be denied and you'll lose the 20% you submitted in order to apply. You have other alternatives besides a settlement if you don't have the money to pay in full, including an IRS Installment Agreement or paying with a credit card.

The installment agreement lets you create an affordable payment plan to pay the total balance over time instead of in a lump sum.  Keep in mind that interest and tax penalties continue to accrue until the balance is paid in full. The penalties incurred are far less than if no agreement was entered into. Also, entering into an installment agreement and keeping up on payments will keep you in good standing with the IRS and they will not take collection actions against you.

Paying your taxes with a credit card will result in interest owed to the credit card company (unless it's a 0% interest credit card); but it will almost always be less than the interest and penalties charged by the IRS.

Tax Negotiation Help and Guidance


Offer in Compromise
If you have heard the term settling for pennies on the dollar, this is how it is done. Don't expect this to be easy though, the IRS is very picky about who will qualify.

Partial Payment Installment Agreement
This settlement will allow you to pay back IRS taxes in monthly amounts that are less than the total amount owed, that is if you don't qualify for the regular installment agreement

IRS Tax Settlement
Understand the various methods that can be used to resolve IRS taxes. Methods to settle for less or to pay taxes back in manageable payments

Penalty Abatement
Remove all of or part of your penalties owed by the IRS by proving to them you had a legitimate reason for not filing or paying your taxes on time.

IRS Payment Plans
When you are unable to pay your taxes in full the IRS offers several options for taxpayers to pay back their tax liabilities.

Tax Settlement Help
Do you need help settling taxes? Tax pros (Tax Attorneys, Tax Lawyers, CPA's, IRS Agents) can find the best tax settlement method for your situation. Find out how our tax settlement service works.