Tax Negotiation

If You Owe Federal Income Taxes but Cannot Pay

How do you negotiate with the IRS? If the thought sends chills down your spine, relax. There are licensed professionals out there that specialize in helping you resolve your tax dilemmas. Depending on your financial circumstances and how much you owe, you may be able to make payments over time, or pay a reduced amount, either in a lump sum or in installments. In some cases you won’t have to pay taxes at all, at least for now. In some cases, you can have your back tax obligations permanently forgiven

Installment Payment Agreement

If you can afford to make monthly payments to settle your tax obligations, an installment agreement may be the best strategy you can take. However, the IRS may require for you to complete Form 9465: Installment Agreement Request and Form 433-F: Collection Information Statement by mail. However, be careful what you disclose to the IRS as their main purpose is to collect funds for the Department of Treasury.  If you have assets or income, you may want to consider contacting a professional before you submit financials.  In addition, while you are making payments through a payment agreement, don’t look for any tax refunds – they will be appropriated to offset your past due balance.

Partial Payment Settlement Agreement

If you wish to negotiate a partial payment settlement agreement, you will need to submit Form 9465 along with form 433-F and a letter explaining why you are wish to be granted a reduction in your total tax obligation. Of course, you will have to provide financial substantiation, and you may want to consider having this package reviewed prior to submission. If your request is granted, you will make installment payments just as you would with a regular installment payment arrangement.

Offer in Compromise

When you see or hear those ads promising to settle your tax bill for “pennies on the dollar,” the program those ads refer to is the Offer in Compromise. There are three categories under which the IRS accepts Offer in Compromise requests:

  • Doubt as to Liability: The amount of tax assessed is incorrect
  • Doubt as to Collectability: This is the category most often used. The person filing under this category must demonstrate that he or she will likely never be able to pay the full tax obligation due to financial hardship or some other compelling reason.
  • Effective Tax Administration: Requests for relief under this category do not dispute the amount of the tax. Rather, the claim is that collecting the tax would create an injustice. Elderly or disabled taxpayers often use this category.

Traditionally, an Offer in Compromise involved tedious paperwork and long waits while the IRS processed requests. However, in 2011, the Fresh Start program was instituted which will provide additional relief and a more streamlined process under certain conditions.. To request an Offer in Compromise, file Form 656: Offer in Compromise and Form 656-A: Income Certification for Offer in Compromise Application Fee and Payment.  Offer in Compromises have a very low acceptance rate, and you may want to consider hiring a professional to help your chances of success if you feel that you may qualify.

Tax Penalty Abatement

If you are able to pay your full tax obligation, but just want a break on the penalties that have been tacked on, the Tax Penalty Abatement program may provide relief. You must provide a compelling reason for requesting a tax penalty abatement, such as a death in your immediate family, long term unemployment or significant property damage or loss due to a natural disaster. You can request a tax penalty abatement by writing a letter explaining your circumstances, by requesting an in-person interview with a tax professional or by filing IRS Form 843Claim for Refund and Request for Abatement.

Currently Not Collectible Status or Financial Hardship

If you simply cannot pay what you owe to the IRS, you may request that your account be placed in Currently Not Collectible or Financial Hardship status. You will need to provide detailed financial information through Form 433A Collection Information Statement for Wage Earners and Self-Employed Individuals. If your request is granted, you will still owe taxes to the IRS, but collection efforts will be temporarily halted.Your circumstances will be re-evaluated under certain conditions and your stay of collection could be lifted.

Waiting Out the Statute of Limitations

Depending on your circumstances, you may be able to wait out your tax obligations and have them wiped from your record. The statute of limitations for federal income taxes is generally ten years, unless fraud is involved. But calculating the statute of limitations can be tricky. The clock does not begin to run until taxes are assessed by the IRS, and the clock stops temporarily if you file bankruptcy or if you file a dispute or a lawsuit against the IRS. If you intend to take this strategy, you must consult with a tax professional to obtain accurate dates and other essential information.