How to Reduce an IRS Debt Settlement
"Oops! I'll fix that" is usually not good enough when a mistake is made on your Federal taxes. Maybe economic impacts caused short payments on quarterly taxes. Whatever the cause, when the Internal Revenue Service wants money, it usually means taxes owed combined with penalties and interest piled into the debt. Sometimes the amount is substantial. However, there are ways to reduce an IRS debt settlement. The best part is that the services of "pay pennies on the dollar" TV advertisers are not needed. The reality is that the IRS is reasonably helpful in these situations.
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Things You'll Need
- IRS letter notifying you of the taxes owed
- Copies of the tax returns filed for at least two years on either side of the year in question
- Last six months' pay stubs or unemployment payments
- A list of regular monthly expenses, including food, medical, alimony or child support, and "non-essentials" like cable TV, subscriptions, gym memberships
- Paper and pen
- Three-ring binder or folder with posts
- Hole punch
Instructions
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Preparation
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1
Before calling the IRS, be prepared with financial information. Be able to quickly and accurately answer an agent's questions. Whether on a computer form printout or just writing on a page, be sure to note the following information: Date of call, time, length of time on hold, Social Security number(s) of taxpayer(s), IRS agent's name, agent's number, phone number called, agent's extension for calling later, the number or letter of the IRS form received, tax year(s) affected, total debt, total taxes, total interest, total penalties and call-in Personal Identification Number (which is set on the first call). With this information on the top of each page, getting into the conversation is going to be faster. Normally, the agent will begin the call verifying much of this information with you.
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Break the debt into taxes, penalties and interest. Examine the household budget and calculate the maximum monthly payment that can be made. Determine if there is access to capital to pay a lump sum of the debt. Although the IRS wants to collect everything, it is more concerned about the taxes owed than penalties or interest. When considering a payment plan, be willing to surrender non-essential household expenses.
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3
Call the number on the letter. If it is the general IRS number, the best times to call are Tuesday through Thursday in the early afternoon. If it is a collection division, early afternoons are still the best time to call, and waits are usually shorter. Be prepared to take copious notes.
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4
Put the notes from the call(s) into the three-ring binder. It is usually fastest to find information if the newest conversation is the first page. Any special paperwork, receipts or copies should be clipped into the binder behind the notes page for the call in which the data were used.
Conversation
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5
After the preliminaries, explain the situation, accept responsibility, and ask how to resolve the debt. The agent will ask a series of financial questions, and may make an offer in compromise that fits the solution your call preparation defined. If this is the case, there is little else to do except comply with the arrangement. Take detailed notes.
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In situations where the offer is not workable, be prepared to make a counteroffer. Listen carefully to the agent's offer to understand the IRS objective. If anything is not clear, ask for clarification. Take detailed notes. If intransigency seems to be in the conversation, ask for time to do some research and follow-up. Agree upon a date to call again. Mark that date down and honor it.
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7
When you call back, the chances are very high that a different agent will be taking the call. The previous agent is supposed to make detailed notes about the conversation. Using the personal notes in the binder and listening as the new agent reviews prior notes, clear up any discrepancies or misunderstandings before proceeding. Make a counteroffer based on the research and present strong financial and circumstantial reasons why it is the best solution. The objective is to have a plan that covers the taxes owed to the extent possible within a three- to five-year period.
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Once an agreement is reached to reduce the debt, repeat the terms to the agent at least twice. Ask for a confirmation in writing. In addition, prepare a confirmation to be sent to the agent. Keep copies of all correspondence sent and received.
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Tips & Warnings
Humble and circumspect are friendly emotions that work favorably in IRS negotiations.
If an agent is intransigent, ask to speak to the supervisor in a non-threatening manner, such as "I know you are doing the best you are empowered to do, but with my circumstances, can we discuss this with a supervisor to see if there are other options that work for both of us?"
Remember, an agent is an employee at work. Treat agents with respect.
No matter what the frustration level, do not take out personal anger on the agent assisting with the situation.
Make all payments on time. If a payment is to be late, call, explain and ask for a formal extension.
Failure to make payments on time may result in a forfeiture of the arrangement and the full debt becoming due.
Even though an agent may make representations, mistakes can be made, and the IRS is not required to honor information provided in error. Keeping notes may make the negotiator more sympathetic to your position if they are presented without judging competency.
