To most people, the Internal Revenue Service is a mystery. It collects taxes and can make your life miserable. But beyond that, how the IRS operates is relatively unknown. This is one of the reasons why, when an individual or business owes a significant debt to the IRS, sleepless nights ensue.
Yes, dealing with the IRS is stressful. That much may never change. However, there are a few basic things to know to help you navigate the IRS Collections Division when trying to negotiate IRS debt. The three key pieces of advice I can give are: be compliant, be prompt, and be proactive.
Note that I put “be compliant” as the first item on the list. That is because, above all else, the absolute most important thing you can do to help yourself is to be compliant with tax laws. With all my clients, the first thing I do is determine what they need to do to get into compliance, if they aren’t already.
When a taxpayer is not in compliance, they are: 1. Making their balance larger, 2. More likely to receive enforced collection action, such as bank levies, wage garnishments, and seizure of assets, and 3. Not eligible for formal resolution of their balance. Basically, they are trying desperately to defend themselves from all the nasty things the IRS can do to them. When a taxpayer is compliant, it becomes much easier to prevent those dreaded bank and wage levies and actively work to negotiate their balance.
What does it mean to be “in compliance” with tax laws? In short, it means having all tax returns filed and making all necessary current tax payments in full and on time. For a more thorough rundown on compliance, you can read David M. Feldman’s article here.
After making sure you are compliant, the next piece of advice is to be prompt. Be aware that nearly all IRS collection letters and notices seem to appear urgent, demanding, and even threatening. Understand that this is intentional. When taxes are owed, they want to elicit a response to get the debt resolved. You should not panic when you get those letters and notices. However, you should respond to them in a timely fashion. If there is a phone number on the letter or notice, call it and advise them how you are intending to resolve the debt.
Nearly all written collection correspondence from the IRS will give a deadline or date by which to respond. Take note of those dates. If you are communicating with them on or prior to the date on the notice, you will have a better chance at avoiding enforced collection action.
The third piece of advice is, with few exceptions, to be proactive. This actually requires both compliance and promptness. When you know you owe the IRS you want to do everything in your power to work towards getting it paid off, settled or otherwise resolved. If you can afford to full pay the balance, do so (note, though, that you may want to attempt to abate penalties if you are eligible). However, many people cannot fully pay. In that case, watch for mail from the IRS, read it thoroughly, and respond accordingly.
In being proactive, you ought to know your options for resolution. The basic options are: paying in full, a monthly installment agreement, currently not collectible status, and an offer in compromise. There are other means of resolution for the less common situations. In general, though, a balance due to the IRS is likely to be resolved by one of those four options. It is good to know what those options are and which ones you are eligible to pursue.
For example, not everyone is eligible for an offer in compromise. While there are a lot of claims floating around on tv, radio, and the internet about resolving cases for “pennies on the dollar,” most taxpayers do not qualify for such a resolution. If you would like to read more on that topic, our website has a handful of articles on the subject here.
Another part of being proactive is asserting your rights and not allowing the IRS to bully you into something you simply cannot afford. To that end, if you owe a significant amount of money to the IRS, it is advisable to at least speak to a knowledgeable professional in the tax debt resolution field. Attorneys whom can negotiate IRS debt are formally trained in advocacy and negotiations and are likely better suited to fight on your behalf. They are also less likely to be emotionally attached to the case. This, coupled with their expertise in taxpayer rights, makes them far more immune to the bully tactics some IRS agents attempt to employ.
Note that there are a handful of circumstances when certain forms of being proactive can backfire. For example, if you are out of compliance with returns or current tax payments, and are not able to get into compliance relatively quickly, it is possible that being proactive will actually expedite severe consequences such as bank levies, wage levies, receivables levies, and the seizure of assets. If you find yourself in this situation—in collections, out of compliance, and unable to get into compliance soon—I strongly encourage you to immediately seek advice from a tax professional with significant experience to negotiate IRS debt. There are actually a number of methods of “buying time” that might be effective given your circumstances, but this is a dangerous area and not for the do-it-yourselfers. For that matter, this is not an area for most tax professionals, except the ones who have a lot of experience and expertise in tax collections cases.
Finally, I do have one more word of advice: be patient. Remember that you are dealing with the federal government. The IRS does not always move quickly. However, be mindful that once they do start to move on a case, you should be compliant, prompt, and proactive.