How do I Get the Interest & Penalties Removed From a Late IRS Debt?
The Internal Revenue Service has more power than private lenders. Most lenders, to collect on past due debts, sell their accounts to collection agencies. These agencies must often go to the courts to get a judgment. Only then can forcible collection begin. The IRS, though, can begin garnishing wages and levying bank accounts shortly after you become past due on taxes. If you owe any sum to the IRS, you need to open negotiations with them to reduce the amount of fees and penalties.
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Instructions
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Review your income documents first. The IRS will be unwilling to reduce any amount unless you can reasonably prove that you are experiencing a financial hardship. Calculate your debt to income ratio and disposable income (DIR and DI, respectively).
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Divide the sum of all monthly expenses by your total gross monthly income to find your DIR. The IRS will look for a DIR over 50 percent before offering any settlements. To calculate DI, subtract the sum of all monthly expenses from your total net monthly income. The IRS wants to see a DI of less than $300.
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Contact a local IRS agent to open negotiations, not the federal toll-free number. Arrange a sit-down meeting, if possible (see Resources for a list of local IRS offices). Make sure to make copies of the past-due taxes statement, your income documents and any other private expenses (utilities, food and miscellaneous bills). This will help you argue your case.
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Bring a one-time, good-faith payment. The IRS will be unlikely to negotiate a reduced sum unless you show your willingness to begin repayment on the bad debt. Bring this to the meeting.
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Ask for a settlement that eliminates all interest and penalties levied on the tax debt. Also, ask for a reduction on the amount of taxes due. The goal is to eliminate the interest and penalties, but you will likely need to go through a few rounds of offers and counteroffers. Settling on the elimination of penalties is the end result desired. Asking for more--and thereby seemingly making a concession when you reduce your counteroffer--will help secure that settlement.
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Ask for a copy of the settlement in writing. Do not agree to any repayment plan unless it is signed and documented by an IRS agent. Keep this in your financial and tax records. Pay the IRS as agreed--minus the penalties, late fees and accrued interest.
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References
Resources
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
